Over due Interest received from customer

[Vivek anandhan]

Dear Expert

We are the manufacturer of excisable goods. Our payment terms with customer is on or before despatch of goods. But some of our customer making payment after despatch of goods. However we are collecting Interest through debit note for the days from the despatch of goods.

My question is whether we need to pay duty/tax for the interest amount received from customer for overdue payments.

Regards

Vivekanandhan

[Rajagopalan Ranganathan]

Sir,

What you are collecting is interest on receivables. Payment of such interest is by reason of late payment and not by reason of sale. Therefore you need not pay any duty on such interest recovered by issue of debit note.

[Ganeshan Kalyani]

Sir, I endorse the views submitted by Sri Rajagopalan Sir. Excise duty is not applicable. Service tax is not applicable. Thanks.

[Vivek anandhan]

Sir, Noted and thanks

AI Summary

Interest on overdue payments not treated as sale consideration, therefore not liable to excise or service tax. Recovery of interest by debit note for delayed payment is interest on receivables arising from late payment and not part of the sale consideration; such interest is not subject to excise duty and is likewise not chargeable to service tax when it merely compensates for delayed payment rather than constituting consideration for a taxable service.