TaxTMI 
TaxTMI 
2026 (7) TMI 93
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....learned Adjudicating Authority * Tax Demand Rs.101,00,08,680/- u/s 73(1) of the Finance Act, 1994 * Interest as applicable u/s 75 * Penalty u/s 77(2) * Penalty u/s 78 2. Briefly stated facts of the present case are that the Respondent M/s NHPC Limited (in short 'NHPC') were engaged in generation and supply of electricity, and were registered with the Service Tax Department. The electricity so generated by the Respondent via thermal, hydro, nuclear and renewable energy sources in all the plants, is supplied to distribution companies ('DISCOMs') situated all over the country. 2.1 Intelligence gathered by the officers of Directorate General of GST Intelligence ('DGGI'), Jaipur Zonal Unit indicated that the Respondent in accordance with a Power Purchase Agreement ('PPA') executed with DISCOMs for production and supply of electricity, had received substantial amount, over and above charges for actual supply of electricity from DISCOMs, but had not paid service tax on the same, which appeared liable for payment of service tax as the Respondent had provided taxable services falling under the category of declared service, as defined under clause (e) of Section 66E of the ....
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....ore, in all such cases, it appeared that the NHPC tolerated the act of wilful default in payment by their customers and received compensation by way of 'Late Payment Surcharge' towards their act of tolerance or forbearance vis-à-vis the said default in payment. Therefore, the 'Late Payment Surcharge' appeared to be actually pre-quantified damages pursuant to contractual obligation in respect of the parties to the contract. Therefore, in wake of above facts & circumstances, the quantum of damages, though named as 'Late Payment Surcharge', had been pre-quantified as per PPA entered between NHPC and their customers, the nature of the same appeared to be nothing else but 'consideration' for tolerance of the act of default in paying the monthly bill amounts before the prescribed due dates. 2.7 On the above said allegations, a Show Cause Notice dated 22.10.2018 was issued for demand and recovery of service tax amounting to Rs.101,00,08,680/- under Section 73(1) of the Finance Act, 1994, along with interest under Section 75 of the Act and penalties under Sections 77(2) & 78 of the Act. 2.8 The Respondent filed a detailed reply to the said Show ....
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.... CGST Act, 2017 on the following grounds: (A) There is no dispute on the issue that both the activities of Distribution & Transmission and retail supply of Electricity are exempted from service tax as 'Electricity' is treated as goods. However, the amount collected by NHPC as Late Payment Surcharge ('LPS') against supply of electricity is nothing but 'consideration' towards tolerating certain act of their customers, which is leviable to service tax under the category of "declared service" in terms of Section 66E(e) of the Finance Act. (B) The case laws relied upon by NHPC before the Adjudicating Authority pertains to issues relating to taxability of interest, late fee and penalty charged for delayed payment, whereas the issue in the present case is quite different. (C) The relevant Show Cause Notice dated 22.10.2018 has alleged that service tax is chargeable on the services provided by NHPC to DISCOMs by not acting according to the process prescribed under the Agreement mutually agreed upon that if the bills are not paid by Bulk Power Customer to NHPC within 60 days from the date of billing or required letters of credit/Payment Security Me....
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....tion 66D of the Act (Negative List), provided they satisfy the definition of "service" in terms of Section 65B(44) of the Finance Act, 1994. He also refers to the definition of "service" as prescribed under Section 65B(44) of the Act and submits that the definition of "service" includes declared service which is defined in Section 65B(22) of the Act as under: "declared service" means any activity carried out by a person for another person for consideration and declared as such under Section 66E". He also refers to the relevant entry of Section 66E of the Act, as reproduced herein below: "66E(e) - agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act." He further submits that entry 66E(e) of the Act may be split into following components: i. Agreeing to the obligation to refrain from an act. ii. Agreeing to the obligation to tolerate an act. iii. Agreeing to the obligation to tolerate a situation. iv. Agreeing to the obligation to do an act. He further submits that the above four clauses indicate a basic structure, a request to refrain/tolerate/do and a corresponding agr....
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.... excisable 'goods' as specified in First Schedule of Central Excise Tariff Act, 1985 under Chapter Sub-Heading 27160000 and also held by the Hon'ble Supreme Court in the case of State of A.P. vs. National Thermal Power Corporation Ltd & others - 2022-TIOL-107-SC-CT. 5.2 He further submits that the issue involved here is no longer res integra as stands clarified vide CBIC's Circular No. 214/1/2013-ST dated 28.02.2023 in favour of the Assessee, vide which the CBIC has issued a clarification on the scope of Section 66E(e) of the Finance Act, wherein detailed Circular No. 178/10/2022-GST dated 03.08.2022 issued under GST Regime has been adopted/referred for Service Tax Regime as well. The Circular dated 03.08.2022 discusses scope of entry "Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act" at length, i.e., the entry under which the Appellant-Revenue intends to cover the late payment surcharge received by the Respondent-Assessee allegedly holding these charges to be taxable under Service Tax. 5.3 He further submits that late payment surcharge or fee is a facility granted by the supplier naturally bundled with the main supply; i....
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....v. Additional Director General (Adjudication) New Delhi - 2025 (3) TMI 574 - CESTAT NEW DELHI * IIFL Holding Ltd. v. Commissioner of CGST & Central Excise - (2024) 17 Centax 272 (Tri. - Mum.) * M/s South Eastern Coalfields Ltd. v. Commissioner of Central Excise and Service Tax, Raipur - 2020 (12) TMI 912 - CESTAT NEW DELHI 5.8 He also refers to the Rule 6 of Service Tax (Determination of Value) Rules, 2006 which provides the charges which are included or excluded from the value of taxable services provided or to be provided; sub-rule (2) thereof provides for various charges which are excluded from the value of any taxable service and specifically includes "interest on delayed payment of any consideration for the provision of services or sale of property, whether movable or immovable" under clause (iv). Further, he submits that by virtue of Rule 6(2)(iv) ibid, no service tax liability can be imposed on delayed payment surcharge received by the Respondent. 6. We have considered the submissions made by both the parties and have also perused the impugned Order-in-Original as well as the various case-laws relied upon by both the parties. 7. We note that the ma....
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....03.08.2022, we find that Late Payment Surcharge or Fee is a facility granted by the supplier naturally bundled with the main supply. It is an ancillary supply naturally bundled and supplied in conjunction with the principal supply, and therefore should be assessed as the principal supply. 11. We also find that prior to the negative list regime, i.e. prior to 01.07.2012, there were various circulars issued by the CBIC, which clarified that Late Payment Surcharges are in the nature of penal charges for loss caused due to delayed payment by the customer. In this regard, we may refer to clarification issued vide Circular No. 96/7/2007-ST dated 23.08.2007 and Instruction No. 137/25/2011-ST dated 03.08.2011. 12. Further, we find that the issue of taxability of Late Payment Surcharge is no more res integra and has been settled by various benches of the Tribunal in favour of the Assessees in the case-laws relied upon by the Respondent-Assessee (as cited in para 5.7 above). In this regard, we may refer to the decision of the Principal Bench in the case of Madhya Pradesh Poorva Kshetra Vidyut Vitran Co. Ltd. vs. Pr. Commr. of CGST & CE, Bhopal (supra), wherein the Tribunal has consider....
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.... not exigible to service tax. 12. The first question that arises for consideration is whether services relating to transmission and distribution of electricity fall within the ambit of clause (k) of section 66D of the Finance Act and, are therefore, exempt. In this regard, it may be noted that prior to the coming into force of the negative list regime, goods and services were exempted by virtue of notifications issued in exercise of powers under sub-section (1) of section 93 of the Finance Act. By virtue of Notification No. 11/2010 dated 27.2.2010, the Central Government exempted transmission of electricity from the whole of service tax leviable thereon under section 66 of the Finance Act; and by virtue of Notification No.32/2010-Service Tax dated 22.6.2010, distribution of electricity came to be exempted from the whole of service tax leviable thereon under section 66 of the Finance Act. Thus, what was exempt under those provisions was transmission and distribution of electricity, despite which, during the pre-negative list regime, the respondents have considered services related to transmission and distribution of electricity as exempted from service tax by virtue of thos....
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....lso stands rescinded. What is lost sight of is that the clarification was only in respect of electric meters, whereas all related services were included within the ambit of transmission and distribution of electricity and given the benefit of the exemption notifications. Moreover, the clarificatory circular merely clarifies the stand of the Government as regards what would stand included within the meaning of "transmission and distribution services" namely, essential activities having direct and close nexus with the transmission and distribution of electricity. The respondents having themselves considered the services in question as being covered by the exemption for transmission and distribution of electricity as such services were essential activities having a direct and close nexus cannot be now permitted to take a U-turn and seek to exclude such services without pointing out any specific change in the nature of the exemptions, except that they are provided under different statutory provisions. In the opinion of this court, the meaning of "transmission and distribution of electricity" does not change either for the negative list regime or the GST regime. If that be so, the servi....
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.... services as part of the main service of transmission and distribution of electricity for the pre-negative list regime. Apart, therefrom, considering this issue independently, reference may be made to certain provisions of the Electricity Act. Sections 43 and 45 of the Electricity Act. 22. Thus, any line which is used for carrying electricity for any purpose as well as any apparatus connected to any such line for the purpose of carrying electricity is mandatorily required to be provided to the consumer by the licensee. Moreover, any plant, equipment, apparatus or appliance or any part thereof used for, or connected with, the generation, transmission, distribution or supply of electricity, except for electric meter and any electrical equipment, apparatus or appliance under the control of a consumer fall within the ambit of electrical plant as defined under section 2(22) of the Electricity Act. Subsection (2) of section 43 of the Electricity Act casts a duty upon the licensee to provide if required electric plant or electric line for giving electric supply to the premises. Therefore, providing electric line and electric plant are elements of service which are naturally bundl....