2026-VIL-1136-CESTAT-CHD-ST
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SERVICE TAX CESTAT Cases

Service Tax - Taxability of Late Payment Surcharge on Electricity Supply – Respondent is a power generation company collected late payment surcharge from distribution companies for delayed payment of electricity bills beyond the prescribed due date in accordance with Power Purchase Agreements and Central Electricity Regulatory Commission Regulations - Revenue authority sought to levy service tax on such surcharge as a declared service under Section 66E(e) of the Finance Act, 1994 - Whether late payment surcharge collected for delayed payment of electricity bills constitutes a taxable declared service under Section 66E(e) of the Finance Act, 1994, or forms an integral component of the exempt electricity supply – HELD - The late payment surcharge is not a separately taxable service but an integral and ancillary component of the principal supply of electricity, which is exempt from service tax under the negative list regime. The electricity generation and distribution is a goods supply exempted under Section 66D(f) of the Finance Act, and late payment surcharge is intrinsically linked to electricity supply with no independent existence. The CBIC Circular No. 214/1/2023-ST dated 28.02.2023 and Circular No. 178/10/2022-GST dated 03.08.2022, clarify that late payment charges constitute facilities naturally bundled with the main supply and must be assessed as part of the principal supply – Further, prior to the negative list regime, various Circulars issued by the Board itself clarified that late payment surcharges are penal in nature for losses caused by delayed payment and do not represent any service provided by one person to another. There is no artificial bifurcation of activities; rather, late payment surcharge is a composite supply integrated with electricity delivery such that without electricity supply there would be no surcharge - The order-in-original dropping the entire service tax demand on late payment surcharge is upheld and the Revenue appeal is dismissed
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