2026-VIL-1611-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax - Taxability of delayed payment surcharges and meter-testing charges collected by electricity distribution utility - Notice proposing service tax on delayed payment charges as consideration for agreeing to tolerate an act or situation under Section 66E(e) and on meter-testing charges as an independent service under Section 65B(44) - Whether additional surcharges collected for delayed payment of electricity bills are taxable consideration for a declared service under Section 66E(e) of Finance Act - HELD - The scope of exemption available to electricity transmission and distribution utilities under Section 66D(k) extends not only to the principal service of distribution but also to all activities having direct and close nexus with transmission or distribution of electricity when naturally bundled with the principal service under Section 66F(3) - For Section 66E(e) to apply, there must be an agreement express or implied under which one party assumes obligation to tolerate an act or situation and consideration is paid for such tolerance. A mere flow of money consequent upon breach or default is not sufficient - Delayed payment surcharge is imposed only upon failure to comply with the statutory obligation to pay electricity bills by due date. Its object is to secure timely payment and discourage default. Neither consumer desires to purchase service of tolerance nor does respondent undertake delayed payment as activity for consumer. Continuation of electricity supply in accordance with Electricity Act cannot be regarded as agreement to tolerate delayed payment. Surcharge bears direct nexus with electricity bill and is collected as part of mechanism for recovery of charges for distribution - Delayed payment surcharges are not taxable as consideration under Section 66E(e). Meter-testing charges are directly connected and naturally bundled with distribution of electricity receiving same tax treatment as principal service. Extended period of limitation is not available. No interest or penalty is recoverable – The impugned dropping proceedings is upheld and Revenue appeal is dismissed - Whether meter-testing charges constitute an independent taxable service or form part of the exempted service of distribution of electricity under Section 66D(k) – HELD - Testing of meter is not unrelated consultancy service but undertaken in capacity as distribution utility in furtherance of statutory functions. Essential character of activity is not altered by fact that separately prescribed fee is recovered. Separate pricing and separate accounting does not result in separate taxable service when activity naturally bundled with and ancillary to principal service.
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