Hyderabad: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, has upheld relief granted to the Northern Power Distribution Company of Telangana (NPDCL), holding that delayed payment surcharges and meter-testing charges collected from consumers are not liable to service tax.A bench comprising technical member AK Jyotishi and judicial member Angad Prasad upheld a 2019 order of the commissioner of Central Tax and Central Excise, Secunderabad, which had dropped the demands raised against the state-run power distribution utility. The final order was pronounced on Sept 11.₹50cr tax demand rejectedThe dispute arose from a show-cause notice dated Oct 22, 2018, covering the period from April 2013 to June 2017.The department alleged that delayed payment surcharges amounting to ₹374 crore, involving a service tax demand of around ₹50 crore, constituted consideration for “agreeing to tolerate an act or situation” under Section 66E(e) of the Finance Act, 1994.It further argued that meter testing, for which a separate fee was collected, constituted an independent taxable service and was not covered by the exemption available for the transmission or distribution of electricity.NPDCL argued that both the delayed payment surcharge and meter-testing charges were levied under tariffs and regulations prescribed by the Telangana State Electricity Regulatory Commission and were not negotiable charges.Surcharge penal, not considerationCESTAT held that the delayed payment surcharge was penal or compensatory in nature and intended to ensure timely payment. It could not be treated as consideration for an agreement by the utility to tolerate delayed payments.The tribunal also held that meter testing was intrinsically linked to electricity distribution and was naturally bundled with the principal service. It therefore shared the same exempt status as electricity distribution.CESTAT further rejected the invocation of the extended limitation period, noting that the department was already aware of the relevant facts through an earlier investigation and show-cause notice. Since no service tax was payable, the tribunal also found no basis for levying interest or penalties.
