2019 (1) TMI 418 - AAR - GST

Levy of GST - Transmission or Distribution of electricity by an electricity transmission or distribution of electricity utility with respect to the Delay Payment Charges recovered by the applicant from its consumers - Entry no. 25 of notification 12/2017- Central Tax (Rate) Dated 28/06/2017 - applicable rate of tax - HSN/SAC code for Delayed Payment Charges - Held that - The Delayed payment surcharge is a part of Tariff prescribed by MPERC. The Company recovers the said charge at rates fixed by the Authority. The Delayed Payment Surcharge is billed to consumer when the bill is paid by the consumer after the due date mentioned in the bill. The Delayed Payment Surcharge may be mentioned in the bill as Surcharge on Outstanding Amount or Late Payment Surcharge. Thus the nature of the service is interest/ late fee/ penalty for delayed in payment of consideration. As per the provision of Section 15(2)(d) of CGST Act, 2017 and MPGST it is clear that any amount recovered in the name of interest or late fee or penalty tor delayed payment of any consideration for any supply, than same shall be included in the value of such supply - the component of interest and delayed payment charges are obviously having a direct relation with the value of supply to which such interest/delayed charges relate. These are in fact components of the value of supply and do not have any independent status. The applicant is recovering delay payment charges not only towards supply of electrical energy as goods, supply Transmission/distribution of electricity service as an electricity distribution utility which are exempted, but also towards charges like metering charges and others which are taxable as per Circular No. 34/8/2018-GST, Dated - 01st March 2018 - in the instant case the supply in question is set of both, exempted (i.e., distribution & Transmission, retail supply of Electricity) and taxable supply (i.e., the other services as per circular no. 34/8/2018- GST, dated - 01st March, 2018). The Delayed payment surcharge cannot be treated as separate service and same shall be included in the value of initial service. Thus, portion of Delayed payment surcharge attributable to exempted supply shall be exempted and portion of Delayed payment surcharge attributable to taxable supply shall be taxable. Ruling - The Delayed payment surcharge/ Late Payment Surcharge/ Surcharge on outstanding amount (by whatever name called) cannot be treated as separate service and same shall be included in the value of initial supply to which such charges relate, and the portion of Delayed payment surcharge attributable to exempted supply will be exempted and the portion of Delayed payment surcharge attributable to taxable supply is taxable at the rate on which the corresponding supply is taxed.

Summary

Issues Involved:
1. Eligibility for GST exemption on Delay Payment Charges under Entry no. 25 of Notification 12/2017-Central Tax (Rate).
2. Applicable rate of tax and HSN/SAC code for Delay Payment Charges if exemption is not applicable.

Issue-wise Detailed Analysis:

1. Eligibility for GST Exemption on Delay Payment Charges:
The applicant, a public sector undertaking engaged in the distribution and supply of electricity, sought clarification on whether Delay Payment Charges collected from consumers fall under the GST exemption for "Transmission or Distribution of electricity by an electricity transmission or distribution utility" as per Entry no. 25 of Notification 12/2017-Central Tax (Rate) dated 28/06/2017.

The applicant argued that since they are a power distribution utility under the Electricity Act, 2003 and the Delay Payment Charges are part of the tariff prescribed by the Madhya Pradesh Electricity Regulatory Commission (MPERC), these charges should be exempt from GST. They referenced the exemption provided under Notification No. 12/2017, which states that the transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST.

However, the concerned officer from the Department contended that as per Section 15(2)(d) of the CGST Act, 2017, the value of supply includes interest or late fees or penalties for delayed payment of any consideration for any supply. Therefore, Delay Payment Charges should be taxable at 18% under HSN/SAC code 9969.

The authority noted that the Rajasthan Authority for Advance Ruling had previously ruled that Delay Payment Charges are taxable. However, the Rajasthan Appellate Authority for Advance Ruling later ruled that no GST is chargeable on Delay Payment Charges collected for the delay in payment of consideration for the supply of electricity, as the main supply (electricity) is exempt.

2. Applicable Rate of Tax and HSN/SAC Code for Delay Payment Charges:
The authority examined the nature of Delay Payment Charges, concluding that these charges are a part of the tariff prescribed by MPERC and are billed to consumers when payments are made after the due date. As per Section 15(2)(d) of the CGST Act, 2017, any amount recovered as interest, late fees, or penalties for delayed payment of any consideration for any supply should be included in the value of such supply.

The authority observed that Delay Payment Charges are directly related to the value of the supply to which they relate and do not have an independent status. Therefore, these charges should be included in the value of the initial supply. The ruling clarified that the portion of Delay Payment Charges attributable to exempted supplies (such as distribution and transmission of electricity) will be exempt, while the portion attributable to taxable supplies (such as metering charges and other services) will be taxable at the applicable rate.

Ruling:
The authority ruled that Delay Payment Charges cannot be treated as a separate service and must be included in the value of the initial supply. The portion of Delay Payment Charges attributable to exempted supplies will be exempt from GST, while the portion attributable to taxable supplies will be taxable at the rate applicable to the corresponding supply.

This ruling is subject to the provisions under Section 103(2) until declared void under Section 104(1) of the GST Act.