The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, has upheld the relief granted to Northern Power Distribution Company of Telangana (NPDCL), concluding that delayed payment surcharges and meter-testing charges collected from electricity consumers are not subject to service tax.
A bench comprising Technical Member A.K. Jyotishi and Judicial Member Angad Prasad upheld the 2019 order passed by the Commissioner of Central Tax and Central Excise, Secunderabad. The tribunal pronounced its final order on September 11, 2026.
The proceedings originated from a show-cause notice issued on October 22, 2018, covering the period from April 2013 to June 2017. The tax department had treated delayed payment surcharges collected by NPDCL as consideration for an activity falling under the taxable category of “agreeing to tolerate an act or a situation” under Section 66E(e) of the Finance Act, 1994.
The department had quantified delayed payment surcharges at approximately ₹374 crore and proposed a service tax liability of nearly ₹50 crore. It also disputed the treatment of separate charges collected for meter testing, contending that such testing constituted an independent taxable service outside the electricity-related exemption.
NPDCL maintained that both categories of charges were imposed under the applicable electricity tariff and regulatory framework prescribed by the Telangana State Electricity Regulatory Commission. According to the utility, the charges were statutory or regulatory in nature and were not amounts negotiated independently with consumers.
CESTAT ultimately sustained the earlier adjudication order that had dropped the proposed demands, thereby providing relief to the state-owned electricity distribution company. CASansaar