The Delhi Bench of Customs,Excise and Service Tax Appellate Tribunal (CESTAT) ruled that service tax is not payable on Delayed Payment Charges (DPC) recovered by a stock broker from clients for late payments.

SMC Global Securities Limited,appellant-assessee,acted as a stock broker facilitating trades between clients and stock exchanges. When clients failed to pay on time, the appellant settled the dues with the exchange and later recovered the amount from clients with 18% interest, termed as DPC.

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The appellant paid service tax on brokerage income, but a dispute arose over taxability of DPC. The Department treated DPC as consideration for tolerating delayed payment under Section 66E(e) of the Finance Act, 1994.

A show cause notice dated 03.04.2018 was issued for the period 01.07.2012 to 30.06.2017, demanding ₹9.18 crore. The adjudicating authority confirmed a reduced demand of ₹5.70 crore along with interest and penalty, after allowing limitation and cum-tax benefit. The assessee challenged this before the tribunal.

Also Read:Delay Payment Charges Not Taxable as Declared Service Under Section 66E(e): CESTAT [Read Order]

The two member bench comprising Binu Tamta (Judicial Member) and Hemambika R.Priya (Technical Member) heard both sides and examined the records. The issue in question was whether service tax could be levied on DPC under the category of 'Stock Broker Services'.

The Authorised Representative agreed with the assessee’s counsel that this issue was already settled by several decisions of the tribunal, affirmed by the Supreme Court.

The assessee had made payments to stock exchanges on behalf of clients who delayed settling dues and subsequently recovered such amounts with interest (DPC) by debiting client ledgers. The appellate tribunal consistently held that such recovery was not a consideration for any service rendered and therefore could not be taxed. It was also clarified that this activity did not fall under the declared service category of ‘tolerating an act’ under Section 66E(e).

Citing precedents such as South Eastern Coalfields Ltd., affirmed by the Supreme Court, the tribunal reiterated that penalty or interest clauses meant to safeguard commercial interests could not be construed as taxable services.

In light of the settled legal position, the CESTAT found the impugned order unsustainable and set aside the service tax demand on DPC.

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