Facts of the Case

This case concerns Service Tax under the Finance Act, 1994 — a pre-GST levy — though the dispute was litigated and decided after GST's introduction, and draws on a GST-era Supreme Court precedent. NTPC Limited challenged a show-cause-cum-demand notice dated 29.12.2020 issued by the Additional Director General, DGGI, Coimbatore, demanding Rs. 2,353,44,05,056 (about Rs. 2,353 crore) in service tax. The demand had three components: Rs. 2,219,37,54,106 on capacity charges, Rs. 133,23,97,621 on late payment surcharge, and Rs. 82,53,329 on ocean freight for transportation of coal. Penalty was also proposed under Sections 78 and 77(2) of the Finance Act, 1994. NTPC also sought to challenge Notification No. 22/2014-ST and certain provisions of the Place of Provision of Service Rules, 2012 as ultra vires.

Issues Involved

  1. Whether the service tax demand on ocean freight was sustainable in light of judicial precedent striking down such levies.
  2. Whether the demand on capacity charges and late payment surcharge was sustainable in light of a subsequent CBIC circular clarifying their tax treatment.
  3. Whether the show-cause notice, issued before the CBIC circular of 03.08.2022, should be set aside and the matter remitted for fresh consideration.

Petitioner's Arguments

  • The levy of tax on ocean freight had already been struck down by the Gujarat High Court in Sal Steel Ltd. and in Mohit Minerals Pvt. Ltd. (upheld by the Supreme Court in Union of India v. Mohit Minerals Pvt. Ltd., 2022 SCC OnLine SC 657).
  • The demand on capacity charges and late payment surcharges was, prima facie, covered by a CBIC circular dated 03.08.2022, which clarified that fixed capacity/minimum charges for electricity are not separately taxable as they form part of the composite supply of electricity (which is exempt from GST).
  • The petitioner would be satisfied if the show-cause notice were set aside and the matter relegated to the respondent for issuance of a fresh notice, taking the circular into account.

Respondent's Arguments

  • No detailed contest is recorded beyond defending the original demand; the Department's counsel did not dispute that the CBIC circular of 03.08.2022 postdated the original show-cause notice.

Court Order / Findings

  • The Court noted that the CBIC circular dated 03.08.2022 was issued after the show-cause notice of 29.12.2020, so the issuing authority did not have its benefit at the time.
  • It accepted the course proposed by the petitioner: setting aside the show-cause notice and remitting the matter for a fresh notice, if the Department chose to issue one, taking into account the circular, the Sal Steel Ltd. ruling, and the Mohit Minerals decision.
  • The Court clarified that the time from 29.12.2020 till date of any fresh notice would be excluded for computing limitation.

Important Clarification

Although decided under the pre-GST Finance Act, 1994 (Service Tax), this ruling is directly useful for GST practitioners dealing with the taxability of fixed/capacity charges and late-payment fees bundled with the principal supply of electricity, since the CBIC circular discussed applies the 'naturally bundled' principle relevant under GST's composite-supply framework as well. It also illustrates that GST-era Supreme Court rulings (like Mohit Minerals on ocean freight) can carry over to closely related legacy Service Tax disputes.

Sections Involved

  • Finance Act, 1994 — Sections 66B, 70, 73(1) proviso, 77(2), 78 (the operative Service Tax charging and demand provisions).
  • Place of Provision of Service Rules, 2012 — Rule 2(1)(d)(EEC) and Rule 10.
  • Service Tax Rules, 1994 — Rule 3.
  • Notification No. 22/2014-ST dated 16.09.2014 — the exemption/levy notification challenged.
  • CBIC Circular dated 03.08.2022 on GST treatment of late payment surcharge and capacity charges.

Decision – In Favour of

Decided in favour of the petitioner, NTPC Limited; the show-cause notice was set aside, though the Department retains liberty to issue a fresh notice consistent with the circular and precedent, so the underlying tax question was not finally closed in NTPC's favour.

Case Details

  • Court: High Court of Delhi at New Delhi
  • Case No.: W.P.(C) 9975 of 2021
  • Coram: Hon'ble Mr. Justice Vibhu Bakhru and Hon'ble Mr. Justice Amit Mahajan
  • Date of Decision: 1 November 2023

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