The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that India Infoline Limited (IIFL) is not liable to pay service tax on delayed payment charges (DPC) collected towards credit facilities.
The bench of Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) observed that the adjudicating authority having ignored the department‟s own circular about the collection of delayed payment charges (DPC) has wrongly held the amount to be the consideration for providing a separate activity. It has absolutely been ignored that there was only one contract of appellant with their client for sale/purchase of security and the said contract itself talked about penal charges to have been collected from the clients in case the payments are delayed. DPC are wrongly held to be taxable. Demand is held to have been wrongly confirmed.
The appellant, India Infoline Ltd (IIFL) engaged in providing Stock Broker Agent Service to their clients relating to the facilitation of sale or purchase of securities/stocks on Stock Exchanges by their clients against a consideration/brokerage at the, agreed terms for their clients. The appellants were found discharging their service tax liability on this brokerage income.
However, during investigation conducted based on intelligence received in DGCEI, the department observed that the appellants were receiving consideration from their clients as Delayed Payment Charges towards extending credit facilities, however, were not paying service tax on the said amount.
Based on the insertion with effect from 01.07.2012 to Rule 6(1) of Service Tax (Determination of Value) Rules, 2006, department found an opinion that the service of extending credit facility is an activity distinct from the stock broker service. Thus, the “Delayed Payment Charges” is the consideration for provision of this separate service/activity of extension of credit facility.
Department alleged that the appellant’s claim about DPC being levied against default made by the client and not for any other activity being carried out by the appellant, was allegedly baseless and the appellant was held liable to pay service tax on the DPC.
IIFL contended that the DPC have wrongly alleged to be a consideration against separate activity/service. The appellant has paid service tax on the brokerage income earned by it for rendering the stock broker agent service. Learned counsel further submitted that it is the mandate for the stock broker to make a payment to stock exchanges for the purchases done by the client on the settlement date itself. Hence the clients are required to make the payment to the stock brokers of the amount due from them for purchase of securities before the settlement date.
IIFL stated that it is to manage the risk of payment on or before the settlement date that the stock brokers levies interest/DPC on the amount due from the client/purchasers if such client fails to make the payment of its dues to the appellant on or before the time limits provided by the stock exchanges/SEBI. The DPC are the charges not levied if the client/purchasers makes the payment of dues within the prescribed limit. Hence DPC are wrongly alleged to be includible in taxable value. It is further submitted that the appellant has not collected any amount of service tax from the clients on the said DPC.
The tribunal noted that the payment of outstanding amount to the stock exchange on behalf of the clients is the part of service relating to stock broker service which gets completed when the transaction for the same are finally settled. The amount of DPC are not collected from all the clients to whom the stock broker service are rendered by the appellant. These amounts are being collected only from those clients who have not paid the appellant within the time limit and the appellant being under a legal contract with the exchange, had to deposit the value of securities sold/purchased by their clients as such.
The tribunal while allowing the appeal held that the DPC shall be directly debited to the account of the client at the end of every month. This is only a penal measure and brings in discipline in the clients to clear the dues in time as appellant had SSIFL begin to clear its obligation to the exchange as per time limits prescribed by exchanges.
Case Details
Case Title: M/s India Infoline Limited Versus Additional Director General (Adjudication) New Delhi
Case No.: Service Tax Appeal No. 53305 of 2018
Date: 10/03/2025
Counsel For Petitioner: Pritesh Mehta, Chartered Accountant
Counsel For Respondent: Rohit Issar, Authorized Representative
