Excise duty and sales tax on interest component

Aashish (Querist) 16 June 2014 This query is : Resolved
Experts kindly advise on the following query:

A manufacturing company is selling a product to its customer on 45 days credit. The customer at the time of supply of goods itself has asked for 90 days of credit stating the company can charge interest for balance 45 days and has asked for proforma invoice from the company.

So on the value of goods excise duty and sales tax is charged (Since customer belongs to different state CST is levied). on the arrived value, the company is calculating interest @12% for 45 days.

My question is whether on the interest component also sales tax and excise duty to be charged.

Kindly advise.

Please quote the relevant provision or the case law.

Thanks in anticipation.

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krishna mohan (Expert) 18 June 2014
Interest is to cover your financial cost and not forming part of your manufacturing process and hence no ST can be charged. For interest you can raise debit note as normally done. However you may consult local CTO or a tax consultant in this regard before raising any invoice with interest component.