PAYMENT OF SERVICE TAX BY CHEQUES

[Dr. Sanjiv Agarwal]

Rule 7 of Central Government Account (Receipts and Payments) Rules, 1983 provide that government dues which includes taxes, could be credited directly into any authorized bank branch by assessees/taxpayers and that such payments can be made by cash or cheque/draft also.

In case of payment by cheque, the date of presentation of cheque shall be deemed to be the date of payment of tax subject to realization, in such case, the date of presentation of cheque shall be the date on which Service Tax has been paid to the credit of the Central Government provided the cheque is not dishonoured in the course of clearing. (Also refer Circular No. 86/2003-Customs dated 3-10-2003).

In UB Engineering Ltd v. CCE, Rajkot 2010 (4) TMI 459 - CESTAT, AHMEDABAD, it was held that even through according to rule 6(2A), date of presentation of cheque has to be taken as date on which service tax has been paid, since in the instant case, date of presentation of cheque was not available on challan, assessee could not treat the date of cheque as date of presentation of cheque. Since rule 6(2A) reads, 'date of presentation of cheque is date of payment', no fault could be found with assessee for believing that date of presentation of cheque and not date of stamping challan by banks could be taken as date of payment and as such penalty was to be set aside.

Rule 79(1)(a) of the Treasury Rules of Central Government very clearly state that until the cheque is cleared, the Government cannot admit that the payment has been received. In Inland Air Travel Tax (IATT) Sahara Airlines Ltd. [Sahara Airlines Ltd. v. Commissioner of Customs 1999 (11) TMI 293 - GOVERNMENT OF INDIA], the authorities had imposed penalty and ordered for recovery of interest from the assessee where cheques deposited towards payment of IATT were credited to the account of Central Government after the due date of payment. It has been held that a harmonious reading of rules makes it clear that the Government dues can be presented in form of cheque into the authorized bank/branch and if cheque is not dishonoured later, the payment shall be deemed to have been made on the date when the cheque was handed over/tendered/deposited to the Government's bankers. Accordingly, penalty and interest were set aside.

This ratio applies mutates mutandis to the payment of Service Tax also. In case where Service Tax amount has been deposited by an assessee in the authorized bank by cheque before the due date and it is not dishonoured, the department cannot initiate penal proceedings for levy of interest or penalty. But if the cheque is not honoured in due course or the clearing is delayed abnormally for any action/lapse on the assessee's part, the department would be free to take penal action as it may deem fit under the law.

In Eicher Consultancy Services Ltd. v. CCE 2003 (6) TMI 5 - CESTAT, MUMBAI, it was held that the presentation of cheque in the designated bank on the due date, shall be deemed to be the payment on the due date, even when the amount covered by the said cheque is realised a day or two later.

In CCE, Delhi-II v. Sterling Cellular 2004 (8) TMI 672 - CESTAT NEW DELHI, it was held that where cheque of service tax was deposited on due date in bank but amount credited after three days, interest cannot be levied as the cheque was not dishonoured.

In CCE, New Delhi v. Feedback Ventures 2004 (7) TMI 9 - CESTAT, NEW DELHI, where cheque of service tax was presented on due date, not dishonoured by bank and credited in Government account on a later date, it was held that the date of presentation of cheque is the date of payment of service tax as held in case of Genus Overseas Electronics 2003 (3) TMI 1 - CEGAT, NEW DELHI.

In Bharti Cellular Ltd. v. CCE 2001 (12) TMI 357 - CEGAT, NEW DELHI, it was held that where a cheque was not dishonoured, the payment must be deemed to be made on the date on which cheque was deposited with the Government and not on the date on which the cheque was realized.

In Udaan v. CCE, 2005 (10) TMI 23 - CESTAT, MUMBAI, where service tax was deposited in non-designated branch and assessee claimed its transfer to appropriate branch which was so done, it was held that the payment and transfer to be verified and no penalty was called for.

In G.A. Danieli India Ltd v. CCE, Kolkata-IV 2006 (7) TMI 196 - CESTAT KOLKATA, it was held that where the cheque was deposited on the last date of payment and where such cheque is not dishonored later, it would satisfy the requirement of payment of duty.

It has been clarified that as per RBI instructions, when the payment is made either in cash or by the demand draft, the immediate credit has to be taken. However, when a cheque is tendered, the money still remains in assessees account and is not transferred to the bank.

It is only when the cheque is cleared by the clearing house of the bank that the money gets deposited in the bank. Till the date of clearance the money is not credited to the designated bank, i.e., the money is not credited to the Government of India account as provided under Rule 6 of Services Tax Rules. In view of this, the payment of duly by cheque may not be treated as discharge of duty by due date unless the cheque is encashed and the amount is credited in the account of Government of India.

Date of Payment Under Point of Taxation Rules (Rule 2A) (w.e.f. 1.4.2012)

W.e.f. 01.04.2012, date of payment shall be earlier of the following two dates-

1. date on which payment is entered in the books of accounts
2. date on which payment is credited to the bank account of the person liable to pay tax. Date of payment will be the date of credit in bank account when -

1. there is a change in effective rate of tax or when a service is taxed for the first time during the period between such entry in books of accounts and its credit in the bank account; and
2. the credit in the bank account is after four working days from the date when there is change in effective rate of tax or a service is taxed for the first time; and
3. the payment is made by way of an instrument which is credited to a bank account,

Where it is required to determine time or date of payment under any rule, 'date of payment' shall be construed to mean date on which payment is received.