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PAYMENT OF INTEREST UNDER THE PROVISIONS OF SERVICE TAX |
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PAYMENT OF INTEREST UNDER THE PROVISIONS OF SERVICE TAX |
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Interest is leviable if any tax is paid belatedly. Service tax is of no exception to this. Penalty is also leviable in case of non payment of tax. But interest and penalty are under different footing. Interest is mandatory whereas penalty is at the discretion of the authorities. Interest is somewhat compensatory nature. In 'Prathibha Processors V. Union of India - (1996) 11 SCC 101, the Supreme Court observed - In fiscal statutes, the import of the words interest, penalty etc., are well known. They are different concepts. Tax is the amount payable as a result of the charging provision. It is a compulsory exaction of money by a public authority for public purposes, the payment of which is enforced by law. Penalty is ordinarily levied on an assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute. Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The levy of interest is geared to actual amount of tax withheld and the extent of delay in paying the tax on due date. Essentially, it is compensatory and different from penalty, which is penal in character. Sec. 75 of the Finance Act, 1994 ('Act' for short) provides for payment of interest on delayed payment of service tax. It provides that every person, liable to pay the tax in accordance with the provisions of Sec. 68 or rules made there under, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at such rate not below ten per cent and not exceeding thirty six per cent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette for the period by which such crediting of the tax or any part thereof is delayed. Initially the rate of interest was fixed at 1.5% for every month or part of the month by which such payment was delayed. The Central Government vide Notification No. 26/2004-ST, dated 10.09.2004, has prescribed simple interest @ 13% p.a. to be charged on delayed payment with effect from 10.09.2004. Sec.73B was inserted by the Finance Act, 2006 which provided for payment of interest on amount collected in excess. This section provides that where an amount has been collected in excess of the tax assessed or determined and paid for any taxable service from the recipient of such service, the person who is liable to pay such amount, shall in addition the amount, be liable to pay interest at such rate not below 10% and not exceeding 24% per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette, from the first day of the month succeeding the month in which the amount ought to have been paid under this Chapter till the payment of such amount. In such cases where the amount payable consequent to issue of an order, instruction or direction by the Board under Sec. 37B of the Central Excise Act, 1944, and such amount payable is voluntarily paid in full, without reserving any right to appeal against such payment at any subsequent stage, within forty five days from the date of issue of such order, instruction or direction, as the case may be, no interest shall be payable and in other cases the interest shall be payable on the whole amount including the amount already paid. Hitherto there was no provision under service tax for waiving the amount of interest in any situation. In 'Commissioner of Central Excise, Mangalore V. Woodworth Construction' - 2008 -TMI - 31040 - CESTAT AHMEDABAD the demand of interest was upheld by the tribunal for the simple reason that Sec. 73 of the Act contemplates a situation where both service tax and interest are paid after the lapses are pointed out. It is felt that would not be proper to waive the interest in respect of delayed payment of service tax when there is actually no provision of such waiver. As seen earlier the interest on delayed payment of service tax is mandatory which has been confirmed by tribunals in many a case. In 'Lawson Travel & tours (I) Pvt. Ltd., V. Commissioner of Customs and Central Excise (A), Cochin - 2008 -TMI - 30159 - CESTAT, BANGALORE the appellant came to know that he was liable for the service tax for the previous period he paid the same before the issue of show cause notice. The appellant requested for taking a lenient view as the penalties imposed are very harsh. He challenged the levy of interest also. The tribunal held that as the entire amount of service tax has been paid partly before the issue of show cause notice and party before the adjudication order was issued, imposition of heavy penalties is not warranted. However in terms of Sec. 75 of the Act, interest on delayed payment of service tax is mandatory. In 'Sree Vadivambigai Textile Mills Ltd., V. Commissioner of Central Excise' - 2005 -TMI - 196 - CESTAT (CHENNAI) the demands of interest were made under Sec. 75. The appellants pleaded that their company was declared sick by the BIFR and therefore, leniency should be shown in the matter of demand for interest. The tribunal held that there was no scope for leniency because the provisions of Sec. 75 are couched in mandatory language. Since the appellants had no case that interest was demanded in excess what was prescribed under Sec. 75, company being declared as sick company was no ground for leniency in demand of interest. The rate of interest is prescribed as 'per annum' that means the interest is to be paid for the actual number of days for which the payment was delayed. In 'BPL Mobile Cellular Ltd.,V. Commissioner of Central Excise - 2005 -TMI - 233 - CESTAT (CHENNAI) the tribunal held that where the delay was for part of the month only, interest could be charged for the period of delay alone and not for the full month. Interest cannot be demanded on the tax paid when there was no liability. This has been confirmed by Chennai Tribunal in 'Tebma Shipyards Ltd., V. Commissioner of Central Excise (2006) TIOL 138 (CESTAT-Mad). In 'Commissioner of Central Excise, Tirunelveli V. Sundaram Textiles Ltd.,' - 2008 -TMI - 30789 - CESTAT, CHENNAI the said view has been confirmed. It was only with effect from 16.08.2002 that a person receiving taxable service in India from abroad (where the non resident service provider did not have any office in India) became liable to pay service tax on such service vide Notification No. 12/2002-ST, dated 1.8.2002 which amended Rule 2(1)(d) of Service Tax Rules, 1994 with effect from 16.08.2002. Before 16.08.2002, such recipients had no liability to pay service tax on any service received from a non resident service provider having no office in India. Where there was no tax liability, there was no interest liability either. The mere fact that the respondents might have paid service tax prior to 16.08.2002 even in the absence of tax liability would not make them liable to pay interest on such tax. When the tax amount to be paid is not contested the interest is liable to be paid. In 'National Mining Co. Ltd., V. Commissioner of Central Excise, Dibrugarh - 2008 -TMI - 4385 - CESTAT, KOLKATA the appellants are not contesting the tax amount but they are challenging the levy of interest and penalty on them. The tribunal waived the penalty on considering the circumstances of the case but confirmed that interest is payable as tax liability has not been challenged. Service tax is leviable only on the amount received by the Service provider and not on the amount still due from the parties. However interest as per the rate applicable under Sec. 75 for the delayed period is liable to be paid as held in 'Kanpur Security Services V. Commissioner of Central Excise, Kanpur - 2008 -TMI - 4402 - CESTAT, NEW DELHI). In 'Commissioner of Central Excise V. National Publicity' - (2006) 1 STR 112 (Tri. Del) it was held that no liability of interest where cheque was presented on due date but amount transferred to the Government treasury after the due date. In 'Suri & Co., V. Commissioner of Central Excise' - (2006) 1 STR 31 (Tri. Chennai) it was held that during the period of stay there was no effective provision of law authorizing the levy of service tax, let alone levy of interest thereon, the demand of interest for the said period is unauthorized. In 'Commissioner of Central Excise V. R.K. Swamy, B.B.D.O. Advertising (P) Ltd.,' - (2005) 1 STT 216 it was held that in absence of specific order of the High Court that period covered by stay order was to be excluded for purpose of computing period of delay, appellants were liable for interest for the entire period of delay in payment of service tax. OTHER CASE LAWS: 1. General Manager, BSNL V. Commissioner of Central Excise, Madurai - 2008 -TMI - 4053 - CESTAT CHENNAI In the present appeal, it is stated that, as the short payment of service tax for the disputed period was on account of error in calculation and not by way of suppression and the short paid tax was willfully paid as soon as the error was detected, the lower authorities ought not to have demanded interest on the differential tax. The tribunal held that where an amount of service tax which had to be paid at a given point of time during the disputed period was not paid within the prescribed time and was paid belatedly, the assessee was liable to compensate the Revenue by way of payment of interest. Sec. 76 ibid made it mandatory for the appellants to pay such interest. That appellant had no intention to withhold payment of service tax or that the short payment was occasioned by arithmetical error is no valid consideration in so far as this provision of law is concerned. The liability under Sec. 75 is not penal as stated by the appellants. It is a civil liability which is inescapable. From the records it is seen that the appellants had certain doubts regarding their liability to service tax. It is further seen that the appellants had not collected service tax from the client. In these circumstances the Original Authority himself did not impose penalty under Sec. 78. Taking the facts and circumstances of the case into consideration the tribunal set aside the penalties imposed under Sec. 76 & 77. However the appellant is liable to pay interest on the delayed payment, as the various decisions cited by the appellant relate to central Excise and are not applicable to delayed payment of service tax. The Order-in-original simply imposes penalties under various sections and orders for recovery of the interest without determining the service tax liability of the applicant. The tribunal found that without determination of the tax amount, question of imposition of penalty and recovery of interest does not arise. 4. Febin Advertisers V. Commissioner of Central Excise, Calicut - 2008 -TMI - 3572 - CESTAT, BANGALORE Since the amount had been collected in the form of service tax even without taking out service tax registration the applicants are liable for penalties and interest. Since the service tax amount itself had been held to be not payable by grant of refund of the amount, the question of the appellants being liable to pay interest does not arise. Appellants contended that interest being statutory Foreign Service providers is liable for the same. The High Court found that the foreign service provider is not having office in India. Service tax liability is on service recipient as per the agreement between the appellant and foreign company. Appellant being responsible for tax payment is also liable to pay interesting case of delay.
By: Mr. M. GOVINDARAJAN - October 27, 2008
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