2004 (8) TMI 604 - Commissioner - Service Tax

Issues Involved:
1. Methodology of finalizing provisional assessment.
2. Justification of demand for differential tax based on 'tax collected' vs. 'tax payable'.
3. Applicability of interest under Section 75 of the Finance Act, 1994.
4. Validity of interest imposition for belated payment of service tax for March 1995.
5. Applicability of interest on provisional assessments ordered before 1-7-2001.

Detailed Analysis:

1. Methodology of Finalizing Provisional Assessment:
The dispute emanated from the finalization of provisional assessments where the Lower Adjudicator adopted a methodology based on the tax collected vis-a-vis tax provisionally paid. The appellants argued that the tax payable should be the basis for final adjustment, not the tax collected. The judgment highlighted that the Department's approach of demanding differential tax based on 'tax collected' was not sanctioned by law during the relevant period.

2. Justification of Demand for Differential Tax Based on 'Tax Collected' vs. 'Tax Payable':
The appellants contested the demand of Rs. 29,73,070/- as short payment of service tax for the period from 1994-95 to 1999-2000, arguing that there was an excess payment of Rs. 26,10,928/-. The judgment clarified that under Rule 6(4) of the Service Tax Rules, 1994, the final assessment should be based on 'tax payable' rather than 'tax collected'. The Central Excise Rules applicable to provisional assessments mandated that the duty provisionally assessed should be adjusted against the duty finally assessed, which refers to the tax actually due or payable in law.

3. Applicability of Interest under Section 75 of the Finance Act, 1994:
The Lower Authority imposed interest of Rs. 84,99,244/- under Section 75 for short payment of service tax. The appellants argued that Section 75 applies only when there is a failure to credit tax within the prescribed period, which presupposes a finalized assessment. Since the assessments were provisional, Rule 6(4) of the Service Tax Rules, 1994, which did not contain a mechanism for charging interest on finalization, should prevail. The judgment concurred, stating that the demand for interest was not sustainable as the interest clause under Rule 7 of the Central Excise Rules, 2001, was prospective and applicable only to provisional assessments ordered on or after 1-7-2001.

4. Validity of Interest Imposition for Belated Payment of Service Tax for March 1995:
The Lower Authority imposed interest of Rs. 9,18,536/- for the delayed payment of service tax for March 1995. The appellants contended that the cheque was deposited on time, and the delay was due to bank processing. The judgment referenced clarifications and precedents indicating that if a cheque is deposited before the due date, it should be considered timely payment. Consequently, the imposition of interest was deemed incorrect and set aside.

5. Applicability of Interest on Provisional Assessments Ordered Before 1-7-2001:
For appeals concerning the periods 2000-2002 and 2002-2003, the Lower Authority invoked Section 75 for interest imposition. The judgment reiterated that the interest clause related to provisional assessments was prospective and applicable only to assessments ordered on or after 1-7-2001. Since the provisional assessments in question were ordered on 24-7-1996, the interest imposition was not justified.

Conclusion:
The impugned orders were set aside, and the appeals were allowed. The judgment emphasized that the correct methodology for finalizing provisional assessments should be based on 'tax payable' rather than 'tax collected' and that interest provisions under Section 75 were not applicable to provisional assessments ordered before 1-7-2001.

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