2016 (8) TMI 42 - AT - Service Tax

Demand on interest on delayed payment of service tax - period of limitation - they were paying service tax under provisional assessment as per Rule 6(4) of Service Tax Rules, 1994 - Held that - During the disputed period, the appellant has deposited more service tax than provisional assessment. But still it was less than the actual liability and further, interest cannot be demanded under Section 75 of Finance Act, 1994, because the appellant is not liable to pay interest in accordance with the provisions of Section 68 of the Finance Act, 1944 and the Rules made there-under i.e. Rule 6(4) which is made under Section 68 of the Act. The period of limitation applies to the claim for principle amount and also applies to the claim for interest thereon. Demand of interest set aside - Decided in favor of assessee.

Summary

Issues:
1. Upholding of interest demand under Section 75 of Finance Act, 1994.
2. Validity of provisional assessment order and payment of service tax.
3. Applicability of period of limitation to interest demand.
4. Interpretation of Rule 6(4) of Service Tax Rules, 1994.
5. Consideration of case laws on limitation for interest demand.

Analysis:
1. The appeal challenged the interest demand of ?1,11,318/- under Section 75 of the Finance Act, 1994, issued due to short payment of tax by the appellant during certain months. The Assistant Commissioner upheld the demand, which was affirmed by the Commissioner (Appeals), leading to the present appeal.

2. The appellant contended that they were under provisional assessment per Rule 6(4) of Service Tax Rules, 1994, allowing monthly payment of ?4.50 crores. The appellant argued that the show-cause notice was time-barred and that interest was not payable as the differential tax was paid before final assessment. The Department claimed interest was due regardless of limitation.

3. The Tribunal noted the appellant's compliance with the provisional assessment order, depositing more than the provisional amount but less than actual liability. It ruled that interest could not be demanded under Section 75, as the appellant was not liable per Section 68 and Rule 6(4). The Tribunal found the Commissioner's view that the appellant was not under provisional assessment during the disputed period factually incorrect, as the provisional assessment was withdrawn for the future.

4. Rule 6(4) allowed provisional payment of service tax, and the Tribunal emphasized that interest demand was not applicable under Section 75 due to the specific provisions of Section 68 and Rule 6(4). The Tribunal relied on case laws to support the appellant's argument that the show-cause notice was beyond the period of limitation, leading to the appeal's allowance.

5. Citing various court judgments, including the Supreme Court, the Tribunal held that the period of limitation applies to both the principal amount and interest claims. Relying on precedent, the Tribunal concluded that the impugned order was unsustainable on merit and limitation grounds, allowing the appeal with consequential relief.

In conclusion, the Tribunal set aside the interest demand, ruling in favor of the appellant based on the validity of provisional assessment, absence of interest liability under Section 75, and the application of the period of limitation to interest claims as per established legal principles.