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2018 (7) TMI 1598 - AT - Service TaxDemand of Interest u/s 75 of the Finance act 1994 - imposition of penalties - delayed payment of service tax - relevant date for determination of the rate of taxation - What is the nature of interest under a Fiscal Statue which arises on the account of delayed payment of tax? - Held that - The interest is compensatory in nature and is required to be paid by the tax payer in case of any default in payment of tax for the period of default - In a Fiscal statue the interest is levied as statutory liability and arises on account of delayed payment of taxes. Whether a separate notice demanding interest is required in case of delayed payment? Or the interest becomes statutorily payable on determination of the tax dues? - Held that - No separate notice is necessary for the purpose of recovery of interest and same has to be recovered along with the tax as arrears of tax. If a notice is required to be issued demanding interest then in that case what will be the relevant date for computing the limitation for issue of such a notice? - Held that - The demand for interest cannot be quantified till the arrears of tax are paid and it is consequently not possible to specify a definite figure in the recovery certificate. However in case of nonpayment of the interest along with the tax arrears if a notice demanding such interest is to be issued the same should be issued within reasonable time from the date of payment of tax arrears. There can be no dispute that interest on the service tax short paid and paid subsequently either on own volition or on being pointed out by the department, is required to be paid and if not paid suitable action for the recovery of the interest needs to be initiated against the defaulting entity - thus, the demand of interest upheld. Penalty - Held that - The case is pure of short payment of taxes due on the due on the due date. It is not the case of the department that appellant has suppressed the value of taxable service or has not declared the same to the department. Further entire amount of tax paid by the appellant on reverse charge was available to the Appellant as CENVAT credit there can be no question of intention to evade payment of tax - Since Appellant was paying the taxes on reverse charge basis in respect of Information Technology Software Services, the delay in seeking registration for the same can be condoned without any penal consequences in term of Section 80 of the Finance Act, 1994. Demand of Interest upheld - penalties set aside - appeal allowed in part.
Issues Involved:
1. Applicability of service tax rate. 2. Demand for interest on delayed payment of service tax. 3. Imposition of penalties under Sections 77(1)(a) and 78 of the Finance Act, 1994. 4. Invocation of extended period of limitation for demand of interest and penalties. 5. Applicability of Section 80 of the Finance Act, 1994 for waiver of penalties. Detailed Analysis: 1. Applicability of Service Tax Rate: The appellant argued that the service tax rate applicable should be the one prevailing on the date of the invoice, as per the Point of Taxation Rules and CBEC Circulars. However, the tribunal referred to various case laws, including Lumax Samlip Industries v. CCE and Reliance Industries Ltd. vs. CCE, which established that the relevant date for determining the rate of service tax is the date on which the service is received by the service recipient. Consequently, the tribunal concluded that the rate of 12% was applicable for services received before 24th February 2009, and 10% for services received thereafter. The appellant had paid the differential amount of tax as pointed out. 2. Demand for Interest on Delayed Payment of Service Tax: The tribunal highlighted that interest under a fiscal statute is compensatory and arises automatically on account of delayed payment of tax. Section 75 of the Finance Act, 1994 mandates that interest is payable for the period of default. The tribunal cited the Bombay High Court decision in Commissioner Of Central Excise vs Padmashri V.V. Patil Sahakari Sakhar Karkhana Ltd., which held that interest is compulsory and arises by operation of law. The Supreme Court in Commissioner of Trade Tax Vs Kanhai Ram reiterated that the liability to pay interest is automatic and does not require a separate notice. Therefore, the tribunal upheld the demand for interest. 3. Imposition of Penalties under Sections 77(1)(a) and 78 of the Finance Act, 1994: The appellant contended that the short payment of tax was not due to suppression, fraud, or misstatement, and hence, penalties under Section 78 were not justified. The tribunal noted that the appellant had been paying taxes regularly and the short payment was due to a genuine misunderstanding regarding the applicable tax rate. The tribunal invoked Section 80 of the Finance Act, 1994, which allows for waiver of penalties if there is a reasonable cause for the failure. The tribunal found that the issue of the applicable tax rate was not free from doubt and the appellant had paid the differential tax voluntarily. Therefore, the penalties under Sections 77(1)(a) and 78 were set aside. 4. Invocation of Extended Period of Limitation for Demand of Interest and Penalties: The appellant argued that the demand for interest was barred by limitation as the show cause notice was issued beyond the prescribed period. The tribunal, referencing the Supreme Court's decision in Haji Lal Mohd.Biri Works, Allahabad Through Abdul Hamid Versus State Of Uttar Pradesh, held that interest liability arises automatically and does not require a separate notice. However, if a notice is issued, it should be within a reasonable time from the date of payment of tax arrears. The tribunal concluded that the demand for interest was justified. 5. Applicability of Section 80 of the Finance Act, 1994 for Waiver of Penalties: The tribunal invoked Section 80, which provides that no penalty shall be imposed if the assessee proves there was reasonable cause for the failure. Given the appellant's regular tax payments, the misunderstanding of the applicable tax rate, and the fact that the tax paid was available as credit, the tribunal found reasonable cause for the short payment. Therefore, the penalties were waived under Section 80. Conclusion: The appeal was allowed to the extent of setting aside the penalties imposed under Sections 77(1)(a) and 78. The demand for interest was upheld.
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