2018 (10) TMI 661 - AT - Service Tax

Demand of interest on delayed payment of service tax - whether the demand of interest on the service tax by the Department is sustainable? Held that - The service tax law does not provide any limitation for demand of interest on service tax - However, the Hon ble Supreme Court has, in the case of T.V.S. Whirlpool Ltd., 1999 (10) TMI 701 - SUPREME COURT OF INDIA laid down the law that the period of limitation which applies to the principal amount also apply to the interest thereon. This judgment was passed under the Customs Act which also did not have the period of limitation for demand of interest during the relevant period. The demand of interest is liable to be set aside on the ground of limitation of time because not only is there no evidence of elements required to invoke extended period in the show cause notice, there is not even any allegation that the interest has not been paid by reasons of fraud, collusion, willful misstatements etc. - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Demand of interest on delayed payment of service tax on advances received.
2. Applicability of time limitation for demand of interest on service tax.
3. Taxability of activities related to supplies of ready mix concrete.

Issue 1: Demand of interest on delayed payment of service tax on advances received:

The case involved a supplier of Ready Mix Cement (RMC) who was found to have short paid the service tax on services and not paid service tax on advances received from customers. The Original Authority confirmed the demand of interest amounting to ?7,22,775 on service tax on advances and imposed a penalty under Section 77 of the Act, 1994. The appellant argued that the demand of interest should have been made within the time limit prescribed for recovery of service tax, which is 18 months, and extended to 5 years in cases of fraud, collusion, willful misstatement, etc. The appellant relied on a circular by CBEC and various case laws to support the argument that the demand was time-barred. The Departmental Representative contended that there is no time limit for demand of interest on service tax under the service tax law. The tribunal held that while the service tax law does not provide a limitation for demanding interest, the principle established by the Supreme Court in previous cases under the Customs Act applies, stating that the period of limitation for the principal amount also applies to interest. As the elements required to invoke an extended period were not present, and there was no allegation of non-payment due to fraud, collusion, or willful misstatements, the demand of interest was set aside on the ground of time limitation.

Issue 2: Applicability of time limitation for demand of interest on service tax:

The appellant argued that the demand of interest on delayed payment of service tax should have been made within the time limit prescribed for recovery of service tax, citing a circular by CBEC and case laws supporting the time limitation argument. The Departmental Representative contended that there is no specific time limit for demanding interest on service tax. The tribunal acknowledged that the service tax law does not provide a limitation for demanding interest but relied on the principle established by the Supreme Court in previous cases under the Customs Act, which held that the period of limitation for the principal amount also applies to interest. The tribunal held that as there was no evidence of elements required to invoke an extended period and no allegation of non-payment due to fraud, collusion, or willful misstatements, the demand of interest was set aside on the ground of time limitation.

Issue 3: Taxability of activities related to supplies of ready mix concrete:

The appellant argued that the activities undertaken were in relation to their supplies of ready mix concrete and, therefore, not liable to pay service tax. The Departmental Representative contended that the activities, including pumping of RMC and other site formation-related activities, are taxable, and service tax has already been paid. The tribunal noted that the only point of dispute left was the question of interest and did not delve into the taxability of the activities related to supplies of ready mix concrete as it was not the primary issue in the appeal.

This detailed analysis of the judgment addresses the issues involved comprehensively, outlining the arguments presented by both parties and the tribunal's reasoning leading to the decision.