2020 (2) TMI 226 - AT - Service Tax

Recovery of interest u/s 87 without issuance of SCN - Delay in payment of service tax - HELD THAT - In the present case the appellant paid the service tax liability but with delay. Appellants have shown the tax arrears in their returns and subsequently paid the tax due. Subsequently, during the audit, the Department detected that there was a delay and the appellant is liable to pay the interest for the delay in payment of the tax. The original authority has given the decision in violation of the principles of natural justice and no opportunity whatsoever is given to the appellant to put forth his defense regarding the basis of calculation on which the interest payable is arrived. Further the provisions of Section 73(1B) which was inserted w.e.f. 14/05/2015 is not applicable in the present situation because Section 73(1B) covers situation where self-assessed tax is not paid in part or in full, recovery of such tax with interest can be made by invoking the provisions of Section 87 of the Finance Act, 1994 whereas in the present case there is no dispute regarding the payment of tax and the said payment of tax was paid much before the audit was conducted and there is no demand of tax in the present case. Hence, provisions of Section 73(1B) read with Section 87 are not applicable in the present case. Applicability of time limitation for demanding of interest - HELD THAT - In the present case, the demand is made for the period April 2011 to March 2016 by issue of a letter of demand dated 24/08/2017. The Tribunal has dealt with this issue of limitation in various decisions relied upon by the appellant cited supra and it has been consistently held that to demand interest also period of limitation is applicable - in the Master Circular No. 1053/02/2017-CX dated 10/03/2017, the Board has clarified that in case where duty and interest is demanded, it is quite clear that limitation prescribed in Section 11A applies. Further it may be noted that in cases where duty has been paid belatedly and interest has not been paid, interest needs to be demanded and recovered following the due process of demand and adjudication. In such cases, the period of limitation as prescribed in Section 11A applies for demand of interest. The confirmation of demand of interest without issuing the show-cause notice is not sustainable - period of limitation is applicable as far as demand of interest is concerned - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the demand for interest on delayed payment of Service Tax requires the issuance of a show-cause notice.
2. Whether the period of limitation is applicable for demanding interest on delayed payment of Service Tax.

Issue-wise Detailed Analysis:

1. Requirement of Show-Cause Notice for Interest Demand:

The appellant argued that the demand for interest on delayed payment of Service Tax must follow the due process, including the issuance of a show-cause notice. It was contended that Section 73 of the Finance Act, 1994, which covers the recovery of Service Tax, applies to the recovery of interest under Section 75 as well. The appellant cited case laws such as Rolex Rings Pvt. Ltd. Vs. CCE and The Paper Products Ltd. Vs. CCE, Mumbai, emphasizing that a show-cause notice is mandatory for confirming the demand of interest. The appellant further argued that the provisions of Section 73(1B) read with Section 87 do not apply in this case since the tax was already paid before the audit, and only the interest was in question.

The respondent (Department) contended that no show-cause notice is required for the recovery of interest as the liability for interest is automatic upon delayed payment of Service Tax. They relied on various judicial precedents to support this argument, including Harsh Infrastructure (P) Ltd. Vs. Commr. of C. Ex. & Cus., Nashik, and others.

The Tribunal found that the demand for interest without issuing a show-cause notice violated the principles of natural justice. The Tribunal cited the Larger Bench decision in The Paper Products Ltd., which emphasized that any order with civil consequences must follow the principles of natural justice, including the issuance of a show-cause notice. The Tribunal concluded that the Department's action of demanding interest without a show-cause notice was not legally sustainable.

2. Applicability of Limitation Period for Interest Demand:

The appellant argued that the demand for interest is subject to the same limitation period as the principal amount of Service Tax. They cited several judicial decisions, including Canara Bank Vs. Commr. of C. Ex. & Cus., LTU, Bangalore, and Kwality Ice Cream Company Vs. UOI, which held that the limitation period for the principal amount also applies to the interest demand. The appellant also referred to the Master Circular No. 1053/02/2017-CX, which clarified that the limitation period prescribed in Section 11A applies to the demand for interest.

The respondent argued that the liability for interest is automatic and not subject to any limitation period. They relied on decisions such as Shree Bhagwati Steel Rolling Mills Vs. Commr. of C. Ex., Chandigarh, and others to support their contention.

The Tribunal held that the period of limitation is indeed applicable to the demand for interest. The Tribunal referred to the Kwality Ice Cream Company case, where the Delhi High Court held that the limitation period for the principal amount should also apply to the interest demand. The Tribunal also noted the clarification in the Master Circular No. 1053/02/2017-CX, which supported the appellant's argument.

Conclusion:

The Tribunal concluded that the demand for interest without issuing a show-cause notice was not sustainable in law and violated the principles of natural justice. Additionally, the Tribunal held that the period of limitation is applicable to the demand for interest. Consequently, the impugned order was set aside, and the appeal of the appellant was allowed.