CONSEQUENCES OF NON-PAYMENT & DELAYED PAYMENT OF SERVICE TAX

[Dr. Sanjiv Agarwal]

As per Section 75, if a person defaults in making the payment of Service Tax within stipulated time, he was liable to pay simple interest @15 per cent p.a. for the period during which the payment was delayed (prior to 10.9.2004). Notification No. 26/2004-ST dated 10-9-2004 had fixed the rate of interest @13 per cent per annum w.e.f. 10-9-2004. The rate of interest has since been enhanced to 18 per cent p.a. w.e.f. 1.4.2011 vide Notification No. 14/2011-ST, dated 1.3.2011. Interest payments are mandatory in nature and the same cannot be waived.

Moreover, as per section 76 of the Finance Act, 1994 a person who is liable to pay service tax, but fails to pay the same, shall in addition to service tax and interest, pay a penalty of not less than ` 100 per day during which such failure continues or at the rate of 1% p.m. of such tax. However, the total amount of penalty payable shall not exceed fifty per cent of service tax payable.

In CCE, Chennai v. R.K. Swamy BBDO Advertising Pvt Ltd. - 2009 (6) TMI 52 - CESTAT, CHENNAI, where assessee delayed the payment of tax due to stay granted by high court, it was held that in absence of any specific high court’s order for exclusion of period covered in the stay order for the purpose of computing delayed period, assessee was liable to pay interest on such delayed payment of tax.

In Bholanath Oberoi & Sons v. CCE, C & ST, Bhubaneswar-I 2009 (1) TMI 206 - CESTAT, KOLKATA, it was held that payment of service tax before issue of show cause notice can not be a reason for not charging interest on tax which is a civil liability dependent on with holding payment of tax from the due-date till the actual date of payment. Since assessee had received value of taxable services earlier, it had an obligation to pay tax by due date and not having done so, it was required to pay interest towards delayed payment of tax.

Interest on delayed payment of duty or tax will be as per rates applicable from time to time. Interest is payable at rates applicable from time to time [M.J. Exports v. Union of India 2006 (3) TMI 164 - HIGH COURT OF JUDICATURE AT BOMBAY; Commissioner v. Consolidated Solvents 2009 (6) TMI 316 - CESTAT, MUMBAI]. Thus, if during the default period, there have been different rates of interest applicable, interest will be computed at respective rates applicable during the relevant periods.

In Indoworth (India) Pvt. Ltd v. CC&E, Nagpur 2012 (8) TMI 784 - BOMBAY HIGH COURT , where assessee voluntarily paid service tax belatedly, though not payable , and availed Cenvat credit thereof and utilized such credit, it was held that assessee was liable to pay interest for such delayed payment of voluntarily service tax.

U/s 73A(1), service providers are required to deposit Service Tax into the account of the Central Government, wherever collected from the service recipients. As per rule 9(6) of CENVAT Credit Rules, 2004, CENVAT Credit can be taken and utilized only on paid taxes or duties duly recorded and the burden of proof lies upon the manufacturer or output service provider taking such credit. It must be ensured that the Service Tax has been paid by the input service provider before final manufacturer or service provider utilizes the CENVAT Credit [Chandigarh Commissionerate’s Trade Notice No. 10/2012 dated 13.7.2012].