DELAY IN PAYMENT OF SERVICE TAX

[Mr. M. GOVINDARAJAN]

Rule 6 of Service Tax Rules, 1994 prescribes the periodicity on which the service tax is to be paid by the service providers.   If there is delay in payment of service tax, the service provider is to pay the service tax along with interest from the date of due to the date of payment. Section 75 of the Finance Act, 1994 provides for the payment of interest for the payment of service tax not in time. The said section provides that every person, liable to pay the tax in accordance with the provisions of Section 68 or rules made there under, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at such rate not below 10% and not exceeding 36% per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette for the period by which such crediting of the tax or any part thereof is delayed.   The said rate of interest is reduced to 3% of the notified rate in the case of a service provider, whose value of taxable services provided in a financial year does not exceed Rs. 60 lakhs during any of the financial years covered by the notice, or during the last preceding financial year, as the case may be.

Whether penalty may be imposed for delayed payment of Service tax? CBE&C Circular No. 137/167/2006-CX.4, dated 03.10.2007 provides that no show cause notice is to be issued to the defaulter if the tax liability is paid with interest.

Explanation 2 to Section 73 of the Finance Act (inserted by Finance Act, 2010 with effect from 8.5.2010) declared that no penalty under any of the provisions of this Act or rules made there under shall be imposed in respect of payment of service tax under this sub section and interest thereon.

Section 80 of the Finance Act provides that notwithstanding anything contained in the provisions of Section 76, Section 77 or first proviso to Section 78(1) no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause of the said failure.

In ‘M.R. Coatings Private Limited V. Commissioner of Central Excise, Rajkot’ – 2008 (2) TMI 346 - CESTAT AHMEDABAD the Tribunal held that the appellate authority has accepted the appellant’s submission that there was no mala fide intention on their part to delay payment of service tax and the same was paid subsequently along with interest.   The High Court also accepted the appellant’s stand that there was some doubt and confusions as regards their liability to pay service tax.   However, in spite of observing he has imposed penalty of Rs. 20,000/- which is self contradictory.   The entire penalty amount has been set aside by the Tribunal.

In ‘Essar Limited V. Commissioner of Central Excise and Customs, Surat-I’ – 2008 (11) TMI 105 - CESTAT, AHMEDABAD the appellant submitted that there was lack of co-ordination between the two offices, there was an omission to pay service tax.   There is no reason for them not to pay the service tax since as soon as they paid the service tax with interest on receipt of intimation from the Revenue.   In view of the above position the Tribunal held that the contention of the Revenue that there was any intention to evade payment of duty and penalty under Section 78 is imposable cannot be accepted. The appellants are entitled to benefit of section 80 of the Finance Act, 1994.   The Tribunal set aside the penalties imposed on them.

In ‘Vee Aar Secure V. Commissioner of Service Tax, Bangalore’ – 2008 (7) TMI 297 - CESTAT, BANGALORE the Tribunal held that there was actually no mala fide intention to evade payment of service tax.   Once the lapse was pointed out, the appellants discharged the tax liability along with interest.   Moreover Section 73(3) provides waiver of show cause notice when the assessee pays the service tax liability immediately after it is pointed out.

In ‘Vista Infotech V. Commissioner of Service Tax, Bangalore’ – 2009 (8) TMI 289 - CESTAT, BANGALORE the Tribunal found that there is no dispute that the appellant had been discharged the service tax liability on the services rendered by him during the period from January 2004 to December 2006.   During the relevant period i.e., from January 2007 to June 2007, the appellant had failed to discharge the service tax though he had collected the same from the customers.   The appellant’s representative had explained in his statement that the delay in payment tax was due to the financial crunch which arose on account of non release of payment from one of their major clients but discharged the tax liability along with interest thereon.   The Tribunal found that once an assessee accepts the non payment of service tax liability and pays the dues along with interest, then provisions of Section 73(3) of the Act get attracted.

In ‘Midnapore Tyre Retreading Factory V. Commissioner of Central Excise, Haldia’ – 2012 (9) TMI 597 - CESTAT, KOLKATA the appellant was engaged in the tyre retreading and repairing activity since 1992.   The said services became taxable under the category of ‘Maintenance or repairing service’ with effect from 16.06.2005.   Consequently the appellant registered with the department on 4.8.2005.   Since they did not pay service tax after registration a letter was issued to the appellant directing them to furnish information relating to their activity.   Immediately, the appellant paid the service tax admitting the liability.   The appellant also furnished to the department the reasons for non payment of service tax.   The appellant further submitted that the entire proceeds of the services were duly accounted in the balance sheet.   A show cause notice was issued to the appellant and penalty was confirmed.   The appellant filed appeal before the Tribunal.   Before the Tribunal the appellant contended that-

• They could not pay the service tax due to the confusion in the determination of the taxable value of the services on which the service tax was required to be paid and eligibility criterion of small scale benefit;
• They carried out the activity of retreading and repairing of the old tyres which were supplied by the customers and the value of the old tyres and the value of such repairing were separately shown in the respective invoices.   The confusion was whether both the value were to be taken;
• They were not clear on the eligibility of exemption limit of four lakh allowed to small scale service providers;
• The confusion resulted in non payment of service tax in time;
• The entire amount of service tax along with interest was paid immediately after being clarified by the department.   Therefore the penalty imposed is not sustainable.

The Tribunal was convinced on the explanation given by the appellants and noted nothing contrary has been brought on record by the department.   The Tribunal held that mere delay in payment of service tax cannot be construed as suppression or misdeclaration of the facts with intent to evade payment of the tax.   The Tribunal set aside the order imposing penalty on the appellant.

In ‘Prasad Corporation Limited V. Commissioner of Service Tax, Chennai’ – 2011 (9) TMI 830 - CESTAT, CHENNAI the Tribunal held that penalty for failure to pay tax in time does not arise when the service tax has been paid together with interest after a delay and that show cause notice under Section 73 of Finance Act cannot be issued for imposition of penalty in such a situation.

From the above discussions the following inferences may be arrived at:

• The service tax shall be payable within the prescribed time without any delay;
• If there is any delay in payment of service tax, interest at the prescribed rate for the time being in force is to be payable along with the service tax due, from the date of due to the date of payment;
• If the delay in payment is due to suppression of fact or with mala fide intention to evade payment of service tax, then penalty is inevitable;
• Once service tax is paid along with interest no show cause notice is to be issued;
• If the assessee is able to convince the authorities that the delay in payment of service tax is for the reasonable cause then Section 80 will be helpful from the penalty.