INTEREST PAYABLE ON SERVICE TAX DUE FOR PERIOD WHEN CERTAIN PROVISIONS STAYED BY HIGH COURT

[Mr. M. GOVINDARAJAN]

            The provisions of service tax provide for levy and payment of service tax by service providers. They also provide for the imposition of interest and penalty when an assessee avoids or delays the payment of service tax. Charging of interest and penalty are two separate provisions under the law. The Hon'ble Supreme Court in 'Pratibha Processors V. Union of India' - (1996) 11 SCC 101 observed that in fiscal statutes, the import of the words tax, interest, penalty etc., are well known. They are different concepts. Tax is the amount payable as a result of the charging provision. It is a compulsory exaction of money by a public authority for public purposes, the payment of which is enforced by law. Penalty is ordinarily levied on the assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute. Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The levy of interest is geared to actual amount of tax withheld and the extent of the delay in paying the tax on the due date. Essentially, it is compensatory and different from penalty, which is penal in character.

            Section 75 of the Finance Act, 1994 provides for payment of interest on delayed payment of service tax. According to this section 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 ten per cent and not exceeding thirty six per cent 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.

            Section 73B of the Finance Act, 1994 provides for payment of interest on amount collected in excess.  According to this section where an amount has been collected in excess of the tax assessed or determined and paid for any taxable service under this Chapter or the rules made there under from the receipt of such service, the person who is liable to pay such amount as determined under sub-section (4) of section 73A, shall, in addition to the amount, be liable to pay interest at such rate not below ten per cent and not exceeding twenty-four per cent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette, from the first day of the month succeeding the month in which the amount ought to have been paid under this Chapter, but for the provisions contained in sub-section (4) of section 73A, till the date of payment of such amount.

            Penalty imposed on the assessee may be waived under Section 80 of the Finance Act, 1994. Section 80 provides that notwithstanding anything contained in the provisions of Section 76, section 77 or section 78, no penalty shall be imposable on the assessee for any failure referred to the said provisions if the assessee proves that there was reasonable cause for the said failure. But there is no such excuse in respect of payment of interest. Section 75 provides for mandatory charging of interest on delayed payment of service tax.  In 'Sree Vadivambigai Textile Mills Ltd., V. Commissioner of Central Excise' - [2005 -TMI - 196 - CESTAT (CHENNAI)] it was held that the demands of interest were made under section 75. The appellants pleaded that their company was declared sick by BIFR and therefore leniency should be shown in the matter of demand for interest. The tribunal held that there was no scope for leniency because the provisions of Section 75 are couched in mandatory language. Since the appellants had no case that interest was demanded in excess of what was prescribed in Section 75, company being declared as sick industry was no ground for leniency in demand of interest.

            The issue to be discussed in this article is whether interest is payable when certain provisions stayed by the High Court.  The said issue has been discussed in 'Commissioner of Central Excise, Chennai V. R. K. Swamy BBDO Advertising (P) Ltd.,'- [2009 -TMI - 34532 - CESTAT, CHENNAI] the respondent is a service provider under the category of 'Advertising Agencies' and registered with the department for payment of service tax. ST-3 returns were assessed and the department demanded interest on the ground that there is a delay in payment of service tax. The delay was due to stay granted by the Hon'ble High Court of operation of the provisions of Chapter V of the Finance Act, 1994 and in particular sections 66 and 67(d) of the Finance Act. The Commissioner (Appeals) reduced the interest and set aside the interest liability during the period covered by stay order of the High Court. Aggrieved against the order of Commissioner (Appeals) the department filed this present appeal.

            The Department relied on the judgment of Supreme Court in 'Calcutta Jute Manufacturing Co., V. Commercial Tax Officer' - 1997 -TMI - 44591 - (SUPREME COURT OF INDIA) in which it was held that interest is payable on the tax due for the period during which recovery was stayed by the interim orders of the High Court.  The respondent relied on the judgment in 'Adoni Ginning Factory V. Secretary, ABEB, Hyderabad and others' - (1979) 4 SCC 560 and tries to distinguish the case law relied on by the department on the ground that in the case of Calcutta Jute Manufacturing Company (supra) there was only stay of recovery of arrears while the situation is different when the stay of operation of the provisions of the statute has been granted by the High Court.

            The tribunal did not concur with the submissions of the respondent.  In the Adoni Ginning Factory case, the Electricity Board itself did into demand any surcharge from the petitioner for the period during which the Andhra Pradesh High Court granted stay and surcharge was claimed only for the period during which appeal was pending before the Supreme Court, since the Supreme Court did not the stay the operation of the Government order enhancing rates of supply of electrical energy over and above the contract.  The tribunal observed that in the assessee's own case reported in 2006 (3) STR 671 (Tri. Mumbai) the effect that interest is payable by the assessee for the entire period of delay in payment of service tax during the period when interim stay order is granted by the High Court, in the absence of any specific High Court order for exclusion of the period covered in the stay order for the purpose of computing period of delay is squarely applicable.  The tribunal held that interest is payable by the assessee on tax payment due for the period during which the operation of the provisions of statute was stayed by the interim order of the High Court.

            In 'Parimala Subramanian V. Commissioner of Central Excise' - (2005) 2 STT 14 the appellant, a mandap keeper was held liable to pay interest on the default amount of service tax from the date on which the writ petition was dismissed by the High Court to the date of payment of tax. However, in the case the High Court does not specify to exclude the period of delay during adjudication of matter in the court, interest is leviable.

            In 'Commissioner of Central Excise V. D.H. Ramani & Co.,' - [2005 -TMI - 218 - CESTAT (MUMBAI)] the tribunal held that interest under Section 75 was not to be charged if service tax was deposited up to the date directed by the High Court. In this case, the assessee was a firm of Chartered Accountants who earlier filed a writ petition in the Gujarat High Court challenging the levy of service tax on Chartered Accountants.  Later on the writ petition was dismissed and the High Court directed them to deposit the service tax up to 28.02.2001. The High Court observed that-"we intended that the members of the petitioner association may not be made to suffer any adverse consequence on account of delay in payment of service tax if the payment was made within two months i.e., 28.02.2001. And that the provisions of Section 75 would have to be read in the light of the aforesaid interim relief. The tribunal commented that the observation of the High Court clearly reflected upon the fact that the interest was not to be charged if the service tax was deposited up to 28.02.2001.

            From the above discussions it could be clearly inferred that in absence of specific order of the High Court that the period covered by stay order was to be excluded for purpose of computing period of delay, the assessee is liable for interest for entire period of delay in payment of service tax.