Illustration on Interest Calculation with Budget 2014

[Akash Phophalia]

Interest on Service Tax is charged in accordance with the provisions of Section 75 of Finance Act 1994. Rate of Interest up to 01/10/2014 is simple interest of 18% per annum on delayed payment of tax (3% concession is available to small service providers). But with the Budget 2014 there is a major change in the rate of interest as shown in the table below. This change in interest rate is hammer on the assessee (although 3% concession is available to the small service provider).

S No	Period of delay	Rate of Simple Interest
	Up to six months
	More than six months and up to one year	24% for this period
	More than one year	30% for this period

As per illustration given in TRU the modified interest rates are applicable for the period of delay prior to 01/10/2014 also. But according to canons of law the interest rate(s) existing during the period of delay is the applicable rate of interest. This can be illustrated as under :-

Situation 1:

Service Tax outstanding (Rs. 1,00,000) :	01/10/2014
Service Tax paid on :	31/03/2016
Total delay is 18 months.

Interest calculation shall be as follows:

For period 01/10/2014 to 31/03/2015, Interest rate for 1st six months is 18% p.a.	₹ 9,000
For period 01/04/2014 to 30/09/2015, Interest rate for next six months is 24% p.a.	₹ 12,000
For period 01/10/2015 to 31/03/2016, Interest rate for balance period is 30% p.a.	₹ 15,000
Total amount of Interest	₹ 36,000

Situation 2:

Service Tax outstanding (Rs. 1,00,000) :	01/04/2013
Service Tax paid on :	30/11/2014

The total period of delay is 20 months. As there is change in interest rate with effect from 01.10.2014, therefore, the interest is to be charged in the following manner :-

For period from 01/04/2013 to 30/09/2014 interest rate applicable is 18% p.a. On 01/10/2014 the period of delay elapsed was 18 months, therefore according to new provisions as effected from 01/10/2014 the interest rate for the balance period of two months should be charged at 30% p.a.

Thus, Interest amount is :-

For period 01/04/2013 to 30/09/2014: 18 months @ 18% p.a. :	27,000 Rs.
For period 01/10/2014 to 30/11/2014: 02 months @ 30% p.a. :	5,000 Rs.
Total Interest	32,000 Rs.

Situation 3:

Service Tax outstanding (Rs. 1,00,000) :	01/07/2014
Service Tax paid on :	31/01/2015
Total delay is 7 months.

 

Interest calculation shall be as follows:

Interest shall be calculated in 3 parts:

From 01/07/2014 to 30/09/2014: 3 months @ 18% p.a.	₹ 4,500
From 01/10/2014 to 31/12/2014 : 3 months @ 18% (Since period of delay already completed three months, therefore on 01/10/2014 there left only three months in first slab of 6 months)	₹ 4,500
From 01/01/2015 to 31/01/2015: 1 month @ 24% p.a.	₹ 2,000
Total Interest	₹ 11,000

Thus in my view the interest should be charged as illustrated above. Contrary views are welcomed.

CA Akash Phophalia

9799569294

[email protected]

Office No 3 Second Floor, Amrit Kalash, Residency Road

Near Bombay Motor Circle, Jodhpur-342001, Rajasthan

Discussions to this article

[DEV KUMAR KOTHARI]

There is no justification of charging higher interest, particularly due to complexity of law and lot of forced litigation by revenue by raising high pitched assessments of tax or duty.Interest on tax dues should not be a means of finance-trade by government. There should not be high spread between interest paid to tax payer and interest charged on tax payer. There is no justification of such high spread in rate of interest. Interest is compensatory charge and should not be made a penal charge, particularly when there are many penalty provisions.

It seems beginning to statutorily prescribe pre-deposit, and higher interest. The same may spread to other tax laws also, unless such provisions are contested on several possible ground of arbitrariness, discriminatory, highhandedness of law makers, and beng un-constitutional on various grounds.

[CA Akash Phophalia]

Truly agree with your valuable words. Irony is that the illustration given in TRU in this regard leads to an interpretation of effect of applicability of such high interest rates for delay Service tax payments of period prior to the date of applicability of such high interest rates. This will lead to many confusions and litigations.