Retrospective service tax validation cannot trigger interest for a period when the levy was not enforceable.

Interest under the service tax law could not be levied for a period when the underlying levy had been struck down and was not legally enforceable. The retrospective validation of service tax on goods transport operator services by the Finance Act, 2000 created liability only from the date the levy was revived, so consequential interest could not be applied backward to the original service period. Interest was therefore not payable from 16-11-1997 and became chargeable only from May 2000, when the tax liability had legal effect.

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Issues: Whether interest under the service tax law could be levied for the period prior to the retrospective validation of the levy, or only from the date on which the tax liability became enforceable.

Analysis: The levy of service tax on goods transport operator services had earlier been struck down as ultra vires and was subsequently validated retrospectively by the Finance Act, 2000. The liability to pay the tax therefore arose only upon such revalidation, and a penal or consequential interest burden could not operate retrospectively for a period when the levy itself was not in force. Interest was consequently not chargeable from the original service period merely because the levy was later revived with retrospective effect.

Conclusion: Interest was not payable for the period commencing from 16-11-1997; it was payable only from May 2000 onwards, when the tax liability became enforceable.

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