Provisional service tax assessment delays interest liability until finalisation, so differential interest demand cannot stand.

Where service tax is assessed provisionally under the applicable rules, the actual tax liability is determined only on finalisation of the assessment, and interest cannot be charged before that point. The incorporated provisional assessment mechanism under the Central Excise Rules did not alter this position. The demand for differential interest was therefore unsustainable, and the Revenue's challenge failed.

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Issues: Whether interest on service tax becomes payable during the period of provisional assessment or only after finalisation of the assessment.

Analysis: The respondents were permitted to discharge service tax liability provisionally under the service tax framework. Under Rule 6(4) of the Service Tax Rules, 1994, where the assessee cannot correctly estimate the amount payable, provisional assessment is permissible and the corresponding provisional assessment mechanism under the Central Excise Rules applies. In that situation, the correct duty liability is determined only upon finalisation. The incorporated provisions relied on by the Revenue did not displace this basic principle, and the liability to interest could arise only when the assessment was finally concluded.

Conclusion: Interest was not payable before finalisation of the provisional assessment, and the Revenue's challenge failed.

Final Conclusion: The order setting aside the demand of differential interest was sustained, and the Revenue appeal was rejected.

Ratio Decidendi: Where service tax is assessed provisionally, interest liability arises only after the assessment is finalised and the actual tax liability is determined.

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