Tribunal rules in favor of appellant, setting aside interest on service tax demand. Importance of assessing legality highlighted.

The Tribunal allowed the appeal, ruling in favor of the appellant by setting aside the demand for interest on service tax not remitted timely. The judgment emphasized the necessity of assessing the legality of the principal amount before enforcing interest payments, particularly in situations involving retrospective amendments impacting tax liability.

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Issues:
1. Whether the appellant is liable to pay interest on service tax not remitted in time.
2. Whether the demand for interest is sustainable when the principal amount itself was not payable due to a retrospective amendment.

Analysis:

Issue 1: Liability for interest on service tax not remitted timely
The appellant undertook maintenance and repair of roads without collecting service tax from April 2008 to March 2009. After an audit in August 2009, it was found that service tax was due, resulting in a demand of Rs. 11,74,726. The appellant then collected and paid the service tax but did not pay interest. The department issued a show cause notice for recovery of tax not paid in time and demanded interest of Rs. 1,31,888. The adjudicating authority confirmed the interest demand of Rs. 1,21,011. The Commissioner (Appeals) modified the order, directing the amount to be restored to the government account but did not provide relief regarding the interest demanded.

Issue 2: Sustainability of interest demand post-retrospective amendment
The appellant argued that since the demand for the principal amount was dropped due to a retrospective amendment exempting service tax for maintenance and repair services from May 16, 2005, the demand for interest was not sustainable. The appellant's consultant clarified that the service tax amount was collected and remitted without delay once it was realized from customers. The Tribunal agreed with the appellant, stating that if the demand for the main amount was not sustainable, the demand for interest could not be upheld. Therefore, the Tribunal set aside the Commissioner (Appeals) order upholding the interest demand of Rs. 1,21,011, granting relief to the appellant.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the appellant by setting aside the demand for interest. The judgment highlighted the importance of considering the legality of the principal amount before enforcing interest payments, especially in cases involving retrospective amendments affecting the tax liability.

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