Provisional service tax payment: no interest can be demanded before final assessment is completed.

Interest was held not leviable on delayed service tax paid provisionally where no final assessment order had been passed under the applicable provisional assessment scheme. The framework under the Service Tax Rules, read with the corresponding excise provisions, made interest payable only on amounts determined as due consequent to final assessment. As the differential tax had already been discharged before any finalisation, Section 75 of the Finance Act, 1994 did not permit an interest demand. The demand was therefore unsustainable and the interest levy was set aside.

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Issues: Whether interest was leviable on delayed payment of service tax paid on a provisional basis when no final assessment order had been passed.

Analysis: Permission for provisional payment was granted under Rule 6(4) of the Service Tax Rules, 1994, and the assessee was required to follow Rule 6(5) of those Rules. The procedural framework for finalising such provisional assessment was to follow the corresponding provisions of the Central Excise (No. 2) Rules, 2001, under which Rule 7(3) required final assessment to be completed after the relevant information became available. Rule 7(4) fastened interest only on amounts payable consequent to the order of final assessment. On the facts, no final assessment order had been passed for any relevant month, and the service tax differential had already been paid before such finalisation. In that situation, interest could not be demanded under Section 75 of the Finance Act, 1994.

Conclusion: Interest was not leviable in the absence of any final assessment order, and the demand was unsustainable.

Final Conclusion: The appeal succeeded on merits and the demand of interest was set aside.

Ratio Decidendi: Where tax is paid on a provisional basis and the statutory scheme makes interest payable only upon final assessment, no interest can be demanded if final assessment has not been made and the liability has already been discharged before such finalisation.

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