Mandatory interest on delayed service tax payment upheld where the demand was for interest, not penalty.

Interest on belated service tax payment under Section 75 of the Finance Act, 1994 is mandatory once tax is paid late, and it cannot be cancelled on the mistaken footing that the demand is penal where the original authority had already waived penalty and confined recovery to interest. The Tribunal proceeded on an incorrect assumption in treating the demand as penalty, so its cancellation of the interest demand was unsustainable. The interest liability was therefore restored.

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Issues: Whether interest leviable under Section 75 of the Finance Act, 1994 could be cancelled on the footing that the demand was in the nature of penalty, and whether delay in payment of service tax attracted mandatory interest.

Analysis: The delay in payment of service tax was only for a few days, but the demand raised was specifically one of interest and not penalty. Section 75 provides for interest on delayed payment, and the liability is mandatory once tax is paid belatedly. The Tribunal had proceeded on an incorrect assumption that the amount demanded was penalty, whereas the order of the original authority had already waived penalty and confined the demand to interest.

Conclusion: The demand of interest under Section 75 was rightly recoverable and the cancellation of that demand by the Tribunal was unsustainable. The appeal was allowed and the interest demand was restored.

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