2009 (1) TMI 206 - AT - Service Tax

Tribunal Upholds Decision on Interest Charges for Delayed Service Tax Payment

The Tribunal upheld the lower Appellate Authority's decision, ruling against the appellants in their challenge to the interest amount on delayed payment ... Interest on delayed payment of service tax - obligation of service provider to pay service tax by the due date - Rule 6(1) of the Service Tax Rules, 1994 (pre-31-3-2005): due date tied to receipt of value of taxable services - Section 12A of the Central Excise Act, 1944 made applicable to service tax cases - gross amount in Section 67 of the Finance Act, 1994 inclusive of service tax componentInterest on delayed payment of service tax - obligation of service provider to pay service tax by the due date - Rule 6(1) of the Service Tax Rules, 1994 (pre-31-3-2005): due date tied to receipt of value of taxable services - Whether interest on delayed payment of service tax can be waived where the assessee received the taxable value from clients belatedly and paid tax before issuance of show cause notice - HELD THAT: - The Tribunal found that the statutory obligation to pay service tax accrues on the service provider and is to be discharged by the due date prescribed by law; a taxable person cannot select a later date for payment. The plea that tax was paid before issuance of the show cause notice does not extinguish the civil liability for interest arising from withholding tax between the due date and the date of payment. The contention that delayed receipt of the tax component from clients absolves the service provider was rejected: Rule 6(1), as it stood prior to 31-3-2005, must be read in light of the statutory objective and refers to the date of receipt of the value of taxable services (by the service provider) as the relevant date for computing the due date, not the date on which the recipients remit tax to the provider. Where recipients pay a consolidated amount, that amount is to be treated as inclusive of tax and the provider must compute and remit the tax by the due date. Since the appellants received the value earlier and failed to pay by the prescribed due dates, interest for delayed payment was rightly imposed. [Paras 6, 7, 8]The appeal for waiver of interest is dismissed and interest confirmed on the delayed payment of service tax.Final Conclusion: The Miscellaneous Application for condonation of delay is allowed, but the substantive appeal seeking waiver of interest on delayed payment of service tax is dismissed; interest on the delayed payment is upheld. Issues:Challenge to interest amount on delayed payment of Service tax confirmed by lower Appellate Authority.Analysis:The appellants did not contest the Service Tax amount paid before the show cause notice issuance, with penalties waived. The appeal focused solely on the interest amount related to delayed Service tax payment. The advocate for the appellants argued that under Section 12A of the Central Excise Act, the gross amount specified in Section 67 of the Finance Act should include the Service tax component. He contended that since the tax was paid promptly after receiving it from clients, no interest should apply. Additionally, he claimed that paying the tax before the show cause notice should exempt them from interest charges.The learned Advocate highlighted the unamended Rule 6(1) of the Service Tax Rules, asserting that the appellants paid the tax promptly upon receiving the taxable value, thus absolving them of interest liability. However, the learned SDR supported the lower Appellate Authority's decision.Upon review, the Tribunal emphasized the obligation on taxpayers to pay tax in a timely manner as prescribed by law to maintain tax administration order. The Tribunal rejected the argument that paying tax before the show cause notice exempts from interest, as interest accrues from the due date till payment. The Tribunal clarified that the obligation to pay tax falls on service providers, not clients, and the due date refers to receiving taxable value, not Service tax from clients. Any delay in tax payment beyond the due date necessitates interest payment, as per the law's objective.Conclusively, the Tribunal found the appeal lacking merit and dismissed the request for interest waiver. The appellants were held liable for interest on delayed Service tax payment, emphasizing adherence to tax payment timelines and obligations.