Interest on delayed service tax payment and extended limitation fail where tax was paid before notice and no intent to evade was shown.

Interest on delayed service tax payment was found unsustainable where the principal tax had been paid before issuance of the show cause notice and part of the disputed period had already been discharged in time. The Tribunal treated the remedial amendment as applicable on the facts and held that interest could not be recovered as an independent demand for the entire period once tax stood paid. It also held that the extended limitation period was unavailable because there was no material showing intent to evade, and the delay arose from legal uncertainty on the levy. The notice was therefore time-barred.

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Issues: (i) Whether interest under section 75 was recoverable on delayed payment of service tax when the tax had been paid before issuance of the show cause notice and part of the period involved had already been paid in time; (ii) Whether the show cause notice invoking the extended period of limitation was sustainable in the absence of any material showing intent to evade.

Issue (i): Whether interest under section 75 was recoverable on delayed payment of service tax when the tax had been paid before issuance of the show cause notice and part of the period involved had already been paid in time.

Analysis: The demand related to interest on delayed payment of service tax. The record showed that for part of the disputed period the tax had been paid within time, and for the remaining period the tax had been paid before issuance of the show cause notice. The Tribunal also noted the beneficial amendment under section 80(2), and held that its remedial effect could be applied where the statutory conditions were satisfied. In the facts of the case, once the principal tax stood discharged before the notice, the interest demand could not be sustained as an independent recovery for the entire period claimed.

Conclusion: The interest demand was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the show cause notice invoking the extended period of limitation was sustainable in the absence of any material showing intent to evade.

Analysis: The delayed payment was attributed to the prevailing legal uncertainty on levy of service tax on renting of immovable property during the relevant period. The Tribunal found no evidence of a positive act or intention to evade tax. In the absence of such intent, the extended period under the proviso to section 73 could not be invoked, and the notice was beyond the normal limitation period. The Tribunal further held that a time-barred principal demand could not support recovery of interest in these circumstances.

Conclusion: The show cause notice was barred by limitation and the extended period was not available to the department.

Final Conclusion: The demand of interest was unsustainable on both merits and limitation, and the appeal succeeded with the impugned order being set aside.

Ratio Decidendi: Where the tax is paid before issuance of the show cause notice and the department fails to establish intent to evade, recovery of interest for the disputed period cannot be sustained and the extended limitation period cannot be invoked.

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