2026 (2) TMI 1278 - AT - Service Tax

Interest calculation under section 75 requires period wise rates with a three percent reduction; timely deposits can negate balance interest and penalties.

Where service tax collected within a cum tax price was not remitted, interest must be computed period wise using rates in successive notifications with ... Interest on delayed payment of service tax - Applicability of service-tax interest notifications to periods of delay - Reduction of interest for small service providers u/s 75 - Cum-tax pricing and its effect on tax/interest liability - Penalty for suppression of service tax u/s 78 of the Finance Act, 1994 - Penalty for failure to self-assess u/s 77(2) of the Finance Act, 1994 - Benefit of reduced penalty on payment within 30 days of show cause notice - HELD THAT:- From the submissions made by the appellant before the Adjudicating Authority and First Appellate Authority, it is evident that the appellant is not disputing the amount of service tax demanded, they have paid the entire tax liability of service tax due within 30 days from the issuance of show cause notice, which is now confirmed against the appellant by adjudicating authority and Commissioner (Appeals). They have also deposited the interest due as per their own and penalty calculated @14% on the amount of tax short paid as provided by Section 78 of the Finance Act, 1994. The entire dispute is in respect of calculation of interest in respect of payment of service tax as per the notification. The said Notification is reproduced in the impugned order and it is observed that dispute is only in respect of the period covered by Notification No.13/2016 dated 01.03.2016 impugned order states that interest should be calculated as per serial no.1 of the table appended in the said notification whereas claim of the appellant is that it is to be calculated as per Sl.No.2 of the notification. In the present case, the demand had not been made under Section 73(2) of the Finance Act, 1994 and the interest has been demanded in terms of Section 73 not under Section 73B of the Act, as such, the above clause should not be application. It is also observed that in respect of this amount Adjudicating Authority and Appellate Authority themselves have concluded that appellant have not calculated any amount separately and have allowed the benefit of cum tax price to the gross receipts. Thus, it is enough to establish that the appellant was not calculating their amount of tax short paid separately representing service tax from their clients. The case is simply of short payment of service tax and the same would be covered by Sl.No.2 appended in the said notification. As observed that appellant had deposited that entire amount of service tax due, major portion of interest along with 15% of penalty as provided under Section 78 of the Act within 30 days from the issuance of the show cause notice, the demand confirmed along with interest and penalty cannot be upheld as per the provisions of Section 78 itself. No merits in impugned order and the same is set aside. - Appeal is allowed. Issues: (i) Whether the balance interest (net) on confirmed service tax is demandable; (ii) Whether the balance penalties under section 78 and section 77(2) of the Finance Act, 1994 are imposable on the appellant.Issue (i): Whether the balance interest of Rs.57,340/- (net) on service tax of Rs.1,11,365/- as confirmed under the Order-in-Original is demandable.Analysis: The dispute concerned computation of interest under section 75 of the Finance Act, 1994 read with successive notifications (including Notification Nos.14/2011,12/2014 and 13/2016) and the proviso reducing interest by three percent for small taxpayers. The authorities held that the appellant had charged a cum-tax price and failed to remit amounts to the Government; hence interest rates prescribed in the notifications apply for the respective periods with applicable reduction under section 75. The Tribunal examined the periods and rates, acknowledged payments already made by the appellant (including substantial portion of interest), and recalculated interest applying the correct serial entry of the notification for short payment cases, concluding that the remaining interest demanded could not be sustained as originally confirmed.Conclusion: The balance interest of Rs.57,340/- demanded in the impugned order is not sustained and the demand as confirmed is set aside in the appellant's favour.Issue (ii): Whether the balance penalty of Rs.94,665/- under section 78 and Rs.2,000/- under section 77(2) of the Finance Act, 1994 are imposable on the appellant.Analysis: The adjudicating authority had imposed equal penalty under section 78 and an additional penalty under section 77(2). The appellant paid tax, a major portion of interest and a reduced penalty amount within 30 days of the show cause notice and claimed benefit under the proviso to section 78. The Tribunal examined the timing and nature of deposits, appropriation of payments, and the proviso's applicability for single and timely deposits. Having found that the appellant deposited the tax, major portion of interest and 15% penalty within the relevant period and in view of the corrected interest calculation and payments, the Tribunal held that the confirmed penalties and additional penalty could not be upheld as imposed in the impugned order and the impugned order on penalties lacks merit.Conclusion: The confirmed differential penalties as imposed in the impugned order are not sustained and the impugned order is set aside; the appeal is allowed in respect of penalties in favour of the appellant.Final Conclusion: The Tribunal allowed the appeal, set aside the impugned Order-in-Appeal and the Order-in-Original to the extent they confirmed the challenged interest and penalties, and thereby ruled overall in favour of the assessee.Ratio Decidendi: Where service tax is collected as part of a cum-tax price but not remitted, interest is to be computed period-wise as per the notifications under section 75 (with the statutory three percent reduction for small taxpayers); where the assessee has deposited the tax and substantial portions of interest and prescribed reduced penalty within the stipulated period, the confirmed demand for remaining interest/penalty calculated under the impugned orders may be set aside.