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 the statutory three percent reduction for small taxpayers; applying the correct notification entries and accounting for payments already made, the tribunal found the balance interest demand unsustainable and set it aside. Separately, where the assessee deposited tax, major portions of interest and the prescribed reduced penalty within the relevant period and payments were appropriately appropriated, confirmed penalties and an additional penalty were disallowed and the penalty demand set aside.

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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.

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