Service tax interest rate

[RAJESH IYER]

Interest rate of service tax for wrong availment of cenvat credit has been increased from 13 percent to 18 percent from 01.04.2011. If Service tax credit  is taken and utilised  wrongly on 01.05.2010 and  depositing through e-payment challan today instead of reversing cenvat. What rate of interest is to be  adopted. whether Interest is required to paid from 01.05.2010 till the date of payment.

[Mritunjay Kumar]

Interest rate has been increased from 13 percent to 18 percent vide Notification No.14/2011. This Notification shall come into force from 1-4-2011. This means that rate of 18 percent will be applicable from date 1-4-2011 as this notification does not have any retrospective effect.

Therefore, the rate applicable for interest upto 31-03-2011 will be rate prescribed in Notification No.26/2004 i.e. rate of 13 percent and thereafter from 1-4-2011, the applicable rate will be 18 percent for interest payment.

As regards the date from which the interest will be charged is concerned, it will be the due date from which the Service tax becomes payable i.e. the due date prescribed under Rule 6 of the Service Tax Rule, 1994.

Above said Rule 6 reads as:

6. Payment of service tax. -

¹ (1) The service tax shall be paid to the credit of the Central Government,- 

        (i) by the 6th day of the month, if the duty is deposited   electronically through internet banking; and

        (ii) by the 5th day of the month, in any other case,

       immediately following the calendar month in which the ²²[service is deemed to be provided as per the rules framed in this regard]:

       Provided that where the assessee is an individual or proprietary firm or partnership firm, the service tax shall be paid to the credit of the Central Government by the 6th day of the month if the duty is deposited electronically through internet banking, or, in any other case, the 5th day of the month, as the case may be, immediately following the quarter in which the ²³[service is deemed to be provided as per the rules framed in this regard]:

Thus, in case of Company, the interest will be charged from 5th/6th of June,2010. However, in case of other assesse, it will be charged from 5th/6th of July, 2010.

[Ramanujam Varadarajan]

While the views of Mr Mritunjay Kumar is perfectly correctly, wish to add one more point to the query raised.

Even if the service tax credit is taken and utilised is rectified instead of deposit by cash, but by reversing credit now, the interest would apply.

AI Summary

Service tax interest rate change applies prospectively; interest on wrong CENVAT use accrues from the statutory due date. Interest on wrongly availed and utilised service tax credit accrues from the statutory due date under Rule 6; corporate assessees follow the monthly payment deadline (with an electronic payment distinction) and individuals/proprietors/partnerships follow the quarterly deadline. An increase in the prescribed interest rate operates prospectively from its notified commencement date, with earlier periods charged at the prior rate. Reversing the credit now does not eliminate interest liability for the intervening period.