How to apply new Service Tax Interest Rate ??

[abbas mukhi]

Sir,

As the finance bill, 2016 is enacted on 14.05.2016, new rate of interest is also get effected.

how new rate of interest will be apply in for earlier transaction ??

Is there any provision in this regard...?

[KASTURI SETHI]

Sh.Abbas Mukhi Ji,

For the past transactions i.e. prior to 13.5.2016 old rates of interest are applicable.

[Rajagopalan Ranganathan]

Sir,

With due respects to the views of Shri. Kasturi Sir, my view is that date of payment of in terest is the criterion. If the interest is paid on or after 14.5.2016 even for the demand raised prior to 14.5.2016 the rate of interest will be 15% only.

[Ganeshan Kalyani]

Sir I too vote for Sri Rajagopalan Sir's view. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

During the presentation of Budget, 2016, the Govt. declared that rate of interest would be reduced to 15% from the date of enactment. Every body knows that if budget is presented in the last week of February, the expected date of enactment is in first or second week of May. Now supposing if ST was due in Jan, Feb and March and was deposited late without payment of interest, do you think the department has allowed them to wait for reduced rate of interest till the date of enactment ?

Pl. re-discuss.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Have you watched video/article titled as "Finance Bill, 2016 :enacted changes effective from 14.5.16" by Sh. Bimal Jain, famous lawyer ? If not, watch now.This video talks applicability of rate of interest.

This is our healthy discussion in sportsman spirit. We should arrive at some concrete conclusion. We should leave the issue undecided.

Thanks & Regards.

K.L.SETHI

[Rajagopalan Ranganathan]

Dear kasturi Sir,

My view is as follows: -

If the delaued serv ice tax is paid on or after enactment of finance Bill 2016 then the new rate of interest is payable. If the service tax paid before enactment of Finance Bill 2016 then ratre of interest prevailing on the date of service tax after delay then the rate interest applicable on the date of payment of service tax after delay is applicable.

Sir,

With due respects to the views of Shri. Kasturi Sir, my view is that date of payment of in terest is the criterion. If the interest is paid on or after 14.5.2016 even for the demand raised prior to 14.5.2016 the rate of interest will be 15% only.

[CSSANJAY MALHOTRA]

Dear Friends,

Agree to Mr Rajagopalan views and Rate of Interest is the interest as prevalent at the time of duty demand. (Reason : Rules amended have to be given full effect or else the same would become redundant)

R/ Kasturi ji, your contention is valid that the interest should be at the rate applicable at the time the duty payable is due, but the provisions are defined in such a manner that rate of Interest as prevailing at the time of duty demand is recoverable and not when the tax was due. Normally I have seen (practically yourself have also noticed during your stay with deaprtment) that few assessee's don''t contest and deposit Interest as falling before the amendment and after amendments if their liability arises in 2 different periods, but same is wrong practice & should not be resorted to.

All SCN have phrase "Interest as applicable and APPLICABILITY is as per the rate of interest prevalent at the time of demand of duty"

Lets appreciate Sh. Rajagopalan views..

[KASTURI SETHI]

Sh.CS Sanjay Malhotra Ji,

Agreed, Sir. Thanks for clarification.

[KASTURI SETHI]

Sh.CS Sanjay Malhotra Ji,

I always peruse your replies word for word twice or thrice to grasp the real meaning and message contained therein. In this reply your every argument is full of substance( legal, logical as well as practical) Virtually you have painted a true picture of the department as well as law. Hence I am convinced. Thanks again, Sir.

In this forum when any conclusion is arrived at after analyzing pros. and cons., the querist and visitors of this forum form get a clear view and they are able to go ahead in right direction.

[Ganeshan Kalyani]

Really well replied by Sri Sanjay Sir and well acknowledged by Sri Kasturi Sir. In fact by giving different views than what the rest of the experts have given Sri Kasturi Sir has created a situation where we all got to know the real backgound and reason why the provision is framed in such a way. Sri Rajagopalan Sir is wise and gives reply always by referring the extract of the provision in his reply. This gives a weightage to his views and wins lot of confidence in the mind of the querist, onlookers and editor of this forum. Good to see the spirit of the experts. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Sir, When I learn from you, I am thankful to you, when I learn from Sh.CS Sanjay Malhotra, I am thankful to him, when I learn from Sh.Rangnathan, Sir, I am thankful to him. There is no an iota of hesitation to accept the views of experts, if the same are correct. Final picture be clear. One should not grope in the dark. This is my attitude in real terms.I have no mask on my face.

[CSSANJAY MALHOTRA]

R/ Sh. Kasturi ji,

Am aware of that though sometimes you are aware of issue, but u played otherwise so that the visitors and querist should have feel of the actual background.. Thanks to your spirit. We all learn and the same will be in place only with more and more debate or not accepting the submissions as is..... really hat's off.

I still recollect your submissions that none is expert and we all learn from each other as we all make mistakes and none is 100% perfect..

Thanks

[Ganeshan Kalyani]

Sir I am impressed with your stlye of approach. Really it is the best approach. Either be in dark and curse it is or come out of it like a pearl from the shell. Thanks.

[KASTURI SETHI]

Dear Experts,

Although the issue is settled now, yet I post authority (Board's letter) in support of the views of Sh.Rajagopalan Ranganathan, Sir, Sh.Ganeshan Kalyani, Sir, Sh.CS Sanjay Malhotra, Sir (Casting Vote) (I do not include myself as I joined the mainstream later on when casting vote was cast). An expert who posts correct reply first, deserves kudos. Here is Sh.Ranganathan, Sir. I would attribute my misunderstanding or misinterpretation of law to the hangover of the department. It means even after a period of four since my retirement I have not come out of this hangover. Anyway, I would term it as learning curve for me at this age and stage. Sh.Abbas Mukhi Ji, querist is interested in the basis of the applicability of rate of interest. Here is relevant extract of Board's D.O. Letter F. No. 334/15/2014-TRU, dated 10-7-2014 when rate of interest was increased.

[Ganeshan Kalyani]

Thanks you Sri Kasturi Sir for submitting the update.Thanks.

[Vijay kumar]

Dear Mr.Abbas,

Please refer to the TRU Circular posted above by Mr.Sethi. Accordingly, the rate of interest prevailing under the respective notifications will apply, when the tax due falls under those periods. For example, if a tax became due in Jan, 2013 and paid on 31.5.2016, following rates will apply:

From 5.2.2013 to 30.9.2014 - 18%

From 1.10.2014 to 13.5.2016 - 30% (since tax was due for more than one year as on 1.10.2014)

From 14.5.2016 to 31.5.2016 - 15%.

If we apply the 15% rate across the board, the earlier notifications will become redundant. More over, those who have paid the tax and interest earlier will be placed on different footing to those paid the tax after 14.5.2016. In my view, the above calculation is as per the TRU letter issued by the Board.

You may calculate your liability accordingly.

[KASTURI SETHI]

Dear Sir,

Pl. read the judgement of Supreme Court on this issue.

SUCHITRA COMPONENTS LTD. Versus COMMISSIONER OF C. EX., GUNTUR 2008 (11) S.T.R. 430 (S.C.) - 2007 (1) TMI 4 - SUPREME COURT OF INDIA

[Ganeshan Kalyani]

Sir the Hon'ble Supreme Court decision is very clear to state that the rate of interest prevailing at the time of payment of tax is applicable. Thanks Sri Kasturi Sir.

Sri Vijay Sir I would like to welcome to TMI as you were not seen for some time. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Sir, Save this judgement for future in the interest of would-be clients.After all, the judgement of Supreme Court is law of the land.

AI Summary

Service tax interest rate change applies prospectively from enactment; interest computed by period when tax was due.
Debate centers on whether the revised interest rate applies to earlier service tax demands when interest is paid after enactment. Notification No.13/2016 fixes the new rate and states it comes into force on assent of the Finance Bill; absent express retrospective language, the notification is applied prospectively. Consequently interest is to be computed by reference to the rate prevailing for each period when the tax was due, potentially segmenting liability across rate periods, although some judicial pronouncements were cited advocating application of the rate at time of payment.