Tax paid for period beyond 5 years SCN not issued is interest payable

[Parimal Kulkarni]

Dear Members,

An Individual was required to be registered for service tax but he was not aware of the same. Inquiry was initiated for FY 15-16 and tax was paid but no SCN was issued before 29.04.2021 (so time barred). Now the department officer is seeking interest to be paid and 15% penalty. Is interest/penalty payable in such a case? Section 73(6) (c) states "in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder."

In our view, Relevant date speaks of 5 years but that cannot be counted from the date of payment and hence SCN cannot be issued. Please do share your views

PS: For FY 16-17 onwards the individual has nil turnover and joined employment.

[KASTURI SETHI]

Sh.Parimal Kulkarni Ji,

Why have you not sought advice before deposit of Service Tax which you think is time barred ?

Pl. reply and after your receipt of reply I shall post comprehensive reply here.

[KASTURI SETHI]

Has the department issued any letter to you or instructing verbally to deposit interest and penalty ?

[KASTURI SETHI]

Tax, interest & penalty cannot be demanded before adjudication.---Telangana High Court in the case of Deem Distributors (P) Ltd. Vs. UOI 2021 (8) TMI 405 - TELANGANA HIGH COURT decided on 13.8.21.

[Parimal Kulkarni]

These are classic situations where assessee directly undertakes certain positions with the department and consultants get involved later. There is no letter issued seeking interest and penalty - all oral.

[KASTURI SETHI]

"These are classic situations where assessee directly undertakes certain positions with the department".

It appears to me that the above words show you have been 'wooed'

[Parimal Kulkarni]

While reviewing the matter in TMI We found the case of

2020 (2) TMI 226 - CESTAT BANGALORE, AARMS VALUE CHAIN PVT. LTD. VERSUS COMMISSIONER OF CENTRAL TAX, BANGALORE WEST, Service Tax Appeal No. 21000 of 2018, Order No. - Final Order No. 20072/2020, Dated: - 28 January 2020

May be of help to those having similar issues

[KASTURI SETHI]

Sh.Parimal Kulkarni Ji,

The case law posted by you is very very useful in this scenario. I could not trace out the status of this case law on EXCUS regarding whether this judgement has been accepted by the department. If the department has accepted it, your case will be very strong on time limitation.

[Parimal Kulkarni]

Thank you sir

[Amit Agrawal]

Adding two cents to views of fellow professionals:

In given case, relevant date u/s 73 needs to be computed from due date of filing service tax return/s for the material period and date of actual payment of taxes is irrelevant.

Your attention is invited to Apex Court Ruling in case of Commissioner v. T.V.S. Whirpool Ltd. - 1999 (10) TMI 701 - SC ORDER (S.C), wherein while dismissing the Department's appeal, the Supreme Court passed the following order :-

“It is only reasonable that the period of limitation that applies to a claim for the principal amount should also apply to the claim for interest thereon. We find no merit in the appeals and they are dismissed with costs.”

One can also look into possibilities of getting refund of taxes already paid, though it can be long drawn battle for sure and one needs to check many facets before pursuing such action. But, if quantum of potential refund is not significant, it would be better to treat the refund-option closed considering costs and time required therefor.

These should be treated strictly as my personal views and not as professional advice/s.

[Vikram Bansal]

Even though no one likes to pay taxes, it is important to give an adequate charge to the collection body. The money collected from taxes is used to support the development and provide resources to the people in the country. However, to reduce the burden of taxes on people, particularly income tax, the government provides specific standard deductions, tax exemptions, as well as tax deductions for the tax-saving investments made under the purview of the Income Tax law.

[KASTURI SETHI]

Sh.Parimal Kulkarni Ji,

Interest voluntary paid on time barred is not refundable----CESTAT MUMBAI in the case Lumax Auto Technologies Ltd.Vs.CE, Pune-1 reported as 2018 (2) TMI 1550 - CESTAT MUMBAI. Service Tax case.

[Karan Bansal]

Vikram Bansal Ji, What do you want to say?

AI Summary

Limitation for service tax: relevant date from return due date can bar post limitation SCNs and demands absent adjudication.
Dispute whether interest and penalty can be demanded where service tax for a period beyond five years was paid without issuance of an SCN; primary contention is that the relevant date for limitation under Section 73 must be computed from the due date of filing the service tax return, making actual payment date irrelevant and potentially rendering an SCN time barred. It is also noted that demands cannot be made before adjudication and that voluntary payment of interest in time barred cases has been held nonrefundable in some tribunal decisions.