Delay in payment of service tax – Interest being compensatory in nature is payable for delayed payment.

PJ/Case Laws/2012-13/1118

Case: Commissioner of C. Ex., Mangalore V/s Hemant N. Talekar

Citation: 2012 (26) S.T.R. 309 (Kar.)

Issue:- Delay in payment of service tax – Interest being compensatory in nature is payable for delayed payment.

Imposition of penalty for delayed payment of Service tax with interest before issuance of SCN – not tenable when service tax paid before SCN and sufficient cause existed for delay.

Brief Facts: - Respondent-assessee paid the service tax belatedly for the period from July 2000 to October 2003. The service tax was paid prior to issue of show cause notice. The Adjudicating Authority ordered recovery with interest and imposed penalties.

In appeal before the Tribunal, it was held that interest is not payable and penalty was waived [2007 (6) S.T.R. 378 (Tribunal)].

Hence, Revenue is in appeal before the High Court.

Reasoning of Judgement: - The High Court held that once there is a delay in payment of service tax, interest is payable as it is compensatory in nature as held by the Apex Court. Therefore, the finding that interest is not payable is erroneous and is set aside.

With regard to penalty, it was held that penalty is imposed for a period prior to the introduction of sub-section (3) of Section 73. Therefore, mere payment of tax and interest prior to the issue of show cause notice by itself is not a ground to wave the levy of penalty. However, Section 80 mandates, if the assessee shows sufficient cause for non-payment of tax and interest within time, direction is vested with the authority to consider the said cause and in its view, if it is sufficient cause, not to impose penalty. In the instant case admittedly the assessee has paid tax and also paid interest even before the issue of show cause notice and has shown cause why it could not be paid earlier.

The High Court held that in view of the facts of the case, the Court satisfied that it constitutes a sufficient cause. In this regard it is also useful to refer to the Circular dated 20-10-2010 prohibiting the revenue from preferring an appeal where the tax effect is less than Rs. 2 lakhs. Though the said circular makes it clear that it comes into effect in respect of appeals to be filed subsequent to the date of the circular i.e., 1-11-2010, the Apex Court in the case of Commissioner of Central Excise, Bangalore v. Mysore Electricals Industries Limited [2006 (204) E.L.T. 517 (S.C.), has held that a beneficial circular has to be applied retrospectively while an oppressive circular has to be applied prospectively. Thus when the circular confers benefit on the respondents they have a right to claim the enforcement of the same prospectively. As this circular is in favour of the assessee, in view of the aforesaid judgment of the Apex Court, the circular had to be applied retrospectively granting the benefit. The interest component is hardly Rs. 24,000/-. In fact the interest was paid and thereafter refunded pursuant to the Tribunal's order.

In the facts of the case, the High Court was satisfied though they have set aside the order of the Tribunal, insofar as interest paid is concerned, they allow the matter to rest here, so that no liability can be enforced against the assessee in view of the aforesaid circumstances.

Decision: - Appeal partly allowed.

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PJ/Case Laws/2012-13/1118

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