Is Interest liable to be paid in accordance with Section 68 of Finance Act, 1994 with reference to Rule 6(4) of Service Tax Rules, 1994?

PJ/Case Law /2016-17/3378

Case - CANARA BANK Versus COMMISSIONER OF C. EX. & CUS. LTU, BANGALORE

Citation- 2016 (45) S.T.R. 214 (Tri. - Bang.)

Brief Facts - The facts of the case are that the appellant is holder of Service Tax registration and is providing services falling under the category of ‘Banking and other Financial Services’ during the relevant time. The appellant has obtained centralized registration and also obtained provisional assessment facility and paying taxes accordingly. As per the provisional assessment order, the appellant has to pay as tax a sum of Rs. 4.50 crores a month which the appellant has been paying. At times, the appellant has been paying taxes more than this amount and filing the returns but in few months, there was short payment of tax by the appellant while comparing to actual liability. Show cause notice dated 14-5-2010 was issued on the appellant for period from September, 2006 to June, 2007 requiring the appellant to show cause why interest amounting to Rs. 1,11,318/- could not be demanded under the provisions of Section 75 of Finance Act, 1994. The show cause notice was contested by the appellant on merits as well as on limitation but the Assistant Commissioner vide Order-in-Original dated 29-10-2010 confirmed the interest demand of Rs. 1,11,318/-. The appellant filed an appeal before the Commissioner (Appeals), who upheld the Order-in-Original and hence the present appeal.
Appellant’s Contention- The appellant has defended their case on two grounds. The first argument of the learned Chartered Accountant appearing for the appellant is that they were paying service tax under provisional assessment as per Rule 6(4) of Service Tax Rules, 1994 and an order in this regard was passed on 3-5-2005 by the Assistant Commissioner. He also submitted that vide this order dated 3-5-2005, the appellant-bank was permitted to pay tax amount of Rs. 4.50 crores on provisional basis monthly. The second contention of the learned CA is that the show cause notice is beyond limitation. He further submitted that findings of the learned Commissioner (Appeals) holding that the appellant was not under provisional assessment during the period under dispute is wrong. He further submitted that the provisional assessment order is valid till it is withdrawn as per the Department’s letter dated 3-2-2010 informing the appellant that they are no longer under provisional assessment in terms of Rule 6(4). He further submitted that both the adjudicating authorities failed to appreciate the fact that since the differential tax was paid before the final assessment, therefore, no interest is payable. He also submitted that the amount remitted by the appellant-bank was more than the provisional payment of Rs. 4.5 crores per month during the relevant period. During the months of September, 2006, November, 2006, March, 2007 and June, 2007, there was short payment of tax but the show cause notice was issued on 14-5-2010 which is beyond the period of limitation. He also submitted that the show cause notice was issued after more than one year from the relevant date without invoking the extended period of limitation.
Respondent’s Contention- Learned AR reiterated the findings of the Commissioner (Appeals) and submitted that as per the Department’s letter dated 3-5-2005 wherein, it is specifically stated that in case there is a short-payment of service tax in a particular month, the same shall be paid along with interest as provided under Section 75 of Finance Act, 1994. He also submitted that period of limitation does not apply to the claim of interest.
Reasoning of Judgment - The appellant was allowed to pay service tax provisionally on a monthly basis from April, 2005 by a letter issued by the Department and the appellant was required to deposit a sum of Rs. 4.5 crores monthly. This facility was given to the appellant as per Rule 6(4) of Service Tax Rules, 1994 which is reproduced herein below:
Rule 6(4) :“Where an assessee is, for any reason, unable to correctly estimate, on the date of deposit, the actual amount payable for any particular month or quarter, as the case may be, he may make a request in writing to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, giving reasons for payment of service tax on provisional basis and the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, on receipt of such request, may allow payment of service tax on provisional basis on such value of taxable service as may be specified by him and the provisions of [the Central Excise Rules, 2002,] relating to provisional assessment, except so far as they relate to execution of bond, shall, so far as may be, apply to such assessment.”
Further, it was also find that during the disputed period, the appellant has deposited more service tax than provisional assessment. But still it was less than the actual liability and further, interest cannot be demanded under Section 75 of Finance Act, 1994, because the appellant is not liable to pay interest in accordance with the provisions of Section 68 of the Finance Act, 1994 and the Rules made thereunder, i.e., Rule 6(4) which is made under Section 68 of the Act. Further, It was found that the findings of the learned Commissioner (Appeals) that during the period under dispute, the appellant was not under provisional assessment is factually incorrect because as per the letter of the Department dated 3-2-2010, the provisional assessment was withdrawn for future and therefore, it is not correct to say that during the disputed period, the appellant was not under provisional assessment. Secondly, learned CA appearing for the appellant submitted that the show cause notice issued is beyond the period of limitation and therefore, no liability to pay interest. In support of this submission, he relied upon the following case laws :
(i)     CCE v. TVS Whirlpool Ltd. [1999 (10) TMI 701 - Supreme Court = 2000 (119) E.L.T. A177 (S.C.)],
(ii)    Kwality Ice Cream Co. and Anr. v. U.O.I. and Anr. - 2012 (1) RMI 88 - Delhi High Court = 2012 (27)S.T.R.8 (Del.) = 2012 (281)E.L.T.507 (Del.),
(iii)   CCE v. VAE VKN Industries Pvt. Ltd. - 2013 (10) TMI 30 - Punjab & Haryana High Court = 2015 (322)E.L.T.269 (P&H),
(iv)   ANS Steel Tubes Ltd. v. CCE - 2014 (5) RMI 567 - Punjab & Haryana High Court = 2015 (318) E.L.T. A160 (P&H),
(v)    CCE v. Firomenich Aromatics (India) Pvt. Ltd. - 2015 (9) TMI 813 - Bombay High Court = 2015 (322)E.L.T.68 (Bom.),
(vi)   Bank of Baroda v. CST - 2015 TaxPub (ST) 1647 (CESTAT-Mum) = 2015 (40)S.T.R.1069 (Tribunal).
The judgments cited supra wherein it has been held by various courts including the Hon’ble Supreme Court that the period of limitation applies to the claim for principal amount and also applies to the claim for interest thereon. Therefore, in view of the aforesaid decisions, The considered opinion that the impugned order is not sustainable on merit as well as on limitation and therefore, it is set aside by allowing the appeal of the appellant with consequential relief, if any.
Appeal allowed.
Comment – The plot of the case is that the Service Tax deposited by appellant was more than the provisional assessment but still it was less than actual liability & the Differential tax was paid before final assessment. The department raised a show cause notice & also interest was demanded by the revenue. The appellant contended that the interest cannot be demanded under Section 75 of Finance Act, 1994, because the appellant is not liable to pay interest in accordance with the provisions of Section 68 of the Finance Act, 1994 and the Rules made thereunder, i.e., Rule 6(4) which is made under Section 68 of the Act & also the findings of the learned Commissioner (Appeals) that during the period under dispute, the appellant was not under provisional assessment is factually incorrect because as per the letter of the Department dated 3-2-2010, the provisional assessment was withdrawn for future and therefore, it is not correct to say that during the disputed period, the appellant was not under provisional assessment.
Prepared by- Alakh Bhandari

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PJ/Case Law /2016-17/3378

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