AUGUST 04, 2016

By Pritam Mahure, CA

THE issue under consideration is whether for one offence, a taxpayer can be penalized twice under interest provisions?

Lets take an example. Say, due to financial constraints, the Reverse Charge Mechanism (RCM) liability of say Rs 1 lac, due on 5th February 2016 has been paid by the Company on 30th May 2016. Further, the output service tax liability of say Rs 3 lacs as a service provider for the same month is discharged on 30th May. The taxpayer will pay Rs 2 lacs in cash and Rs 1 lac through CENVAT credit (of RCM) is utilized. This discussion is tabulated below for ease of reference:

With the aforesaid facts, the amount due and deposited in the Government exchequer in totality is Rs 3 lacs. However, the availment of Cenvat credit is in terms of Rule 4 (7) of CCR which provides that CENVAT credit in respect of input service where whole or part of the service tax is liable to be paid by the recipient of service, credit of service tax payable by the service recipient shall be allowed after such service tax is paid. Given this, if the credit is said to be available on 30th May 2016, then it will lead to interest being applicable on 4 lacs.

Given the aforesaid, the underlying question is whether interest will be applicable on:

a. Rs 3 lacs (1 lac RCM liability and 2 lacs output liability) or

b. Rs 4 lacs (1 lac RCM liability and 3 lacs output liability)?

Logic says interest is applicable on Rs 3 lacs, however, lets understand whether the law also says the same!

Section 75 of the act prescribe that 'Every person e very person, liable to pay the tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest… the period by which such crediting of the tax or any part thereof is delayed '. It can be observed that interest provisions will trigger in case the assessee 'fails to credit the tax or any part thereof'.

In the instant case, the assessee in the normal course of business (assuming RCM liability and output liability is paid on 31 st January 2016)then the assessee would have credited the tax of Rs 3 lacs (1 lacs under RCM and 2 lacs as a service provider, after adjusting CENVAT credit of tax paid under RCM)). Given this, if the assessee has failed to credit the tax then the amount would be Rs 3 lacs (and not 4 lacs).

In this regard, it is pertinent to note that the Apex Court in case of Pratibha Processors - 2002-TIOL-273-SC-CUS has held that 'Interest is compensatory in character and is imposed on an assessee who has withheld payment.' Accordingly, levy of interest would be on the amount which is withhold as tax only. Similarly, in case of Jayathi Krishna & Co. - 2002-TIOL-761-SC-CUS the Apex Court held that, interest on warehoused goods is merely an accessory to the principal and if principal is not payable, so is it for interest on it.

Also, it may be stated that the payment of interest on Rs 1 lac under RCM will cure the default of late payment of service tax and can be said that the Cenvat credit available from the date on which it is due. Hence, the net liability payable shall be considered for the payment of interest (i.e. Rs 3 lacs in the aforesaid example.)

Further,if the interest is to be said to be payable on 4 lacs (on the contention that liability due as service provider is Rs 3 lacs and as a service receiver is Rs 1 lac) then it may lead to a scenario wherein the assesse e is being asked to pay interest twice (to the extent of Rs 1 lac) which is not permissible as the principle of double jeopardy.

Principle of double jeopardy prohibits the Government from punishing the person for same crime on more than one occasion. Even section 26 of the General Clauses Act, 1897provides that an omission shall not be liable to be punished twice for the same offence.

Thus, the interest amount which is due as a tax i.e. Rs 3 lacs (Rs 1 lacs under RCM and Rs 2 lacs as output liability) will attract interest & not the amount of Rs 4 lacs.

A clarification by the Board will certainly lend clarity to the issue.