By TIOL News Service

MUMBAI, APR 03, 2017: APPELLANT is a manufacturer registered under FA, 1994 for discharge of service tax on ‘reverse charge basis'. Taking notice of alleged delayed payment of tax on ‘goods transport agency service' and ‘consulting engineer service' during audit of the period 2008-09, interest of Rs.738/-, Rs.246/- and Rs.2,65,866/- was ascertained as due.

SCNwas issued and the assessee agreed to discharge interest liability on the tax paid under the first two categories but assailed the interest liability on ‘Intellectual Property Services' which was asserted by Revenue as payable on the royalty paid to M/s Owens Corning USA.

It is the claim of appellant that payment to M/s Owens Corning USA was made only in 2009 thus erasing the claim for interest.

The original authority adverted to the substitution in clause (c) of the Explanation in section 67 of FA, 1994 (w.e.f 10.05.2008)and taking note of the debit in the books of accounts as payments accrued to M/s Owens Corning, USA held that the amounts were due in 2008 itself. Inasmuch as while holding that interest is payable on the delay in payment of service tax, the AA also invoked penalty u/s 76 of the FA, 1994 read with section 78B of the FA, 1994.

The Bench observed -

+ It is moot whether a notice under section 73(1) of Finance Act, can demand interest or, for that matter, whether a penalty can be imposed for non-payment of interest. Doubtlessly, the immunity from penalty is accorded by Explanation 2 in section 73 (3) of Finance Act, 1994, but even that specific prescription for immunity was not applicable to the period of dispute.

+ Interest is governed by section 75 of Finance Act, 1994 which mandates the addition of interest at the time of delayed payment of duty. Explanation 1, inserted in section 73 (3) of Finance Act, 1994, clarifies that, even though ascertainment is limited to tax liability, the interest under section 75 of Finance Act, 1994 shall also be payable without according it the same treatment as tax. Being a levy of interest, it is not required to undergo the rigours of section 73 in issue of notice within the period specified and should, therefore, be recoverable under section75 itself without reference to section 73.

+ A plain reading of amended section 76makes it unambiguously clear that it is not intended to cover interest but only tax as is due on the date of issue of notice for demand of tax. Else, it is absurd to impose a penalty of five times the interest amount in dispute. The impugned order is liable to be set aside for misdirection on this count itself.

The Appeal was allowed.

(See 2017-TIOL-1094-CESTAT-MUM)