BY TIOL News Service

MUMBAI, MAR 11, 2019: THE appellant had given space in their malls to various retailers/persons who sold their goods by using the infrastructure of the mall/outlets. For using this facility, the retailers/persons had entered into Minimum Guarantee Agreement with the Appellant, according to which they had to pay a fixed percentage of sales or a Minimum Guarantee Money (MGM) to the appellant. They had to ensure that the minimum amount of income is generated so that appellant gets a sufficient share. In case the minimum income was not generated, the person using the space had to pay the differential amount as MGM.

In respect of the MGM charged and received by the Appellant, they had paid Service Tax under "Business Auxiliary Service".

However, for the amount received by the Appellant during the year 2007-08, over and above MGM, from the persons who had achieved the target sales and have paid a share of their turnover to the Appellants, this income was not subjected to Service Tax.

The said discrepancy came to notice during the course of Audit and after being pointed out by the Audit, the Appellant paid the entire Service Tax amount on 15.09.2011 but without any interest and penalty.

A SCN came to be issued for recovery of interest of Rs.13,73,698/- u/s 75 of the FA, 1994 and imposition of penalties u/s 76, 78 of FA, 1994.

The adjudicating authority confirmed the demand of interest and also imposed penalty u/s 78 ibid. On appeal,the Commissioner reduced the interest liability to Rs.10,38,028/- and dropped the penalty.

The appellant is before the CESTAT and challenges only the imposition of interest. It is submitted that no demand has been raised in the SCN and there cannot be interest demand without any demand raised for the tax amount; that they always had unutilized balance lying in the CENVAT credit account and they have immediately reversed the credit on being pointed out by the Department and, therefore, no interest is to be imposed on the appellant.

The AR emphasised that the appellant having accepted and paid the service tax quantum, interest liability is inevitable.

The Bench adverted to rule 6 of the STR, 1994, rule 3(4) of the CCR, 2004 and noted that it is in agreement with the finding of the Commissioner (A) that in view of the law laid down by the Supreme Court in the matter of Union of India vs. Ind-Swift Laboratories Ltd. - 2011-TIOL-21-SC-CX the defence put forth by the appellant that since they had sufficient balance in their Cenvat account at all time during the period of dispute, no interest is payable, is untenable.

It was further observed –

"6. Admittedly, there is delay in payment of Service Tax and once the duty is admitted, interest cannot be detached from the duty liability. The liability to pay interest arises when the assessee is liable to pay duty on the day which is prescribed but failed to pay the same. The liability to pay interest arises from the date, the duty is payable till the date it is paid. By such late payment or delayed payment, the Revenue is deprived of the duty. The said amount would be in possession of the assessee who would have the benefit of the said amount. It is to compensate the loss sustained by the Revenue, the interest is imposed and, therefore, the interest is payable for the period during which the Revenue is deprived of the duty, which it was legitimately entitle to and since the assessee had the benefit of the duty by not paying the duty payable on the due late. It is compensatory in nature and is imposed on the assessee who has withheld payment of any tax as and when it is due and payable. Thus the show cause notice and the orders of the authorities below invoking the provision of Section 75 ibid for demanding interest is perfectly in order and is within the framework of law."

Concluding that there is no merit in the appeal filed, the same was rejected.

(See 2019-TIOL-738-CESTAT-MUM)