Live in present - 'for time being fixed' - interest rates under Service tax
MAY 23, 2016
By G Jayaprakash, Advocate
INTEREST is said to be an integral part of principal and compensatory in nature. Even though the rate of interest payable as per contract between the parties is subject to restrictions imposed by State Governments/ Reserve Bank of India, often this remains on paper and continues to be regulated by the powerful non banking financial institutions.
In the case of default of payment of Duty/Tax, the relevant statute provides provision to collect interest in addition to the tax payable. Central Government fixes the Rate of interest applicable from time to time by issuing Notifications. In relation to Service Tax Section (s)73B/75 of the Finance Act, 1994 stipulates that in case of delayed payments, the assessee is required to pay simple interest at the notified rate for the period of delay.
SECTION-75. Interest on delayed payment of service tax - Every 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 [at such rate not below ten per cent. and not exceeding thirty-six per cent. per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette] for the period] by which such crediting of the tax or any part thereof is delayed
[Provided that in the case of a service provider, whose value of taxable services provided in a financial year does not exceed sixty lakh rupees during any of the financial years covered by the notice or during the last preceding financial year, as the case may be, such rate of interest, shall be reduced by three per cent. per annum.]
As in the case of penal provisions under Section(s) 76, 77& 78 of the Act, Section 75 also underwent many amendments and substitutions. Finance Act, 2004 substituted the provision for specific rates with minimum and maximum rates of interest that can be imposed without the proviso as stated above. After substitution, Notification 26/2004-ST dated 10.09.2004 fixed the rate of interest @13%. This rate was increased to 18% vide Notification 14/2011-ST dated 1.3.2011 with effect from 1.4.2011. The proviso to the Section 75 was inserted by Finance Act, 2011 w.e.f 8.4.2011. Notification 12/2014-ST dated 11.07.2014 superseded Notification 26/2004-ST dated 10.09.2004 by specifying applicable rate of interest as per table below:-
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Sl.No.
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Period of delay
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Rate of simple interest
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(1)
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(2)
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(3)
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1.
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Up to six months
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18 per cent.
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2.
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More than six months and up to one year
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18 per cent. for the first six months of delay and 24 per cent. for the delay beyond six months.
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3.
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More than one year
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18 per cent. for the first six months of delay; 24 per cent. for the period beyond six months up to one year and 30 per cent. for any delay beyond one year.
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The above Notification is superseded by Notification 13/2016-ST dated 1.3.2016 as below -
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Serial Number
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Situation
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Rate of simple interest
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(1)
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(2)
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(3)
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1.
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Collection of any amount as service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due.
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24 per cent.
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2.
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Other than in situations covered under serial number 1 above.
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15 per cent
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The above notification has come into force as the Finance Bill, 2016 has received the assent of the President on 14 th May 2016.
This paper analyses the applicable rate of interest an assessee is liable to pay for default of payment of Service Tax for the period of delay from 2010-11 onwards after enactment of Finance Act, 2016. As shown above, different rates varying from 13% to 30% exists for the above period. Whether an assessee is liable to pay interest at the appropriate rates for the periods during which the relevant notifications were in vogue or at the rate of 15% applicable after the enactment, whichever is beneficial ?
The Section states interest is liable to be paid as is for the time being fixed by the Central Government, by notification in the Official Gazette . What is the relevance of the term “for the time being fixed”? The phrase “ time being fixed” is subjected to judicial interpretation by different High Courts.
The Madhya Pradesh High Court in Devkumarsinghji Kasturchandji v. State of Madhya Pradesh and Others reported in AIR 1967 Madhya Pradesh, 268, where the Madhya Pradesh High Court has observed: The general sense of the phrase “for the time being” is that of time indefinite, and refers to indefinite state of facts which will arise in future and which may vary from time to time. See Ellison v. Thomas, (1862) 31 L.J. Ch. 867.
Fortified by the above decision of the Madhya Pradesh High Court, High Court of Bombay in Re:Jayant Fibre Containers Pvt Ltd - 2003-TIOL-634-HC-MUM-CX upheld the applicability of both the Notificationsfor exemption including the one issued later also when two exemption Notifications were available.
From the above judgments it can be seen that since the rate of interest applicable is what is fixed as per Notification for the time being by Central Government, the assessee needs to pay the interest for the period of delay as per rate fixed by the subsequent Notification, for earlier period,if it is beneficial.
That is an assessee can pay an interest @15% after enactment of Finance Act, 2016 (on 14.05.2016) for previous periods when interest rates were higher.
Sounds anachronistic?
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