An 'interesting issue' u/s 75 of FA, 1994

The author’s only point is that payment of interest cures the default of delayed payment and therefore the payment of service tax should be assumed to be made on 5th February 2016.

Interest is compensatory in nature does not mean that it cures the default of delayed payment. Compensation only means the interest that the government would have earned on service tax from the due date of payment to the date of actual payment if payment would have been made on the due date of payment.

If the assessee pays ‘x’ amount of interest, the same could have been earned by the government if the service tax were timely paid.

It is not a case of ‘double jeopardy’. The assessee was in fact liable to pay service tax Rs. 4 lac (Rs. 1 lac under reverse charge + Rs. 3 lac under forward charge) out of which Rs. 1 lac paid under reverse charge would be available as credit on 30th May 2016 only. Therefore the liability to pay interest is on Rs. 4 lac.

The amount due (under forward charge) as on 30th May 2016 is Rs. 3 lac, not Rs. 2 lac as shown. Out of this liability of Rs. 3 lac, the assessee intends to set off Rs. 1 lac paid under reverse charge which is also available as credit.

Given the author’s case, if the assessee decides not to utilise the credit of Rs. 1 lac paid (with interest) under reverse charge on 30th May 2016, his interest liability comes on Rs. 3 lac payable under forward charge.

Even in the author’s case Rs. 1 lac becomes available as credit only on 30th May 2016. Therefore, the assessee’s liability is to pay interest on service tax Rs. 3 lac to be paid under forward charge (besides interest on service tax Rs. 1 lac to be paid under reverse charge).

Therefore, this does not require any clarification from the Board.

Suhrid Bhatnagar 05/08/2016