Service Tax - Usurious Interest only for Tax collected and not paid? - Does CBEC Chief really mean that?
IT is well known that in the recent Budget, the interest rate for delayed payment of Service Tax beyond one year has been hiked to 30 percent from the present 18 percent.
Business Standard has recently reported that the Chairperson of CBEC, Shanti Sundharam has stated that this high rate of interest is only for Service Tax collected and not paid.
This is what the paper reported:
Q. The Budget proposed an increase in the rate of interest from 18 per cent to 30 per cent on delay in payment of service tax beyond six months.
A. This is for service tax which is collected and not paid by a particular date. The person has used this amount. So, interest will act as a deterrent. It is only simple interest.
But Madam Chairperson, this is not what the Notification says.
As per Section 75 of the Finance Act, 1994;
Every person, liable to pay the tax in accordance with the provisions of section 68 or rules made there under, 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.
So, the rate of interest for delayed payment of Service Tax has to be notified by the Government. And the Government had by Notification No. 26/2004 dated 10.09.2004 as amended by Notification No. 14/2011 dated 01.03.2011 fixed the rate as 18 percent in exercise of the powers conferred by Section 75.
This notification was superseded by Notification No. 12/2014 dated 11.07.2014, which states, "the Central Government hereby, for the purpose of the said section, fixes the following rates of simple interest per annum for delayed payment of service tax, as given in table below: -
Table
Sl.No. | Period of delay | Rate of simple interest |
|---|---|---|
(1) | (2) | (3) |
1. | Up to six months | 18 per cent |
2. | More than six months and up to one year | 18 per cent for the first six months of delay and 24 per cent for the delay beyond six months. |
3. | More than one year | 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. |
This notification nowhere states that the 24 percent and 30 percent interest rates are for Service Tax collected and not paid.
In fact the assessees are afraid that they will have to pay 30 percent interest from 1st October 2014, even for the pending cases.
Suppose there is a demand for Service Tax for the period 1.4.2008 to 31.3.2009 and the assessee contests the demand. In 2018, CESTAT will give an order confirming the demand. For the period up to 30th September 2014, he has to pay interest at 18 percent and after that at 30 percent! Can any business survive with 30 percent interest and an equal penalty (payable after about ten years of alleged liability)? And you know the department can strike any time before five years with a huge unimaginable demand.
This type of laws gets enacted because the Government officers get their fat salaries regularly -uninterrupted and they have no clue as to how a business is run. Thank God - they could have made it 36 percent - they have the power to do that.