Case Law Details
Secure Hospitality & Insurance Service Pvt Ltd. Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)
The CESTAT Mumbai examined an appeal concerning the demand of interest under Section 75 of the Finance Act, 1994 for delayed payment of service tax. The appellant, engaged in providing cleaning and manpower services, had delayed payment of service tax on certain occasions due to slowdown in the industry and delayed receipt of payments from clients. However, it had regularly filed ST-3 returns, and there was no dispute regarding such filings.
During audit, the department noticed delayed payment of service tax and issued a show cause notice dated 24 June 2020, demanding interest amounting to ₹4,79,974 for the period 2014–15 to 30 June 2017. Although the appellant had admitted liability to pay interest and sought time, it had not discharged the same. The Commissioner (Appeals) upheld the demand, holding that no limitation period applied for recovery of interest under Section 75.
The primary issue before the Tribunal was whether the limitation period prescribed under Section 73 for recovery of service tax also applies to recovery of interest under Section 75, even though Section 75 does not specify any limitation period.
The Tribunal observed that Section 75 provides for interest on delayed payment but does not prescribe a time limit for issuing demand notices. It held that where a statute grants power without specifying a limitation period, such power must be exercised within a reasonable period. It further held that interest under Section 75 is not an independent levy but is incidental to the principal tax liability under Section 73. Therefore, the limitation applicable to the principal demand must also apply to interest unless expressly excluded.
The Tribunal relied on judicial precedents, including a decision of the Supreme Court, which held that the limitation applicable to recovery of principal amounts should also apply to interest claims. It also referred to a High Court ruling reiterating that, in absence of specific statutory provisions, limitation applicable to principal demand extends to interest.
The Tribunal further noted that the extended period of limitation under Section 73 can be invoked only in cases involving fraud, collusion, suppression, or willful misstatement. In the present case, no such allegations were made in the show cause notice. Therefore, the extended limitation period could not be invoked, and the department was restricted to the normal limitation period.
It was held that allowing recovery of interest without limitation would defeat the statutory framework, as it would permit indefinite recovery even where the principal tax demand is time-barred. The Tribunal emphasized that where the extended period is not applicable to the principal demand, it cannot be indirectly invoked for interest recovery.
Applying the normal limitation period, the Tribunal noted that the relevant period extended up to June 2017 and the applicable limitation period was 30 months. Accordingly, the show cause notice should have been issued by December 2019. However, since the notice was issued on 24 June 2020, it was beyond the prescribed limitation period and therefore time-barred.
In view of these findings, the Tribunal held that the demand of interest was not sustainable and set aside the impugned order. The appeal was allowed.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal is directed against the Order-in-appeal dated 8.4.2025 whereby the Commissioner (Appeals) rejected the appeal filed by the Appellant while upholding that no period of limitation applies for issuance of demand of interest u/s. 75 of the Finance Act, 1994.
2. The appellant is engaged in providing Cleaning and Manpower Services. On certain occasions, due to slow down in the industry and delayed receipt of payments from clients, they discharged the service tax liability belatedly. Purportedly the fact of delayed payment came to the notice of the department during audit, though periodically filing of ST-3 returns has not been disputed. As per department, although the appellant admitted its liability to pay interest and sought time for payment, it failed to discharge the same. Consequently a show cause-cum-demand notice dated 24.6.2020 was issued, demanding interest u/s. 75 ibid for the periods 2014-15 till 30.6.2017, amounting to Rs.4,79,974/-.
3. The issue for consideration is whether normal period of limitation prescribed u/s. 73 ibid applies for demanding interest u/s. 75 also even though section 75 does not prescribe any specific limitation period?
4. I have carefully considered rival submissions and perused the case records including the synopsis/written submissions and examined the case laws placed on record. This is not a case where no periodically returns have been filed by the appellant.
Regularly they were filing ST-3 returns. Section 75 ibid prescribed for the ‘interest on delayed payment of service tax’ where the service tax is not paid within the prescribed period. It does not itself prescribed a time limit for issuing demand for interest on delayed payment. When statute provides a power without specifying a particular time limit, it is a well-settled principle of law that the authority must exercise that power within a reasonable period. This principle arises from the common law of jurisprudence on administrative powers. Interest u/s. 75 is not an independent levy, it is incidental to the principle tax liability u/s. 73 ibid and therefore, the limitation framework governing the principal demand must logically extend to the demand of interest unless the statute expressly provides otherwise.
5. The Hon’ble Supreme Court in Civil Appeal No. 72997309/1997; Commissioner v. TVS Whirlpool Limited; 2000 (119) E.L.T. A177 (S.C.) has held that ‘it is only reasonable that the period of limitation that applies to a claim for the principal amount should also apply to the claim for interest thereon’. The Tribunal’s order impugned in that case [Collector of Customs vs. TVS Whirlpool Ltd.; 1996 (86) E.L.T. 144 (Tribunal)], dealt with an issue related to payment of interest under the Customs Act, 1962 wherein a similar provision of limitation exists in case of non-levy, short levy, etc. and held that recovery proceedings for interest must adhere to the same limitation as applicable to the principal duty.
6. Further, the Hon’ble Delhi High Court in Kwality Ice Cream Company vs. Union of India; 2012(281) ELT 507 (Del.) following the law laid down by the Hon’ble Supreme Court in TVS Whirlpool Ltd. (supra) allowed the writ petition filed by the assessee on the ground of limitation itself without going into the other aspects of the matter and reiterated the principle laid therein that the period of limitation, unless otherwise stipulated by the statute, which applies to a claim for the principal amount should also apply to the claim for interest thereon.
7. Proviso to Section 73(1) ibid provides for invoking the extended period of limitation where any service tax has not been levied or paid or short-levied or short paid or erroneously refunded by reason of fraud, collusion, suppression, willful misstatement. The same applies mutatis mutandis for invoking extended period u/s.75 ibid. Admittedly no such allegations have been made in the show cause notice dated 24.6.2020. In the absence of ingredients necessary to invoke the extended period, the department can demand interest only for the normal period.
8. To hold that no limitation applies for claiming interest merely because section 75 is silent, would render the statutory scheme u/s. 73 nugatory. Because in that scenario it would permit recovery of interest indefinitely, even where the principal tax demand is time-barred, which consequence has not been contemplated by the statute. Where extended period of limitation cannot be invoked for the principal demand, it cannot be indirectly achieved by issuing a time-barred demand notice for interest alone. Where no fraud etc. has been alleged, interest demand for the period falling outside normal limitation is unsustainable.
9. In the absence of any specific allegations warranting invocation of the extended period of limitation u/s. 73 ibid, the demand including interest can be sustained only within the normal period of limitation. The period involved here is from year 2014 till 30.06.2017 i.e. upto the end of Service Tax regime prior to the introduction of Goods & Service Tax (GST) w.e.f. 1st July, 2017. From May, 2016 the normal period of limitation u/s. 73 was enhanced to ‘thirty month’ which was ‘eighteen months’ earlier. Taking June, 2017 as the last month involved, the normal period of thirty months would expire in December, 2019. Therefore the show-cause notice ought have been issued on or before December, 2019 to fall within the prescribed period. However, the notice having been issued on 24.6.2020, beyond the normal period and without invocation of extended period, is clearly barred by limitation. The same is not sustainable and is liable to be set aside.
10. Accordingly, the appeal filed by the appellant is allowed by setting aside the impugned order.
(Pronounced in open Court on 10.03.2026)
Author Bio
