CA Pradeep Jain, CA Neetu Sukhwani & Ankit Palguata
The Government has enhanced the rate of interest to be charged on delayed payment of Service tax under Section 75 of Finance Act, 1994. This increase in the rate is based on period of delay rather a single increased rate for any period of delay. Thus, due to this change in the marginal difference in the rate of interest, interest recovered by the government will be high as compared to interest recovered before amendment. The increased rates according to the period of delay will be effective from 01.10.2014. It seems as if the government wishes to catch hold the service tax defaulters tightly because the service sector contributes to a substantial share in the overall revenue of the government. After giving the service tax assessees an opportunity to come clear by filing declarations in VCES and come clean, this enhancement in the interest rate for delayed payment of service tax depicts the intention of the government to keep a close eye on the service tax assessees.
Glance at the erstwhile provision:
The Govt. had prescribed Interest rate as 18% for delayed payment of service tax after due date under Section 75 of Finance Act, 1994. Every person, liable to pay the tax in accordance with the provisions of the charging section or the Service Tax Rules made thereunder, and 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 the rate of 18% per annum, 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 lakhs rupees
such rate of interest, shall be reduced by three per cent per annum i.e. effective rate of interest will be, in this case, 15%.
The Government has amended the rate of Interest to be charged on delayed payment of Service Tax. The Government has increased interest rate vide Notification no. 12/2014-ST dt. 11.07.2014 which is tabulated as under-
|S. No.||Period of Delay||Rate of Interest|
|1||Up to six months||18% per annum|
|2||More than six months & upto one year
|18% for first six months of delay, and 24% for the period of delay beyond six months|
|3||For more than 1 year||18% for the first six months of delay, 24% for the period beyond six months upto one year, and 30% for the period of delay beyond one year.
Further, this amendment relating to variable rates of Interest will come into effect from 1st October 2014. Also the benefit of 3% concession in interest rate is available to small service providers.
This amendment, of increasing rate of interest on payment of Service tax after due date, is definitely not good from view point of assessee because of the high rate of interest which will prove to be extra burden to the assessee. Further, as the Government has increased rate on the basis of period of delay rather than flat increase in the rate irrespective of the time period, it will ultimately increase the burden of interest on the assessee. It appears that this measure has been taken by the Government to speed up the receipts of service tax payments within due course of time. But if an analysis is made on impact of this change, then amount of Interest on delayed payment of interest that will be charged from the service tax defaulters will be much higher than that charged before. This will be clear from an illustration as given below:-
Assume a case where service tax amounting to Rs. 10, 00,000/- became due, say, on the 6th of July, 2012 and the assessee pays the dues on 6th of December, 2014. In such a case, the interest to be charged would be as below:
(i) 18% simple interest upto September, 30th, 2014.
(ii) For the period from 1st October, 2014 to 6th December, 2014, the rate of interest will be 30% since the period of delay is beyond one year.
|Period||Delay||Amended Interest||Prior to Amendment|
|For period from 6.07.2012 to 30.09.2014||816 days||1000000*18%*816/365 = 402411/-||1000000*18%*883/365 = 435452/-|
|For period from 1.10.2014 to 06.12.2014||67 days||1000000*30%*67/365 = 55068/-|
Therefore, all we can say is that the service tax assessees should not think to delay the payment of service tax and beware because the extent of delay would determine their interest liability. However, it is appreciated that the proviso to section 75 granting three per cent concession on the applicable rate of interest will continue to be available to the small service providers. This fact is even clarified in the TRU letter issued by the government on 10.07.2014.
It is observed that the government is making every attempt to focus on its key source of revenue and making efforts to maximize the same. This is also reflected from the other amendments made in the Service Tax Laws wherein certain exemptions have been withdrawn and the scope of service tax has been expanded. Well, all that we can say to the Service Tax Assessees is BEWARE!!!