Case Law Details
Head Post Master Vs Commissioner of Central Excise & CGST (CESTAT Allahabad)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, dismissed an appeal filed by the Head Post Master, Etawah, challenging the levy of interest on delayed payment of service tax. The dispute arose from an order of the Commissioner (Appeals), which had upheld recovery of interest under Section 75 of the Finance Act, 1994, while waiving penalties under Sections 78 and 77(2), considering that the appellant was a government department and there was no evidence of fraud, suppression, or deliberate non-compliance.
The appellant, engaged in providing postal and courier services, was subjected to an inquiry by the Directorate General of GST Intelligence (DGGI), Kanpur. During scrutiny of records, it was found that service tax amounting to Rs. 33,35,261 had not been paid for the period from April 2014 to June 2017. It was also noticed that ST-3 returns for the period had not been filed. Consequently, a show cause notice dated 30.10.2019 was issued proposing recovery of unpaid service tax, interest, and penalties.
The adjudicating authority subsequently confirmed a service tax demand of Rs. 10,16,176 for the period October 2016 to June 2017, appropriating the amount already deposited by the appellant. The remaining proposed demand of Rs. 23,19,085 was withdrawn as unsustainable. The authority also ordered recovery of interest under Section 75 and imposed penalties. On appeal, the Commissioner (Appeals) upheld the interest demand but waived penalties under Section 78 and Rule 7 read with Sections 70 and 77(2), noting the absence of fraudulent intent and the appellant’s status as a government department.
Before the Tribunal, the appellant argued that interest should not be recovered because the delay was not intentional. It submitted that, as a government department, it faced practical difficulties in depositing service tax through internet banking. According to the appellant, departmental procedures restricted such transactions, and repeated efforts were made with the State Bank of India and the Central Excise authorities to permit payment through cheque in terms of Rule 6(2) of the Service Tax Rules, 1994. The appellant contended that the delay arose due to procedural and bureaucratic constraints rather than any intention to withhold tax.
The Tribunal observed that the only issue before it was whether interest was payable on service tax deposited after the prescribed due date. It noted that service tax of Rs. 10,16,176 relating to the period October 2016 to June 2017 had been deposited only in February 2021, long after the due date. The Tribunal held that the delay in payment was undisputed.
Referring to Section 75 of the Finance Act, 1994, the Tribunal emphasized that interest is payable by every person liable to pay service tax who fails to credit the tax within the prescribed period. It noted that the appellant had collected service tax from service recipients but had not deposited the amount with the Government within the stipulated time. Although the delay may have been attributable to bureaucratic processes and administrative procedures, such circumstances could not override the statutory mandate for payment of interest.
The Tribunal relied on the Supreme Court’s decision in Pratibha Processors, which distinguished tax, interest, and penalty. It reiterated that interest is compensatory in nature and is imposed on a person who withholds payment of tax beyond the due date, whereas penalty is penal in character and generally relates to deliberate violations. The Tribunal also referred to judicial precedents holding that interest liability arises automatically when tax is paid after the prescribed date, irrespective of the manner in which the tax is eventually discharged.
After considering the statutory provisions and case law, the Tribunal concluded that the delay in payment, even if caused by bureaucratic and procedural reasons, did not provide a legal basis to waive interest. Since Section 75 mandates recovery of interest on delayed payment of service tax, the demand was held to be valid. Finding no merit in the appeal, the Tribunal dismissed it and upheld the interest liability.
FULL TEXT OF THE CESTAT ALLAHABAD ORDER
This appeal has been filed by M/s. Head Post Master, Etawah HO, Etawah, – Appellant against the Order-in-appeal No. 425-ST/APPL/LKO/2022 dated 11.07.2022 of the Commissioner (Appeal) Customs, CGST & Central Excise Lucknow. By the impugned order following has been held:
“I find that the appellant claimed to have paid the said demand of service tax for the period from 01.10.2016 to 30.6.2017 through challan dated 12.03.2021. As the appellant has discharged their service tax liability for the said period on 12.03.2021, thus, late payment is evident from the records itself inviting liability of interest under Section 75 of the Act, which is mandatory in nature and recoverable from the appellant. As regards the imposition of penalty under the provisions of section 78 of the Finance Act, the same stands waived off in view of the missing elements of fraud, suppression etc. with intention to evade payment of tax. Further, taking a lenient view in the matter with regard to imposition of penalty of Rs. 14,000/-under Rule 7 of the Service Tax Rules, 1994 read with Section 70 & 77(2) of the Act, I vacate the same too, keeping in mind the fact that the appellant is a government department and intentional non compliance of the provisions of law is not forth coming from the records of the case.”
2.1 The appellant is engaged in providing various kind of Postal services including Courier Services etc.
2.2 An enquiry was initiated by the officers of DGGI, Kanpur. During scrutiny of the records of the appellant, it was noticed that service tax amounting to Rs.33,35,261/- had not been paid by the appellant on the services rendered by them during the period from April 2014 to June 2017. Further, it was also found that the said appellant had not filed the ST-3 returns for the period April 2014 to June 2017.
2.3 a show cause notice dated 30.10.2019 was issued to the appellant asking them to show cause as to why:
i. Service Tax amounting to Rs.33,35,261/- (Rs. Thirty three lacs thirty five thousand two hundred sixty one only) not paid by them during the period from Ist April’14 to 30th June’17 should not be demanded and recovered from them by invoking extended period under proviso to Section 73 (1) of the Finance Act., 1994
ii. Interest at appropriate rate should not be charged and recovered from them in respect of amount of Service Tax mentioned at S.No. (i) above under Section 75 of the Finance Act 1994; and
iii. Penalty under Section 78 of the Finance Act, 1994 should not be imposed upon them in respect of Service Tax amount mentioned at S.No. (i) above;
iv. Penalty under Section 77 (1) (b), 77 (1) (d), 77 (1) (e) and 77 (2) of the Finance Act, 1994 should not be imposed upon them for their various acts of omission and commission as discussed above;
2.4 The show cause notice was adjudicated as per Order-in-Original No. 25/Demand/ST/AC-FZD/2021-22 Dated 27.05.2021 holding as follows:
ORDER
i. I Confirm the demand of Rs.10,16,176/- (Rupees Ten Lacs sixteen thousand one hundred seventy six only) upon the party under Section 73 (1) of the Finance Act, 1994 read with Section 174 of the Central Goods & Services Tax Act, 2017. Since, the party have already deposited service tax of Rs.10,16,176/- as discussed above, the same is liable to be appropriated. I withdraw the Service Tax demand amounting to Rs.23,19,085/-(Rs. Twenty three lacs nineteen thousand eighty five only) as proposed to be confirmed upon them under proviso to Section 73 (1) of the Finance Act, 1994 read with Section 174 of the CGST Act, 2017 as discussed above, being not sustainable.
ii. I order to recover the interest at the applicable rate from the party on the above confirmed amount of service tax under Section 75 of the Finance Act, 1994 read with Section 174 of the Central Goods & Services Tax Act, 2017.
iii. I impose penalty of Rs. 10,16,176/- (Rupees Ten Lacs sixteen thousand one hundred seventy six only) equal to the Service Tax amount liable upon the party under Section 78 of the Finance Act, 1994 read with Section 174 of the Central Goods & Services Tax Act, 2017, as discussed above for suppression of facts and contravention of the provisions of the Finance Act (ibid) and rules made thereunder. However, an option is given to the party under sub Section (1) (ii) of Section 78 of the Finance Act, 1994 that if the Service Tax along with interest is deposited within thirty days of communication of this order, the amount of penalty liable to be paid by the party shall be twenty five percent of the Service Tax so determined in the order. Provided that the benefit of reduced penalty under the second proviso shall be available only if the amount of such reduced penalty is also paid within such period.
iv. I refrain the penalty as proposed to be imposed upon the party under Rule 5 of Service Tax Rules, 1994 read with Section 77(1) (b) of the Finance Act, 1994 in as much as they failed to keep, maintain or retain books of Accounts, Rule 6 of Service Tax Rules, 1994 read with Section 77(1) (d) of the Finance Act, 1994 in as much as they failed to pay tax electronically, through internet banking, fails to pay the tax electronically and Rule 4A of Service Tax Rules, 1994 read with Section 77(1) (e) of the Finance Act, 1994 in as much as they failed to issues invoice in accordance with the provisions of the Act or rules made thereunder, with incorrect or incomplete details or fails to account for an invoice in his books of account read with Section 174 of the CGST Act, 2017 as discussed above.
v. I impose the penalty of Rs.14,000/- upon the party for contravention of provisions of Rule 7 of the Service Tax Rules, 1994 read with Section 70 & 77 (2) of the Act (ibid) read with Section 174 of the CGST Act, 2017 in relation to late filling of the ST-3 returns/non-filing of ST-3 Returns, as discussed above.
2.5 Aggrieved appellant filed appeal before Commissioner (Appeal) which has been disposed of as per the impugned order.
2.6 Aggrieved appellant has filed this appeal stating following ground:
“1. Because the Ld. Commissioner (Appeals), CGST, Lucknow was not justified to order to recover the interest as applicable rate on the amount of service tax section 75 of the Finance Act as appellant t is a government department and there was no false intention behind the delay in depositing of taxes. As it was mandatory to deposit service tax challan through net-banking and the appellant is a government department and the provisions of the department restrict them to do transaction through net banking as all the taxes collected by the appellant was deposited through book adjustment and thereafter, the department contacted state bank of India many times to deposit their challans through cheque and several letters have been written to superintendent CGST, Etawah to allow them to deposit the challan through cheques as per the provisions of Rule 6(2) of the service tax rule 1994 which provides that the Assistant Commissioner or Dy. Commissioner Central Excise as the case may be having jurisdiction may, for reason to recorded in writing to allow the appellant to deposit the service tax to the bank designated by the Central Board of Excise & Customs by any mode other than internet banking and the cheques were not accepted by the bank nor any response received from the Central Excise department for the period from 01.10.2016 to 30.06.2017. Delayed occurred in depositing challans created interest.”
3.1 I have heard Shri Saiyad Akhtar Ali, Authorized Person and the employee of appellant. I have also heard Shri Santosh Kumar, Authorized Representative for the revenue.
4.1 I have considered the impugned order along with the submissions made in appeal and during the course of arguments.
4.2 The only issue involved in the present appeal is with regards to the liability of the appellant to pay interest on the Service Tax deposited much after the due date. The delay as per the appellant was not intentional but was on account of delay for the reason of the multiplicity of channels of communication and multiplicity of instructions. Appellant being department of Government of India, was not having any intentions to cause delay in depositing the tax due. They were communicating with the department the bank etc. to deposit the tax due. It was on account of bureaucratic system that the amount towards the tax due was deposited late beyond due date.
4.3 I find indeed that there is delay in making the deposit of service tax due for the period in dispute. The service tax amounting to Rs 10,16,176/- for the period October 2016 to June 2017 was deposited on 23.02.2021. Section 75 of the Finance Act, 1994 provides as follows:
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 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 :]
Provided that in the case of a person who collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government, on or before the date on which such payment is due, the Central Government may, by notification in the Official Gazette, specify such other rate of interest, as it may deem necessary:
Provided further 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.
Undisputedly appellant was collecting the service tax on the postal services provided by them from the service recipient. However the amount of service tax collected was not deposited with the exchequer by the due date as prescribed. The delay in deposit the tax may be on account of bureaucratic (Bureaucratic describes a system of administration, government, or business that is characterized by a strict hierarchy of authority, a clear division of labor, and rigid adherence to official rules.) delays, but the same cannot be ground for setting aside the demand of interest as per the statute. Hon’ble Supreme Court has in case of Pratibha Processors [1996 (88) E.L.T. 12 (S.C.)] held as follows:
“13. In fiscal Statutes, the import of the words — “tax”, “interest”, “penalty”, etc. are well known. They are different concepts. Tax is the amount payable as a result of the charging provision. It is a compulsory exaction of money by a public authority for public purposes, the payment of which is enforce by law. Penalty is ordinarily levied on an assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute. Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The levy of interest is geared to actual amount of tax withheld and the extent of the delay in paying the tax on the due date. Essentially, it is compensatory and different from penalty — which is penal in character.”
4.4 In case of Gateway Terminals India P. Ltd. [2019 (369) E.L.T. 1791 (Tri. – Mumbai)] Bombay Bench has held as follows:
4.7 In view of the discussions as above we are not inclined to agree with the submissions made by the appellant [in] respect of the interest. We are also not inclined to agree that demand of interest should be limited to the amounts demanded in cash and not in respect of the amounts allowed to be debited from the EPCG licenses. In our view when short/non-payment is adjudged under Section 28, Section 28AA mandates the interest to appropriate rate on the quantum of short/non-payment adjudged independent of the fact that how the said amount is paid.
4.5 In case of Steel Authority of India Ltd. [2019 (366) E.L.T. 769 (S.C.)] a three judges bench of Hon’ble Supreme Court held as follows:
60. It is true that the statutory authority has found it to be a case of short payment. In the notice issued claiming interest it is stated there is short levy (see page 89 Vol.II SLP paper book). Proceeding on the basis that it is a case of short levy, Section 11A read with Section 11AB is attracted and the interest clock ticks from the date as we have found namely as provided in Rule 8 read with Section 11AB. If the concept of short payment is stretched to include all amounts which ought to have been paid, it may also be treated as a case of short payment though juridically it may be true that it may strictly fall under short levy.
61. While it may be true that interest cannot be demanded by way of damages or compensation and it is also further true that unless there is a substantive provision providing for payment of 109 interest in a fiscal statute, interest cannot be demanded, we would think in the context of the Act and the Rules in question, under Section 11AB, particularly, when there is no dispute relating to liability to pay the differential duty and we notice that absence of dispute is a fair acknowledgement of the fact that the facts of the present cases are unlike the situation in MRF decision where the price was fixed at the time of removal, interest is payable as provided in Section 11AB and from the point of time indicated therein. But in these cases, the price was variable under the escalation clause which was very much within the knowledge of the assessee and the demand for interest is sustainable.
62. As far as the scope of the second explanation of Section 11A(2)(b) is concerned, it contemplates payment voluntarily by the assessee. It is without any notice being issued under Section 11A. There is also reference to liability on the part of the assessee to pay interest under Section 11A(2)(b), not only on the amount which is paid within the meaning of Section 11A(2)(b) but on any short payment as may be determined by the excise officer. This only means that payment can by an assessee of any of the four amounts with which we are more concerned namely, non-levy, non-payment, short-levy or short-payment. Since there is no notice under Section 11A and non-determination of the amount as such pursuant to which the amount is paid it may happen that there may be shortfall in the amount which is paid by the assessee in comparison to what the assessee is legally required to pay. The short payment which is therefore referred to in the second Explanation to Section 11A(2)(B) can only be the aforesaid short payment and it is not referring to the short payment of duty which was originally occasioned and which is the subject matter of Section 11A(2)(b) and Section 11AB.
63. We are of the view that the reasoning of this Court in the order referring the cases to us (to this Bench) that for the purpose of Section 11AB, the expression “ought to have been paid” would mean the time when the price was agreed upon by the seller and the buyer does not square with our understanding of the clear words used in Section 11AB and as the rules proclaim otherwise and it provides for the duty to be paid for every removal of goods on or before the 6th day of the succeeding month. Interpreting the words in the manner contemplated by the Bench which referred the matter would result in doing violence to the provisions of the Act and the Rules which we have interpreted. We have already noted that when an assessee in similar circumstances resorts to provisional assessment upon a final determination of the value consequently, the duty and interest dates back to the month “for which” the duty is determined. Duty and interest is not paid with reference to the month in which final assessment is made. In fact, any other interpretation placed on Rule 8 would not only be opposed to the plain meaning of the words used but also defeat the clear object underlining the provisions. It may be true that the differential duty becomes crystalised only after the escalation is finalized under the escalation clause but it is not a case where escalation is to have only prospective operation. It is to have retrospective operation admittedly. This means the value of the goods which was only admittedly provisional at the time of clearing the goods is finally determined and it is on the said differential value that admittedly that differential duty is paid. We would think that while the principle that the value of the goods at the time of removal is to reign supreme, in a case where the price is provisional and subject to variation and when it is varied retrospectively it will be the price even at the time of removal. The fact that it is known, later cannot detract from the fact, that the later discovered price would not be value at the time of removal. Most significantly, section 11A and section 11AB as it stood at the relevant time did not provide read with the rules any other point of time when the amount of duty could be said to be payable and so equally the interest. We would concur with the views expressed in SKF case(supra) and International Auto (supra). We find no merit in the appeals. The appeals will stand dismissed.
4.6 I do not find any merits in this appeal.
5.1 The appeal is dismissed.
(Order pronounced in open court on-01 June, 2026)
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