Landmark Service Tax Judgment - Interest Rates

Interest is levied on the assessee when he delays the payment of service tax which is due and payable.

If payment of service tax is delayed in accordance with the provisions of Section 68, Interest is charged at the rate not below ten per cent and not exceeding thirty-six per cent per annum. (Please Refer : Section 75 of Finance Act, 1994)

If payment of service tax is withheld in accordance with the provisions of Section 73A, Interest is charged at the rate not below ten per cent and not exceeding twenty-four per cent per annum. (Please Refer : Section 73B of Finance Act, 1994)

Till 31.03.2011 simple interest @ 13% p.a. is charged for the delayed period in respect of Section 75 as well as Section 73B. However, by budget 2011-12 vide Notification no. 14/2011- ST, dated 01/03/2011 the effective rate of interest is increased from 13% to 18%. Benefit 3% is provided where turnover of any assessee is up to Rs.60 lakhs, therefore such assessee is liable to pay interest at 15% per annum. Such change of rates are in force with effect from 01.04.2011.

If the assessee deposits the Service Tax by cheque, the date of presentation of cheque to the bank shall be considered as date on which Service Tax has been paid subject to realization of that cheque. [ Please Refer : Service Tax Rules, 1994. Rule 6(2A) ]

How to calculate Interest?

ILLUSTRATION : 

Service Tax to be paid is Rs. 10000 for the month of July

Cheque Deposited in Bank 17^th October

Cheque Realised on 20^th October 

            CALCULATION :

Rate of Interest is 18% p.a.

Amount of service tax to be paid is Rs.10,000/-

Due date for the month of July would be 5^th August. Thus upto 5^th August no interest is to be charged

                   
Interest is to calculated as under 

Service Tax to be paid  X Int. Rate / 100  X No. of Days / total no. of days in a year

= Rs.10,000 X 18% X 73/365 

= Rs. 360/- (Amount of Interest)

No Interest of Service Tax is to be charged for the period if any competent authority has levied Stay on the proceedings.

Show Cause Notice must be issued u/s 73 of the Finance Act 1994 for demand of Service Tax and Interest.

If delay in refund of service tax is for more than 3 months from the date of receipt of refund application, Interest is paid by the Government at the rate not below five per cent and not exceeding thirty per cent per annum. (Please Refer : Section 11BB of Central Excise Act, 1944)

At Present : Simple interest @ 6% p.a. is granted on delayed refunds.