Pecuniary Loss vs. Interest – under Central Excise and Service Tax provisions

 

The article will be dealing with the rate at which interest rate is applicable under central excise and service tax regime in case of default.Further the principle of pecuniary loss would be discussed as to the current stance of judiciary on the said principle and how the principle has become an evident need in real life.

Interest

It is the sum that is paid on the account of default by any person who was supposed to act in a particular manner but when he doesn’t, he is liable to pay interest along with the principal amount.

After taking into cognizance the huge cry over huge interest rate under service tax, government while invoking it’s power under section 75 of the Finance Act 1994, made amends in the notification No. 12/2014-Service Tax, dated the 11th July, 2014 and in recent 2016 budget implemented new interest rate under service Tax via Notification No. 13/2016-Service Tax dated1st March, 2016, which are as follows:-

Collection of any amount as service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due. 24 per cent.

Other than in situations covered under serial number 1 above. 15 per cent.

Effect of the same was also visible in Notification No. 14/2016-Service Tax dated1st March, 2016, which reduce the bar of 18% to 15% in Notification No.8/2006-Service Tax, dated the 19th April, 2006.

Section 75 of the finance act 1994 provides that it is mandatory to charge interest on delayed payment of service tax, thus whomsoever entitled to pay service tax make a default in that regard is liable to pay interest on the service tax and such interest will be charged in accordance with section 68 of the act and respective rules that deals with the said issue and in no scenario whatsoever the interest rate shall be less than 10% and more than 36%, provided that where the aggregate of taxable service is less than 60 Lakhs than it would be reduced by 3%. In the case of CCE v. D.H. Ramani& Co.[1], the tribunal made it clear that interest is not to be charged under Section 75 if service tax was deposited upto the date in accordance with the direction of the High Court. Moreover Section 75 is a mandatory provision and doesn’t attract any exemption in the said act and in the case of SreeVadivambigaiTextile Mills Ltd. v. CCE[2] it was held that there was no scope of leniency because the provision of Section 75 are couched in mandatory language.

For demand of service tax and interest, the Show-Cause Notice (SCN) must be issued under Section 73: In Diamond Cables Ltd. v. CCE[3], the impugned order directing the payment of service tax together with interest was set aside because the SCN was issued in terms of Sections 76 and 77 for payment of interest and for imposition of penalty. The Tribunal relied upon its earlier order in the case of Markfed Oil & Allied Industries v. CCE[4], wherein demand of service tax with interest was set aside on the ground that notice was not issued under Section 73 of the Finance Act, 1994 but under Section 77 for imposition of penalty on account of failure to file returns.

On the other hand under The central excise act 1944, section 11A and section 11AA generally covers the concept of imposing interest broadly under section 11AA , under 11AA(1) it has been made  mandatory to pay the interest rate in case of default and it is not subject to the discretion of the court and thus judiciary cannot invoke it’s power to amend the same thus the rate of interest should not be less than 10% and in case whatsoever it should exceed 36%. All such payments are made after determination of duty under section 11A. This interest rate is payable from the date from which the duty becomes due till the date on which it is paid.

Along with that no interest shall be payable where,-

(a) The duty becomes payable consequent to the issue of an order, instruction or direction by the Board under section 37B; and

(b) Such amount of duty is voluntarily paid in full, within forty-five days from the date of issue of such order, instruction or direction, without reserving any right to appeal against the said payment at any subsequent stage of such payment.

Even as per the Notification No. 20/2016 – Central Excise (N.T.), dated 1st March 2016, proves the said point beyond doubt.

A3 judge bench of the apex court in the case of Star Paper Mill Ltd. v. Union of India and Ors.[5], once again brought the concept of interest under excise into notice whereby they refused to allow 17.5% interest that was issued by the High Court and allowed 12% simple interest under section 11AA of the said act.

PECUNIARY LOSS

If one have to define pecuniary loss, these are those losses which once can measure in terms of money, usually by producing a receipt to show that you have paid an expense or will be subject to such expense in near future. Usually the said concept is used in service laws but that doesn’t make this principle exhaustive, rather it have a wide role to play in every field, wherever the essentials of the said principles are meet. Thus even though there is an application of the principle in service tax and excise tax, but it is only in rarest of the rare cases that a parties have made such a claim. Further Non-Pecuniary loss is a loss where the pattern of damages awarded for pain and suffering and loss of amenity constitute a conventional sum which is taken to be the sum which deems fair, fairness being interpreted by the courts in the lights of pervious judgments[6]. Further in the case of National Insurance Company v. Rajni[7] it was held that the pecuniary loss of such dependent can only be ascertained by balancing on the one hand, the loss to him of future pecuniary benefit, and on the other any pecuniary advantage which,from whatever source, comes to him by reason of the death. So it can be said that the concept of pecuniary loss is based on restitution which literally means putting the person in the same position as he was prior to the filling of the case.

To get a clear understanding in this regard the 9 judges bench of Supreme Court while delivering thejudgment in the case of Mafatlal Industries & Ors. v. UOI[8] while relying on the judgment in

Shiv Shankar Dal Mills v. State of Haryana[9], with reference of market fees collected under a provision which was struck down by this court in KeswalKrishanPuri v. State of Punjab[10]. The enhancement of market fee from two to three percent was held to be bad, whereupon the traders demanded refund of the excess market fee collected from them. The court held that though refund of whereby it was held that trader demanded refunds of excess market fee collect from them. This court held that though refund of the fee so collected may be legally due to the traders, the trader may be repaid the amount only to the extent they have not passed on the burden to their customers. To the extent they have passed on they were not entitled”.

Though the above stated judgment is based on market fee but a clear traces of indirect tax is also visible in the said judgment and if a person is subjected to pecuniary loss and their lies another party who have received an unjust benefit than their lies a correlative duty on the latter party to make good the loss of the former.

Conclusion

 There are express notifications and provisions with regard to interest rate on excise duty and service tax, but when it comes to pecuniary loss there is no point of law that expressly states as to what is to be done thus the only path that is left, is that of an analogy and thus while drawing an analogy with regard to pecuniary loss, it can be concluded now that pecuniary loss can be made good in certain cases. Such as, where the person have received pecuniary benefit even though he was not entitled to the same[11] that being said there is a need for an express provision or precedent on pecuniary loss under service tax or excise duty regime just like interest, to reach at a conclusion, as to what is to be done under different situation were the principle of pecuniary loss is applicable, otherwise the principle will remain as a toothless tiger. On the other hand with regard to interest rate, such high interest rate when there is a default on the payment of service tax is pushing the economy backwards, interest rate should be reduced to that extent, so that the purpose for imposing the interest rate remains intact, without imposing unnecessary burden on the defaulters.

[1] (2005) 180 ELT 456(Trib- Mumbai)

[2] (2005) 179 ELT 151 (Trib.-Chennai).

[3] (2005) 180 ELT 444 (Trib.-Mumbai).

[4] (2002) 146 ELT 466 (Trib.-Del).

[5] 1995 Supp (4) SCC 674.

[6] Pest Control (India) Pvt. Ltd. & Anr. v. RamanandDevraoHattangadi and Ors. 1988 SCC OnLine 345.

[7] 2015 SCC OnLine Del 7112

[8] 1997 5 SCC 539

[9] 1980 2 SCC 437

[10] (1979) 3 SCR 1217.

[11]Id. at 10.


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Devashish Jain is  law student currently pursuing Int. B.com LLB (Splz.in Taxation law) from UPES, who loves to research and want to know as much as he can.He had been actively participating in various National and international conferences, consultations and debates.His area of interest lies in Taxation laws.


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Disclaimer:  The views and opinions expressed in this article are those of the authors. All data and information provided on this site is for informational purposes only. sapaa.in makes no representations as to accuracy, completeness, correctness or validity of any information on this site and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use.