Taxation: Late payment of tax to attract 30% interest

By: |
February 27, 2015 12:06 AM

Queries on taxation and service tax liabilities, addressed by Abhishek Jain and Achal Chawla of EY

Our company provides advertising services and is registered under service tax. In the course of audit investigation, it was found that service tax to the tune of R1,23,600, due on August 6, 2013, has not been deposited with the authorities. We have gone through the provisions for payment of interest. We are not clear whether the interest rate will be 18% or 30% from October 1, 2014?

As per the service tax law, in case of late payment, the assessee is required to make payment of service tax along with applicable interest. In the given situation, the due date for payment of service tax was August 6, 2013. However, the same has not been paid till date. Accordingly, you are required to pay interest for the period beginning after the due date i.e. August 7, 2013 till date.

Up till September 30, 2014, the rate of interest was 18% per annum.

However, with effect from October 1, different interest rates have been prescribed under law, applicability of which depends upon the period
of delay.

Tax-delay

Payee not liable if service tax is not deposited

We are using rental premises for carrying out our business. Accordingly, the landlord issues the invoice for lease rentals along with the service tax (ST). We are taking credit of the service tax paid and adjusting it against our output tax liability. Recently we have received a notice from the service tax authorities seeking details of the amount paid by us to our landlord and the amount of credit taken by us. Now they have issued a show cause notice denying credit on the basis that service tax has not been deposited by the landlord. They have also raised a demand for interest and penalty. Please do let us know if we are required to reverse the credit and pay interest and penalty.

We understand that the landlord has been charging service tax to you for the lease rentals on its invoice and you have availed of the Cenvat credit on the lease rentals paid to the service provider. As long as lease rentals and service tax are paid to the vendor, its credit can be available to you irrespective of the fact whether the same has been deposited by the service provider to the exchequer.

In a recent judgment issued by the Bangalore CESTAT in the case of Adecco Flexione Workforce Solutions Ltd. vs Commissioner of Central Excise, Customs and Service tax, Bangalore-LTU [2015-VIL-43-CESTAT-BLR-ST], the CESTAT has very categorically held that the service receiver is not required to verify whether the service tax has been subsequently deposited by the service provider. Thus, you can inform the authorities about the judgment and need not reverse the credit taken by you.

Cenvat credit for hospitals depends on nature of services

We intend to provide services to hospital entities in India. During the course of our negotiations with one of the entities we were told that service tax charged on the services to be provided would be a cost in the hands of the hospital since the same shall not be creditable as its output services are exempt. Please clarify whether all services rendered by hospitals are exempt and the eligibility of hospitals to claim Cenvat credit of the input services received by them?

With effect from July 1, 2012, all services provided in India are liable to service tax except those specifically exempt or excluded by a negative list. Healthcare services are included in the negative list and thus, are not subject to service tax. Healthcare services have been defined to include services of diagnosis or treatment for illness, injury, deformity, etc. However, certain services such as hair transplant, plastic or cosmetic surgeries, etc have been specifically excluded and service tax shall be payable on such services provided in India. Therefore, services rendered by hospitals are exempt from service tax, except for certain specified services.

As regards to availability of credit of service tax, it is to be noted that as a general principle credit is available if such credit pertains to services which have been used for providing taxable services. Proportionate credit is available if the relevant services are used for providing taxable and exempted service. Therefore, credit availability in your fact situation would be contingent upon the nature of services provided by the relevant hospital.

The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies.
Readers may mail their queries to sme@expressindia.com

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