PAYMENT OF SERVICE TAX BY CHEQUE IN AUTHORIZED BANK
In the
service tax, it has been a contentious issue, when the payment of service tax
is deemed to be made, if the assessee has made the payment by cheque before the
due date of payment, but the amount of cheque is credited in the Government
account after the due date of payment. There were divergent views on this
matter, in many cases, department has imposed the penalty and interest on
delayed payment of tax, even though the assessee deposited the cheque on or
before the due date of payment of tax, but it got credited in the Government
account after the due date. To remove this difficulty, the Director of Service
Tax had issued a Circular on 23‑8‑2000, and clarified that date of
tendering the cheque in the bank for payment of tax shall be taken as the date
of payment of tax by assessee even if it got credited in the Government account
after few days, but that Circular was withdrawn subsequently on 16‑7‑2001.
To settle all the controversy, the Government has amended the Service Tax
Rules, 1994 and inserted a sub‑rule (2A) in rule 6 of the aforesaid Rules
by the Notification No. 12/2002‑ST, dated 1‑8‑2002, w.e.f. 16‑8‑2002.
Thus, Government has now decided that the date of presentation of cheque will
be deemed to be the date on which service tax has been paid to the credit of
the Central Government provided the cheque is not dishonoured in the course of
clearing. Further, the Government in its Circular No. 86/2003‑Cus, dated
3rd October, 2003 (appended as Annexure III) has clarified that in view of Rule
6(2A) of the Service Tax Rules, 1994 (w.e.f. 1‑8‑2002) in respect
of the payment of service tax by cheque, the date of the payment will be the
date of the presentation of the cheque in the bank subject to the realisation
of the cheque. It has been decided that in view of specific provisions in the
Central Excise and Service Tax Laws, the Circular No. 28/2002‑Cus, dated
24th May, 2002 (appended as Annexure IV) will not apply to payments of Central
Excise duties & Service Tax.
A sub‑rule
(2A) of rule 6 of the Service Tax Rules, 1994 has been inserted by the
Notification No. 12/2002‑ST, dated 1‑8‑2002, w.e.f. 16‑8‑2002.
As per the newly inserted provision, if the assessee deposits the service tax
by cheque, the date of presentation of cheque to the designated bank for
accepting of service tax, shall be deemed to be the date on which service tax
has been paid subject to realization of that cheque. Thus, now, w.e.f. 16‑8‑2002,
no penalty or interest could be levied for delay of payment of tax, when cheque
is tendered to the bank on or before the due date of tax, but it got credited
in the Government account after due date of tax. The Government has also
clarified in its Circular No. 86/2003‑Cus, dated 3rd October, 2003
(appended as Annexure III) that in view of Rule 6(2A) of the Service Tax Rules,
1994 (w.e.f. 1‑8‑2002) in respect of the payment of service tax by
cheque, the date of the payment will be the date of the presentation of the cheque
in the bank subject to the realisation of the cheque.
Delhi
bench of the Tribunal, in the case of Bharti Cellular Limited v Commissioner of
Central Excise, New Delhi (2002) 141 ELT 66 held that when tax amount is
deposited by cheque in authorized bank of the Government before due date of
payment of tax, if it is not dishonoured later but encashed on subsequent date,
it would be deemed that payment is made on the date when cheque is handed over
to the Government's bank not when it was encashed. In this case, Tribunal set
aside the order of Commissioner (Appeals) for imposition of interest and
penalty under section 75 and section 76 of the Finance Act, 1994 for the delay
in payment of tax.
Further in
Eicher Consultancy Services Ltd. v CCE (Appeals), Mumbai 2003 (157) ELT 432
(Tri.‑Mumbai) it was held that the after the amendment in the Service Tax
Rules (Rule 2A), the date of the presentation of cheque to bank designated by
CBEC is to be deemed to be the date on which service tax is paid subject to
realization of cheque, the Department did not raise any objection, therefore
interest is not chargeable from appellant where cheque is deposited by
appellant before due date and having been realized a day or two after.
Position from 16 July, 2001 to 15 August, 2002
The
Director of service tax has withdrawn the aforesaid Circular and issued a
Circular No. V/DGST/MISC/30‑MISC‑46/2000, dated 16‑7‑2001
(appended as Annexure II) in which, it was clarified, "Board has now
clarified under its Letter F. No. 137/10/200 CX4, dated 10‑6‑2001
that as per RBI instruction, when the payment is made either in cash or by the
demand draft, the immediate credit has to be taken. When a cheque is tendered,
the money still remains in assessee's account and is not transferred to the
bank. When the cheque is cleared by clearing house of the bank, the money gets
deposited in the bank. Till the date of clearance, the money is not credited to
the designated bank, i.e., the money is not credited to the Government of India
account as provided under rule 6 of Service Tax Rules. In view of this, the
payment of duty by cheque may not be treated as discharge of duty by due date
unless the cheque is encashed and the amount is credited to the Government of
India".
Therefore,
now, if payment is made by cheque, the actual date of payment of service tax
shall be the date when the amount got credited in the Government account, after
the clearance of cheque, not the date when the cheque is actually tendered for
the payment of tax. Therefore, the assessees are advised to avoid payment of
service tax by cheque on the last date or very close to last date of payment of
tax, because, if the amount is credited in the Government account, after
clearance of cheque, after the due date of payment of service tax, it will be
deemed as delay in payment of tax, even though cheque was tendered in the
designated branch, prior to last date of payment of tax, and department will be
competent to levy interest and penalty for delay of payment of tax.
Position from 23 August, 2000 to 15 July, 2001
The
Director of service tax had issued a Circular No. V/DGST/30‑Misc46/2000/11727,
dated 23‑8‑2000 (appended as Annexure 1) in which, it was clarified
that in the cases, where the service tax amount had been deposited by an
assessee in the authorised bank, by cheque, before the due date and such cheque
is not dishonoured later, the department need not initiate proceedings for
recovery of interest/ penalty, etc. However, if the cheque is not honoured in
due course or the clearance is abnormally delayed for any lapse on the part of
the assessees, the department would be free to take penal action, etc., as
deemed fit.
Thus,
thereafter, if the payment of tax was made by cheque, the date of payment of
tax was deemed as on the date when payment of tax was made, not the actual date
of clearance of cheque. And unless the cheque is dishonoured, no interest or
penalty was to be charged, if the cheque was cleared and credited in Government
account beyond due date of payment of tax.
Position prior to 23 August, 2000
Before
23rd August, 2000, where the assessee was making the payment by cheque for the
payment of service tax, particularly, when the payment was made on the last
date or very close to last date for the payment of service tax, in such cases,
when the cheque was credited after clearance in the Government account, after
the due date of payment of service tax, the department had taken the stand that
payment of tax was delayed, as the Government cannot admit the payment until
the cheque was cleared. Consequently, hitherto, the department was levying
interest and penalty in all such cases.
Payment by cheque ‑ Delay in
encashment beyond due date ‑ No interest/penalty charged
[Directorate
of Service Tax, Mumbai, F. No. V/DGST/30‑Misc‑46/2000, dated 23‑8‑2000]
The rule 7
of the Central Government Account (Receipts and Payments) Rules, 1983 inter
alia provides that Government dues including taxes can be credited by the
taxpayers directly into any branch of an authorised Bank. As per rule 79 of the
Treasury Rules, of the Central Government, such payments/ credits can be made
by cheques also. Accordingly, a large number of tax payers including the
Service tax assessees discharge their tax liabilities by depositing a cheque
for the required amount in the authorized Banks.
2. As per rule 6(1) of the
Service Tax Rules, 1994 read with section 68() of the Finance Act, 1994, an
assessee is required to pay Service Tax on monthly/ quarterly basis by 25th of
the succeeding month. In the event of failure to pay tax by the due date, the
assessee is liable to pay interest as well as penalty in terms of sections 75
and 76, ibid, respectively.
3. It is observed that in
many cases, the assessees pay the tax due by cheque on the last date or very
close to such date. In such cases, many a times, the cheque is encashed and
credited to the Government's account after the due date. Hitherto, in such
cases also, the department has been levying interest and penalty. This practice
has developed presumably because rule 79(l)(a) of the Treasury Rules inter alia
states that…………..until the cheque is Cleared, the Government cannot admit that
payment has been received; ................
4. A
number of representations have been received in this Directorate stating that
recovery of interest and imposition of penalty in the cases where
cheques have been deposited before due date and the amount is credited to the
Government account in due course, but after the due date, is not fair since the
assessee has no control over the time taken by the Bankers of the Government in
clearing the cheque.
5. The matter has been examined.
6. It is observed that the
identical issue had arisen in case of payment of Inland Air Travel Tax (IATT)
by Sahara Airlines Ltd. The concerned authorities had imposed penalty and
ordered recovery of the interest from the party since the cheques deposited by
them towards payment of IATT were credited to the Government after the due
date. The matter has now been decided in second appeal by the Government of
India [Sahara Airlines Ltd. v Continissioner of Custonis (Appeals) (2000) 110
Taxman 378 (GOI)]. The Government has held that a harmonious reading of the
provisions of rule 7 of the Central Government Account (Receipts and Payment)
Rules and Rules 1‑9 and 80 of the Treasury Rules, makes it clear that the
Government dues can be presented in the form of cheque into the authorized
Bank. And if the cheque is not dishonoured later, the payment shall be deemed
to have been made on the date when the cheque was handed over to the
Government's bankers. Accordingly, the Government set aside the imposition of
penalty/ interest, etc. in the said case.
7. The ratio of above cited
decision of the Government would apply mutatis mutandis to the payment of
service tax also. Therefore, it is clarified that in the cases where the
service tax amount has been deposited by an assessee in the authorized Bank, by
cheque, before the due date and such cheque is not dishonoured later, the
Department need not initiate proceedings for recovery of interest/ penalty,
etc. However, if the cheque is not honoured in due course or the clearance is
abnormally delayed for any lapse on the part of the assessees, the Department
would be free to take penal action, etc., as deemed fit.
8. The contents of this
letter may be brought to the notice of field Officers/ Trade by issue of
suitable circulars/Trade Notice, etc.
Payment by cheque ‑ Delay in
encashment beyond due date
[Directorate
of Service Tax, Mumbai, F. No. V/DGST/30‑Misc‑46/2000,
dated 16‑7‑2001]
Please
refer to Directorates' letter of even No. dated 23‑8‑2000 regarding
payment of service tax by cheque in authorised banks consequences of delay in
encashment beyond due date.
Board has
now clarified under its letter F. No. 137/10/2000‑CX4, dated 10‑62001
that as per RBI instruction, when the payment is made either in cash or by the
demand draft, the immediate credit has to be taken. When a cheque is tendered,
the money still remains in assessees account and is not transferred to the
bank. When the cheque is cleared by clearing house of the bank, the money gets
deposited in the bank. Till the date of clearance the money is not credited to
the designated bank, i.e., the money is not credited to the Government of India
account as provided under rule 6 of service tax rules. In view of this, the
payment of duty by cheque may not be treated as discharged of duty by due date
unless the cheque is encashed and the amount is credited in the account of
Government of India.
All
commissioners are requested to follow the boards clarifications mentioned above
in regard to payment of service tax by cheque. They may also Issue suitable
revised trade notice in the matter.
The Directorate's Letter of even
No., dated 23‑8‑2000 is hereby withdrawn.
Effective date of Payment of Government
dues by cheque ‑ Regarding
I am
directed to invite your attention to the Board's Circular No. 28/2002Cus, dated
24‑5‑2003, on the above mentioned subject. It was clarified that
collection of tax revenues is governed by Central Government Accounts (Receipt
& Payment) Rules, 1983 and as per the rule 20 of the same, government dues
shall be deemed to have been paid in the case of cheques and drafts tendered to
the bank on the date on which it is cleared and entered into the receipts
scroll.
2. In view of the in built
provisions in the Rule 8(1) of Central Excise Rules, 2002 (w.e.f. 1‑3‑2003)
and Rule 6(2A) of Service Tax Rules, 1994 (w.e.f. 1‑8‑2002), the
subject matter has been re‑examined by the Board. It has been decided
that in view of specific provisions in the Central Excise and Service Tax Laws,
the Circular No. 28/2002, dated 24‑5‑2002, will not apply to
payments of Central Excise duties and Service Tax. In other words in respect of
Central Excise duty & Service Tax, the date of payment will be the date of
presentation of the cheque in the bank subject to realisation of the cheque.
3. The above instruments may be brought to
the notice of all concerned.
4. Kindly acknowledge receipt of this
Circular.
Effective date of payment of Government dues by cheque ‑
Regarding
I am
directed to invite your attention to a case on the above mentioned subject in
which the Assistant Commissioner, IATT, Air Cargo, Complex, Delhi vide Order‑in‑Original
No. 9/98, dated 7‑9‑1998 had imposed penalty of Rs. one crore on
M/s. Sahara Airlines and ordered realisation of interest of Rs. 42,258 from
them for delayed deposit of IATT by cheque, since it was realised after the due
date of payment. The Commissioner of Customs (Appeals) vide Order, dated
7/4/99, upheld the Order‑in‑Original passed by the Assistant
Commissioner.
2. Against
the Order‑in‑Appeal, M/s. Sahara Airlines Ltd. had filed a Revision
Application before the Joint Secretary (Revision Application) who vide Order dated
24‑11‑1999, set aside the orders of the lower authorities on the
ground that the party had tendered a cheque within the due date, and therefore,
it may be taken that the party has deposited the dues within the stipulated
time. The Joint Secretary (Revision Application) had relied upon rules 6 and 7
of the Central Government Account (Receipt and Payments) Rules, 1983, and rules
79 and 80 of the Central Treasury Rules which stipulate that if a cheque is
honoured on presentation, the date of payment shall be deemed to be date on
which the cheque was tendered to the bank.
3. The matter has been
examined in consultation with the Controller General of Accounts (CGA). It has
been stated by the CGA that after departmentalisation of accounts, in terms of
rule 1A, CTRs are applicable to only a few categories of transactions, such as:
(a) Union Territories of Chandigarh, Lakshadweep, Dadra and Nagar Havelli; (b)
Payments of pensionary benefits to the Government pensioners in the Central
Government & Union Territories and (c) an office authorised to hold and
operate on a Departmental Treasure Chest. Most of the remaining transactions of
the Union Government (including collection of tax revenue) are governed by CGA
(R&P) Rules, which came into effect from 1st June, 1983. The CGA has, as
such, clarified that collection of tax revenues is governed by Central
Government Accounts (Receipt & Payment) Rules, 1983, and as per the rule 20
of the same, government dues shall be deemed to have been paid in the case of
cheques and drafts tendered to the bank on the date on which it is cleared and
entered into the receipts scroll. In other words, the date of payment shall be
the date on which cheque is cleared/ realised by the bank.
4. The above instructions ‑may
be brought to the notice of all concerned. Difficulties, if any, in the
implementation of above instructions may be brought to the notice of the Board.
5.
Kindly acknowledge receipt of this Circular.