Is it an Encouragement or Harassment?

As per Section 75 of the Finance Act, 1994 which deals with the levy of interest on delayed payment of service tax, the rate of interest has to be notified by the Government.

Old Law

→     The Government had by Notification No. 26/2004 dated 10.09.2004 as amended by Notification No. 14/2011 dated 01.03.2011 fixed the rate as 18 percent in exercise of the powers conferred by Section 75. 

The New Law

→     Now this Notification has been superseded by Notification No 12/2014 Dated 11th July, 2014 (Applicable w.e.f.01st Oct’ 2014) issued at the time of introduction of Budget’ 2014.

→     As per this notification, the interest rates have been hiked from 18% to 30%.

The New Interest rates-

The interest rates are as follows:- 

Rate of simple interest Up to 6 months- 18% 

More than 6 months and up to 1 year- 18% for the first 6 months of delay and 
24% for the delay beyond 6 months. 

More than 1 year

→     18% for the first 6 months of delay; 

→     24% for the period beyond 6 months up to 1 year and 

→     30% for any delay beyond 1 year. 

As per the clarification issued by Tax Research Unit dated 10th July,2014 (D.O.F. No. 334/15/2014-TRU), the following needs to be noted:- 
“To encourage prompt payment of service tax, it is being proposed to introduce interest rates which would vary on the extent of delay.” 



Thus, the reason been given for this illegal hike on interest rates is for the “Encouragement” of assessee.

May be the circular wanted to say the “Harassment” but said it as an encouragement out of their concern towards assesses. 

Bhuvi Ahuja
Write at CA Connect