F. No. V/DGST/30-Misc-46/2000, dated 23-8-2000 of the Director- General Service Tax

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(1) 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 Section 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 the Rule 79(1)(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. Commissioner of Customs (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 79 & 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 dishonored 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 dishonored later, the Department need not initiate proceedings for recovery of interest/penalty etc. However, if the cheque is not honored 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.