Urgent: interest on late payment of service tax

This query is : Resolved

V RAGHAVENDRA (Querist)
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15 November 2011 Whether the interest paid on the late payment of service tax is an allowable business expenditure ?

If yes, then any citation of any case law regarding the same

CA Navin Jain

CA Navin Jain (Expert)
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15 November 2011 yes, it will be allowed.

V RAGHAVENDRA

V RAGHAVENDRA (Querist)
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25 November 2011 Can u give me the citation of any case law regarding the same.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Yes, interest on late payment of service tax is generally allowed as a business expenditure since it is a **compensatory payment for delay in discharge of statutory liability**.

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### Key Points:

* Interest paid for **late payment of statutory dues** like service tax is considered a **revenue expense**.
* It is **not a penalty**, but a compensation for delayed payment.
* Therefore, it is **allowed as a deductible expense** under Section 37(1) of the Income Tax Act, 1961.

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### Relevant Case Laws:

1. **CIT vs. Karunakar & Company (1989) 177 ITR 84 (Calcutta High Court)**

* Interest paid on delayed payment of statutory dues held allowable as revenue expenditure.

2. **ITO vs. The Bombay Dyeing & Manufacturing Co. Ltd. (1987) 26 Taxman 343 (Bom HC)**

* Interest on delayed payment of excise duty allowed as deduction.

3. **CIT vs. TVS Motor Company Ltd. (2006) 281 ITR 297 (Mad HC)**

* Interest on delayed payment of excise duty allowed as business expense.

4. **CIT vs. Kansai Nerolac Paints Ltd. (2007) 293 ITR 422 (Bom HC)**

* Similar principle extended to interest on delayed statutory payments.

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### Summary:

* Interest on late payment of service tax is **allowed as business expense**.
* It is **not a penalty**, so it doesn’t attract disallowance.
* Supported by various High Court rulings on similar delayed statutory interest.

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