Provisions in the Act:
Section 7Q creates liability on the employer to pay simple interest at twelve percent per annum or at such higher rate, as may be specified in the Scheme on any amount due from him under the Act from the date on which the amount has become due till the date of its actual payment. The higher rate of interest specified in the Scheme shall not exceed the lending rate of interest charged by any scheduled bank. As no provision has so far been made in the Scheme for higher rate of interest, the defaulting employer is liable to pay simple interest at twelve percent per annum.
Implications of Section 7Q of the Act:
Section 7Q was inserted by the Amendment Act 33 of 1988 and it is given effect only since 1.7.1997. While amending the Act (by the Amendment Act 33 of 1988) for creation of Employees’ Provident Fund Organisation’s own recovery machinery on the lines of recovery machinery of the Income Tax department by adopting and applying the provisions of Second and Third Schedules to Income-tax Act, 1961 and Income-tax (Certificate Proceeding) Rules, 1962, some other provisions of the Income-tax Act, 1961 relating to recovery were also borrowed and incorporated with such modification as necessary to suit the requirements of the Employees’ Provident Fund Organisation. Section 7Q of the Act is adopted from Section 220 of the Income-tax Act, 1961. There is a reference to Section 220 of the Act in the Rule 5 of the Second Schedule to Income-tax Act, 1961. This section provides for payment of simple interest at the rate of one-and-a-half percent for every month or part of a month, comprised in the period commencing from the immediately following the end of period mentioned in sub-section (1) of 220 of the Income-tax Act, 1961 i.e. thirty days from the date of service of demand notice. Particularly when there is specific provisions in the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 for payment of interest on belated payment of due under the Act., i.e., Section 7Q of the Act, section 220 of Income-tax Act, 1961 cannot be invoked and the interest cannot be charged under this section in addition to charging of interest under Section 7Q of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The interest also cannot be charged at rates mentioned therein, ignoring the provisions of section 7Q of the Act. Interest can be charged only at the rate specified in section 7Q of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 or the rate as may be specified in the Scheme.
Section 14B of the Act was also amended on the lines of section 221 of the Income-tax Act, 1961.
For the words “may recover from the employer such damages not exceeding the amount of arrears, as it may think fit to impose” in section 14B of the Act, the following words were substituted.
“may recover from the employer by way of penalty such damages not exceeding the amount of arrears, as may be specified in the Scheme”.
By adding the words “by way of penalty” in Section 14B, it is made clear that the damages imposed is by way of penalty and it does not cover the loss of interest to the fund. Further Income-tax Act, 1961 also provided for penalty in addition to simple interest to be charged on the dues. In view of the above, employer is liable to pay simple interest at the rate of twelve percent per annum on the belated payment of contributions, administrative charges, inspection charges, previous accumulations due for transfer on coverage of establishment or cancellation of exemption from the date they become due for payment till the actual date of payment/transfer, in addition to the damages payable under section 14B of the Act. The exempted establishment also should pay the simple interest at twelve percent on the belated payment of contribution to the Board of Trustees of the exempted fund in addition to the damages payable under section 14B of the Act. The interest should be paid to exempted fund.
Section 7Q of the Act creates liability on the employer to pay simple interest on any amount due from him under the Act and the damages levied under Section 14B of the Act is the amount due under the Act. Further rule 5 of the Second Schedule to Income-tax Act, 1961 provides for the payment of interest on belated payment of penalty also. In view of the above, simple interest at the rate of twelve per cent per annum should be recovered from the employer from the date it becomes due ( i.e. fifteen days from the date of receipt of levy order, as ordered in the levy order itself) till the date of actual payment.
Action to be taken by the Regional Office/Sub-Regional Office :
As the section 7Q of the Act came into force with effect from 1.7.1997 the employer is liable to pay simple interest at twelve per cent per annum on the belated payment of contribution, administrative charges, inspection charges, damages and past accumulations due from 1.7.1997. Demand should be raised for such amounts straightening after calculating the same. There is no necessity to hear the employer the before raising the demand, as it is not a penalty.
Entry in the Interest Suspense Account Register:
The interest realised under Section 7Q should be entered under a separate column in the interest suspense account register as credit to Interest Suspense Account. Action should be taken to provide a separate column in the Challan to show amount of interest under section 7Q of the Act. Till then the amount should be indicated against “Misc. Remittances” with remarks “Interest under Section 7Q”.