P.S. Bajaj, Judicial Member. - This appeal has been filed by the appellants against the impugned Order-in-appeal dated 2-7-2001 of the Commissioner (Appeals) vide which he had affirmed the Order-in-original of the D.C. who confirmed the demand of interest of Rs. 1,34,805 and penalty of Rs. 400 under section 76 and of Rs. 2,000 under section 77 of the Finance Act.

2. The facts are not much in dispute. The appellants were engaged in rendering service of telephones. They collected service tax during the period March, 2000, but failed to pay the same to the credit of the Central Excise in accordance with the provisions of sub-section (2) of section 68 of Chapter V of the Finance Act. They were served with a show-cause notice accordingly and were also called upon to show cause as to why interest of Rs. 1,34,805 be not recovered from them under section 75 of the Finance Act and penalty be also not imposed under sections 76 and 77 of the said Act. They, however, contended the correctness of the notice and submitted that they had depo-sited the tax amount of Rs. 89,62,610 in the bank through cheque dated 24-4-2000 and as such, there was no delay on their part in depositing the tax. Rather they deposited tax one day before the due date, which was 25-4-2000. Therefore, neither interest could be recovered from them nor penalty could be imposed under any provisions of the Finance Act. The Deputy Commissioner, however, did not agree with their version and opined that though the cheque for deposit of the tax amount was given on 24-4-2000, but the same was encashed after clearance from the bank on 26-4-2000 and as such, there was a delay of one day in making deposit and on that score interest amounting to Rs. 1,34,805 became payable by the appellants. He confirmed this amount of interest and also imposed penalty of Rs. 400 under section 76 and of Rs. 2,000 under section 77 of the Finance Act.

3. We have heard both the sides and gone through the record.

4. Admittedly, due date for deposit of the service tax by the appellants was 25-4-2000. It also remains undisputed that they made payment of that tax amounting to Rs. 89,62,610 through cheque dated 24-4-2000. The stand of the revenue is that since the cheque was encashed only on 26-4-2000, the payment must be deemed to had been made on that date and not on the date of issuance of the cheque by the appellants and as such, they were liable to pay interest of the disputed amount. But in our view, this stand of the revenue is not legally sustainable. Payment of the tax under the Finance Act by cheque is permissible. Even rules 79 and 80 of the Treasury Rules make it clear that Government dues can be presented in the form of cheque into the authorised bank. 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. This has been even so observed in the case of Sahara Airlines Ltd. v. Commissioner of Customs 2000 (37) RLT 97 (GOI)/[2000] 110 Taxman 378 (GOI). Even Service Tax Trade Notice by the Directorate of Service Tax, Mumbai, F.No. V/DGST/30-Misc.-46/2000, dated 23-8-2000, had been also issued, in that regard, wherein it has been clarified that in the cases where the service tax amount has 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. In the face of this circular and the view taken by the Government in the matter of Sahara Airlines Ltd.’s case (supra), no demand for interest of Rs. 1,34,805 and penalty of Rs. 400 under section 76 could be raised from the appellants. They, as observed above, deposited the tax by cheque on 24-4-2