CA Gautam Joshi

Today is the last day for filing Service tax Return for the Half year Ended 31st March 2012. Most of you may have either filed Your or Your Client Service Tax Return or are in process of Filing the same.  I would like to remind you of Penalty for late Filing of Service tax Return.  Budget 2011-12 has made many significant changes in Service Tax and also gave emphasize to penal provisions including prosecution.

Section 70 of Finance Act, 1994 reading with Rule 7 of Service Tax Rules, 1994 mandates every service tax payer to file half yearly return within 25 days. If the return is not filed within the time specified then following amount of penalty is levied:

Day wise default criteriaPenalty Amount (Rs.)
< 15 days500 Rs. per day
> 15 days but < 30 days1000 Rs. per day
> 30 days1000 Rs. fix plus Rs. 100 per day or Rs. 20,000/- maximum

The same provisions apply for NIL returns i.e. where service has not been provided or received and no service tax has been collected or paid. This seriously invites re-evaluation from charging authorities. Powers are granted to Superintendant that can reduce the amount of penalty in case of NIL returns but only on satisfaction of genuine reasons. However, what is genuine or reasonable ground is subject matter of dispute.

It has been observed that at the time of submission of NIL returns Superintendent first asks to clear the penalty of late filling i.e. maximum in all most all cases instead of at least listening once the genuine reasons of late compliance from tax payers.

Lacuna of the law is in this case penalty is collected higher than tax amount or sometimes even no tax amount. Penalty being a financial charge is collected from the tax payer to bring him on the correct track and not collected to make any unnecessary or counterfeit financial burden. Penalty should kill the evil intentions and not the tax payer himself.

Which are the instances where NIL returns required to be filed?

  1. When wrong service is registered or added and no surrender of such service is done in time,
  2. When tax payer stops providing that service and no surrender of such service is done in time,
  3. When tax payer has just started providing or receiving the service and in first few months no business (either billing or collection) has been done,
  4. When tax payer shifts to another premises, takes a new registration over there and forgets to surrender the old registered premises etc.

What is the remedy if Superintendent first asks to clear the penalty of late filling and then only accept Service Tax return?

If the return is delayed due to genuine reasons and Superintendent first asks to clear the penalty of late filling then tax payer should register or speed post all 3 copies to Superintendant. He must save copy of return and evidences of register or speed post with him. Registered or Speed post is a valid proof of any documents submission to be made in any government office. Tax payer may get a demand notice asking for penalty of late filling of return which can be then replied with written reasons and documentary evidences. The person seating above the Superintendant (to whom the letter is replied) will at least give an opportunity of being heard to the tax payer to justify his late compliance.

Is new maximum penalty cap of Rs. 20,000/- also applicable for service tax returns not filed for the earlier tax periods or old maximum penalty cap of Rs. 2,000/- will continue?

Penalty of Rs. 20,000/- is in effect from 01.04.2011. However, there is no specific mention by drafting authorities for which tax periods this new maximum penalty cap will be applicable.

According to author’s view, penalty is always charged for the financial year. Currently, penalty is Rs. 20,000/- maximum and so any service tax returns filed on or after 01.04.2011 even for earlier tax periods will attract this new penalty maximum cap of Rs. 20,000/-. However, the same should be clarified by way of departmental circulars.

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