CA Pradeep Jain, CA Neetu Sukhwani
Introduction:- This article is an attempt to analyse the impact of amendment made in section 11A of the Central Excise Act, 1944 and section 73 of the Finance Act wherein no show cause notice will be issued if the assessee has self-assessed and declared the duty payable by them in the periodic returns filed by them and recovery proceedings will be initiated without even providing the assessee with the opportunity of being heard. This is a really big amendment made by the government which will have huge consequences to the bonafide assessees because this change indicates that the government believes the assessees to be perfect in self-assessing and declaring their tax liability.
Amendment in Section 11A of the Central Excise Act, 1944 and Section 73 of the Finance Act, 1994:-
A new sub-section (16) has been inserted in section 11A which reads as follows:-
The provisions of this section shall not apply to a case where the liability of duty not paid or short paid is self-assessed and declared as duty payable by the assessee in the periodic returns filed by him, and in such case, the recovery of non-payment or short-payment of duty shall be made in such manner as may be prescribed.
On similar lines, a new sub-section (1B) has been inserted in section 73 of the Finance Act which reads as follows:-
Notwithstanding anything contained in sub-section (1), in a case where the amount of service tax payable has been self-assessed in the return furnished under sub-section (1) of section 70, but not paid either in full or in part, the same shall be recovered along with interest thereon under any of the modes specified in section 87, without service of notice under sub-section (1).
Implications of the amendment:- This amendment seeks to provide no second chance to the assessee for mistake in declaring the tax dues payable in the returns filed by them for the simple reason that the government believes that the assessee is best adjudicator of his tax liabilities and there is no need to provide him the opportunity to defend his case when the tax liability already declared by him in the returns is not paid/short paid. But, is this amendment, practically justifiable? The answer is “NO” because at times, the mistake in declaring tax liabilities occurs for no fault of the assessee. In such a case, initiating recovery proceedings without even following the principles of natural justice by issuing show cause notice to the assessee is clearly unjustifiable and illegal.
It is submitted that at many times, due to technical problems in the ACES utilities in filing Returns, it is observed that the assessee is unable to correctly declare the tax liability on their part. In one of the cases known to the author, the assessee was fastened with service tax liability under the category of “Banking & Financial Services” on the transactions of sale and purchase of foreign currency, i.e. money changing services even when there was no fault on the part of the assessee. It is pertinent to note here that prior to 1.4.2011, the service provider of money changing services had an option to pay service tax at the rate of 0.25% of the gross amount of currency exchanged. However, w.e.f., 1.4.2011, Rule 6(7B) of the Service Tax Rules, was amended to provide special facility for payment of service tax on purchase and sale of foreign exchange. A system of slab rates was devised wherein service tax was to be calculated as follows:-
- 1 per cent of the gross amount of currency exchanged for an amount upto Rs. 1,00,000/- subject to the minimum amount of Rs. 25; and
- Rupees 100 and 0.05% of the gross amount of currency exchanged for an amount of rupees exceeding Rs. 1,00,000 and upto Rs. 10,00,000/-; and
- Rupees 550 and 0.01% of the gross amount of currency exchanged for an amount of rupees exceeding Rs. 10,00,000/- subject to maximum amount of rupees 5000.
It is submitted that due to technical problem in the ST-3 return utility, the service tax payable under the banking and financial services was being automatically calculated by the software according to the old provisions at the rate of 0.25% of the gross amount of currency exchanged. However, if the assessee calculated the amount of service tax payable by them under the amended provisions, the same was lower than the amount as per the old provisions. Consequently, in view of the practical difficulty in reflecting the correct amount of service tax payable by them, they paid service tax as per the amended provisions which was lower than the service tax depicted in the return filed by them. However, the assessee was served with the show cause notice as to recover the short paid service tax reflected in the return filed by them. It is also worth mentioning here that the show cause notice has been adjudicated against the assessee and the differential service tax demand has been confirmed against him for no fault on his part.
The author submits that as the case pertains to before amendment in section 73, the assessee has the appellate remedy against the service tax demand confirmed. However, in view of the amended provisions, such cases would face the harassment of the revenue authorities and even the constitutional right of defending themselves where infact there has been no short payment of taxes. It is also worth noting that this amendment also overrides the judicial pronouncements that have concluded that order confirming tax liabilities against assessees without serving them show cause notice is gross violation of the principles of natural justice, reported as follows:-
- HINDUJA FOUNDRIES LTD. – DCU Vs COMMR. OF CUS., EX. & S.T., HYDERABAD [2009 (235) E.L.T. 678 (Tri.-Bang)]
- KANJI SHAVJI PAREKH (CAL) P. LTD. Vs. APPRAISER, CUS., POSTAL APPRAISING DEPT. [2010 (262) E.L.T. 83 (Cal.)]
- WINSTON TAN Vs. UNION OF INDIA [2009 (245) E.L.T. 97 (KAR)]
Before Parting:- It is submitted that the error in correctly reflecting the taxes payable in the return filed by the assessees may creep in for a number of reasons. The mistakes may be due to technical problems in the return utilities, wrong interpretation of the value of taxable service, particularly in service tax, where there is so much ambiguity. There are several valuation issues in service tax like inclusion of reimbursable expenditure, valuation of works contract under correct category etc. When the valuation aspects are so complicated, then expecting assessees to correctly reflect their tax liabilities is too much. Moreover, no valid reason has been stated for amending the provisions of section 11A of the Central Excise Act, 1944 on similar lines. The author submits that there is provision of revising the return in service tax laws within a period of 90 days but in Excise Laws, there is not even provision to revise the return filed by the assessee. Consequently, if an assessee, by mistake, reflects liability of say, Rs. 10,00,000/- instead of Rs. 1,00,000/- by typographical mistake, then the revenue department would sort to recover, Rs. 9,00,000/- without even issuing show cause notice. On the contrary, the beneficial provisions for reducing penalty to 50% under section 11AC when the transactions were specified in the records of the assessee have been deleted and the reason for the same is given in the TRU letter is to bring uniformity in all cases. In author’s opinion, the government seeks to snatch the benefits available to the assessees when the details of transactions was mentioned in the records maintained and seeks to hide the faults of their revenue officers and their inability to detect the irregularities during the course of audits. On the other hand, the government expects the assessees to assess their tax liabilities flawlessly.
Not only this, the amended provision states that in service tax, the short payment/non payment of taxes will be recovered as per the provisions of section 87 of the Finance Act whereas the recovery in Excise will be as per the manner to be prescribed. In Central Excise Act, 1944, there is section 11 for recovery of sums due to the government but there is no mention of this section in the amended provisions. Well, all we can say is that the assessees should consciously declare their tax liabilities while filing returns else, the same would culminate into initiation of recovery proceedings against them.