4.1 The existing scheme relating to compliance has been proposed for a revamp with a view to strike a healthy balance between the interests of revenue and legitimate business and to promote voluntary compliance.

4.2 As a result a number of changes have been proposed with the following philosophy:

(i) Improve voluntary compliance by encouraging self-correction, wherever the deviations are unintentional omissions;

(ii) Reduced penalties may be imposed if the transactions are captured fully and truthfully in records and further abated if timely admission and payment is made;

(iii)Intentional and unrecorded violations should be dealt with severely with no concession whatsoever.

4.3 Thus the undue advantage obtained by carrying on surreptious activities at the cost of law-abiding business is sought to be neutralized. The revised system also encourages informed decision-making by the taxpayers at the early stages of investigation or verification by the Department. Changes proposed in the compliance mechanism are given in the following paragraphs.

4.4 The maximum penalty for delay in filing of return under section 70 is proposed to be increased from Rs.2,000/- to Rs.20,000/-. However, the existing rate of penalty is being retained under rule 7C of the Service Tax Rules, 1994. The maximum penalty is presently reached after a delay of 40 days. The new limit will impact only those who delay filing of return for longer durations.

4.5 The provisions of section 73 (1A) and both the Provisos of section 73 (2) are proposed for deletion. As a result, the benefit of reduced penalty shall not be available in cases of fraud, mis-statement, suppression, collusion etc. in the ordinary course. However, revised benefit will be available under the new sub-section 4A of section 73 in situations where the true and complete account of transactions is otherwise available in the specified records and the assessee during the course of audit, verification or investigation pays the tax dues, together with interest and the reduced penalty. It is clarified that the assessee can also avail this benefit on his own also. The extent of penalty is being further reduced to 1% per month of the tax amount for the duration of default, with an upper ceiling of 25% of the tax amount.

4.6 Interest rate for delayed payment of service tax is being increased to 18% per annum, effective 01.04.2011 (Notification 15/2011-ST). A concession of 3% has been proposed in the Bill for tax-payers whose turnover during any of the years covered in the notice or the preceding financial year is below Rs 60 lakh.

4.7 Penalty for failure to pay tax under section 76 is being halved.

4.8 The maximum penalty under section 77 for contravention of various provisions is proposed to be increased from Rs.5000/- to Rs.10000/-. However, the daily rate of penalty, wherever applicable, is being retained.

4.9 Penalty under Section 78 is being altered from upto twice the amount of tax to an amount equal to the tax. Moreover, in situations where the taxpayer has captured the true and complete information in the specified records, penalty shall be 50% of the tax amount. The latter penalty (only) shall be further reduced to 25% if the tax dues are paid within a period of one month together with interest and reduced penalty. For assessees with turnover upto Rs.60 lakh the period of one month shall be increased to ninety days.

4.10 Section 80 is being amended by substituting section 78 with the words “proviso to section 78” and thus the power to waive penalty shall be available only in cases where the information is captured properly in the specified records.

4.11 The revised position relating to penalties and their mitigation or waiver is summed up in the following table (portion in italics being the changes):  

Situation Position in records Penalty & Provision Mitigation Complete Waiver
No fraud, suppression etc. Captured 1% of tax or Rs 100 per day upto 50% of tax amount: Sec 76 Totally mitigated if tax and interest  paid before issue of notice: Section 73(3) On showing reasonable cause under section  80
Cases of fraud, suppression etc. Captured true & complete position in records 50% of tax amount: Proviso to Section 78 (a) 1% per month; max of 25% if all dues paid before notice: Sec 73(4A);

(b) 25% of tax  if  all dues paid within 30 days (90 days for small assesses): Provisos to Section 78

  Not so captured Equal amount: Section 78 No mitigation  at all Not possible

4.12 Power to issue search warrant under section 82 is proposed at the level of Joint Commissioner and the execution of search warrant at the level of Superintendent.

4.13 Provisions relating to prosecution are proposed to be re-introduced and shall apply in the following situations:

(i) Provision of service without issue of invoice;

(ii) Availment and utilization of Cenvat credit without actual receipt of inputs or input services;

(iii) Maintaining false books of accounts or failure to supply any information or submitting false information;

(iv) Non-payment of amount collected as service tax for a period of more than six months.

4.14 There shall be no power of arrest and the prosecution can be launched only with the approval of Chief Commissioner.

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September 2021