Bimal Jain, FCA, ACS, LLB

The Central Government by exercising the power conferred by clause (i) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994) has made the Service Tax (Compounding of Offences) Rules, 2012 (herein after referred as the Compounding of offences Rules, 2012) published by Notification No.17/2012-ST, dated 29.05.2012.

Section 9A of Central Excise Act, 1944 made applicable to service tax vide Section 83 of Finance Act, 1994  lays down provision of making application for compounding of offences.

Section 9A (2) of Central Excise Act, 1944 provides as under:

“Any offence under this Chapter may, either before or after the institution of prosecution, be compounded by the Chief Commissioner of Central Excise on payment, by the person accused of the offence to the Central Government, of such compounding amount and in such manner of compounding as may be prescribed.”

 The Compounding of offences Rules, 2012 provides the following provisions:

1.       Form and manner of application

2.       Procedure on receipt of application under rule 3

3.       Fixation of the compounding amount

4.       Power of compounding authority to grant immunity from prosecution

5.       Withdrawal of immunity from prosecution in certain conditions

It may reasonably be concluded that whoever has committed specified offences under Section 89 may get the immunity from prosecution by complying to the provisions given in the Compounding of offences Rules, 2012.

Section 89 of Finance Act, 1994 lays down provision for prosecution in respect of specified offences as given below:-

S.No.

Basis

Punishment

1. in the case of an offence where the amount exceeds Rs. 50 lakh 1. with imprisonment for a term which may extend to 3 years2. However, in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for a term of less than six months.
2. in any other case, 1. with imprisonment for a term which may extend to 1 year.

 

The specified offences as mentioned under Section 89 are given below:-

S.No.

Section

Offence

1. 89(1)(a) knowingly evades the payment of service tax under this Chapter
2. 89(1)(b) avails and utilizes credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter
3. 89(1)(c) maintains false books of account or fails to supply any information which he is required to supply under this Chapter or the rules made there under; or supplies false information
4. 89(1)(d) collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due
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Highlights of the Compounding of Offences Rules, 2012

Rule 2(c) defines Compounding Authority as the Chief Commissioner of Central Excise, having jurisdiction over the place where the offence under the Act, have been or alleged to have been committed.

Rule 2 (f) defines the term ‘Reporting authority’ as the Commissioner of Central Excise or Commissioner of Service tax, having jurisdiction over the place where the offences under the Act have been or are alleged to have been committed or any other officer as may be authorized in this regard by the Chief Commissioner of Central Excise having jurisdiction over the place where such offences under the Act, have been or are alleged to have been committed.

1.                  Form and manner of Application (Rule 3): The applicant has to make an application u/s 9A (2) of the Central Excise Act either before or after the initiation of prosecution against him in the prescribed form. In the prescribed form the applicant is to furnish the following particulars:-

•          Details of adjudication order in relation to the case for compounding;

•          Brief facts of the case and particulars of the offence(s) charged;

•          In case the show cause notice was issued;

•          If yes, Details of service tax demanded;

•          Whether the show cause notice has been adjudicated;

•          If yes, adjudication details;

•          Amount of service tax confirmed;

•          Amount of CENVAT credit to be recovered/ denied;

•          Penalty imposed;

•          Whether this is the first offence under this Act;

•          Whether any proceedings for the same offences contemplated under any other law, if so, then such details.

The applicant is to give declaration to pay the compounding amount as may be fixed by the compounding authority and he shall not claim as of right that the offence committed by him under this Act be compounded.

It may also be pertinent to note that where an offence under the Act has been committed at more than one place falling under the jurisdiction of more than one compounding authority, then the Chief Commissioner of Central Excise having jurisdiction over such place where the amount of service tax evaded is more than the others, shall be the competent authority.

2.                  Procedure on receipt of application (Rule 4): On receipt of an application under Rule 3, the compounding authority shall:-

a)                  Call for a report from the reporting authority with reference to the particulars furnished in the application, or any other information, which may be considered relevant for examination of such application.

b)                  This shall be submitted by the reporting authority within a period of one month or within such extended period as may be allowed by the compounding authority, from the date of receipt of communication from the compounding authority.

c)                  The Compounding Authority, after taking into account the application and the report of the Reporting Authority, may, by order, either allow the application indicating the compounding amount payable and grant him immunity from prosecution or reject such application.

d)                  The application shall not be rejected unless the Compounding authority has mentioned the grounds of rejection in the order and the applicant has been given an opportunity to be heard.

e)                  However, the application shall not be allowed to be made unless the applicant has paid the service tax, penalty and interest liable for the case for which application is being made.

f)                   The applicant shall, within a period of 30 days from the date of receipt of order allowing the compounding offences, pay the compounding amount, as ordered by the Compounding Authority and shall furnish the proof of such payment to compounding Authority.

3.      Fixation of the Compounding amount (Rule 5): The compounding amount shall be as detailed below:-

S. No.

Offence

Compounding amount

1. Offence specified under Section 89 (1)(a) of the Act Up to 50% of the amount of service tax evasion, subject to minimum of 10% of amount of tax evaded.
2. Offence specified under section 89 (1)(b) of the Act  Up to 50% of the amount of CENVAT Credit wrongly taken or utilized, subject to minimum of 10% of said amount.
3. Offence specified under section 89 (1)(c) of the Act Rupees 50,000/- for the first offence and to be increased by 100% of this amount for each subsequent offence.
4. Offence specified under section 89 (1)(d) of the Act Up to 25% of the amount of service tax not deposited subject to a minimum of 2% for each month for which the amount has not been so deposited.

 If a person has committed offences falling under more than one category and where the amount of service tax or amount of CENVAT credit wrongly taken or utilized is the same for all such offences, the compounding amount, in such cases, shall be the amount as determined for the offence for which a higher compounding amount has been prescribed.

4.                  Power of Compounding authority to grant immunity from prosecution (Rule 6): The compounding authority, if he is satisfied that any person who has made the application for compounding of offence under these rules has co-operated in the proceedings before him and has made full and true disclosure of facts relating to the case, grant such person, subject to such conditions as he may think fit to impose, immunity from prosecution for any offence under the Act, with respect to the case covered by the compounding of offence.

5.  Withdrawal of immunity from prosecution in certain conditions: Immunity granted to a person may be withdrawn if such person fails to pay any sum specified in the order of compounding passed by the compounding authority within the specified time in the order of compounding or fails to comply with any condition subject to which immunity was granted. An immunity granted to a person may, at any time, be withdrawn by the Compounding Authority, if he is satisfied that such person had, in course of the compounding proceedings, concealed any material particulars, or had given false evidence, and there upon the person may be tried for the offence with respect to which immunity was granted or for any other offence that appears to have been committed by him in connection with the compounding proceedings etc.

Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do hesitate to write back to us.

Bimal Jain
FCA, ACS, LLB, B.Com (Hons)
Mobile: +91 9810604563
email: bimaljain@hotmail.com

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One response to “Overview of Compounding of Offences under Service Tax”

  1. rohit says:

    Mr. Bimal i would like to know that compounding under section 9A of central excise act, – is compounding is a admission of offence, and after compounding can we continue our appeal in the tribunal when already a appeal in under the tribunal.

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