CA Pradeep Jain, CA Preeti Parihar, CA Neetu Sukhwani
Section 73 of the Finance Act, 1994 relates to the issue of show cause notice and confirmation of demand. Under existing provisions where the appellate authority finds that the demand is confirmable on merits, however, extended period is not invokable, then the entire demand raised in the show cause notice is quashed. Thus, it is only on the grounds of limitation, the entire demand is quashed, even though it was genuinely raised on the basis of merits. In order to bridge this lacuna, hon’ble Finance Minister has proposed the insertion of sub-section 2A to section 73 which says that where the extended period is held as not invokable, then the Central excise officer will re-quantify the demand and demand of 18 months will have to be paid by the assessee.
Proposed section 73(2A):-
This section has been proposed as follows:-
“(2A) Where any appellate authority or tribunal or court concludes that the notice issued under the proviso to sub-section (1) is not sustainable for the reason that the charge of –
(a) Fraud; or
(b) Collusion; or
(c) Suppression of facts; or
(d) Contravention of any provisions of this Chapter or the rules made thereunder with intent to evade payment of service tax.
has not been established against the person chargeable with the service tax, to whom the notice was issued, the Central Excise officer shall determine the service tax payable by such person for period of eighteen months, as if the notice was issued for the offences for which limitation of eighteen month applies under subsection (1).”
Implications of proposed section:-
Till now, where the show cause notice was issued on the grounds of fraud, suppression or willful mis-statement, etc. by invoking extended period of limitation; and it was concluded that none of these elements are present and extended period is not invokable; the entire demand was quashed even if it was sustainable on the merits. However, now by virtue of this section, if the demand was found genuine on merits but quashed on the grounds of limitation, the central excise officer is required to re-quantify the demand of normal period. Thus, now, as soon as this provision is enacted, the assessees cannot enjoy the full waiver from demand merely on the grounds of limitation.
By introducing this section, the government has proposed to secure at least the demand of normal period of limitation if not the extended period; as “something is better than nothing”. Although, the demand for the normal period would not provide complete contentment to the government but it would definitely increase its revenue which would add to its total revenue as it is common proverb that “Many a little, makes a mickle” and collection of demand for normal period would definitely add to the efforts of increasing overall revenue of the government. However, it is worth mentioning here that this kind of provision has been inserted in the service tax law only. No such parallel provision has been inserted in the Central Excise Law. The manufacturers and importers will be thanking the government for this relief, whether or not given knowingly. Also, you never know, when this benefit may be snatched from these assessees. If it is done in subsequent years, there will be a beginning of new trend as till now, service tax law was importing the sections from Central excise law. But if the above possibility turns out in reality, the situation will be reversed with beginning of new era.