CA Pradeep Jain, CA Preeti Parihar, CA Neetu Sukhwani

Backdrop:-

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 –

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(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.

While concluding:-

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.

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Category : Service Tax (3286)
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Tags : Budget (1473) CA Pradeep Jain (195)

0 responses to “Service Tax – Sec. 73(2A) – Revenue To Follow ‘Something Is Better Than Nothing’”

  1. Mayank Jain says:

    Dear sir

    I want to know whether the central excise officer will have to issue a fresh notice of demand for which 18 months period is mentioned in 73(2A) i.e. will department enjoy extension of this 18 months?

  2. Payal Shah says:

    Explanatory memorandum to Union Budget 2013-2014 contained in Budget documents available at indiabudget.nic.in.

  3. Payal Shah says:

    Dear CA Pradeep Jain, CA Preeti Parihar and CA Neetu Sukhwani

    It is mentioned that no such parallel provision has been inserted in the Central Excise Law. However, there is already a provision in Central Excise Law in this regard. The same is also given in Explanatory memorandum.

    Section 11A (9) of the Central Excise Act, 1944 contains provision similar to Section 73 (2A) of the Finance Act, 1994. The provision is reproduced for ready reference:

    “Where any appellate authority or tribunal or court concludes that the notice issued under sub-section (4) is not sustainable for the reason that the charges of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty has not been established against the person to whom the notice was issued, the Central Excise Officer shall determine the duty of excise payable by such person for the period of one year, deeming as if the notice were issued under clause (a) of sub-section (1).”

    Request you to consider the above provision and give your comments in case there is any misunderstanding.

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