V. Unnikrishnan, Cochin
As all are aware, the service tax is here for the past 21 years from Sept, 1994. The original provisions of the law contained in the Finance Act, 1994 have been subjected to various changes almost every year. In the proposed changes to Finance Act, 1994 pertaining to service tax, As per the Finance Bill, 2015, there are some drastic changes brought in pertaining to the penal provisions under the Indirect tax laws, Central Excise, Customs and Service tax, uniformly reducing the penalty, including NO penalty. Here, we will try to analyse the changes as applicable to Service tax.
This year, the vital change is the deletion of section 80,which provided for waiver of penalties under sections 76,77 and 78,if ‘reasonable cause for the failure’ was established for the non payment/default. The large number of appeals at various stages may have mainly sought for the invoking of section 80 on the penalties imposed. While there may be justification in doing away with this discretion after 21years since the law is brought into effect, the fate of the pending appeals , especially those seeking the relief under section 80 will be very much crucial. The withdrawal of the section 80, though being done now, the various appellate authorities , including CESTAT Benches may adopt these new norms / rationale in deciding the pending appeals. The CBEC should make it clear as to whether all the pending cases will be governed by the erstwhile provisions envisaging the discretion on waiver of penalty. Even though, the deletion of this section 80 may be justified as a measure of ‘removal of discretionary powers’ of the ‘adjudicating authorities’, there may be a large number of genuine cases who would be really at the receiving end ,by this.
The changes in section 76 and 78 are also aimed at taking away the discretion of the adjudicating authorities. It is good that a new provision has been provided for reduced penalty not exceeding 10% of amount of tax,in cases other than the reason of fraud or collusion or willful misstatement or suppression with intent to evade tax. In all such cases ,if taxes and interest is paid within 30 days of the ‘date of service of notice ‘,NO penalty shall be payable.( why not it be ‘date of receipt of notice’ as in Income tax provisions?) . If the tax ,interest and penalty are within 30 days of service of the order,the penalty will be 25% of the penalty imposed .i.e only 2.5% of the amount of tax demanded. This is an improved version of cases covered by the present section 73(3) and 73(4A). Since this has replaced the erstwhile 25% penalty under 73(4A), there may be some takers to opt for this. However, it appears that the situations covered by the new section 76 will be an area of dispute;unlike earlier position that relevant details are available in specified records etc.Again, the exclusion of already paid tax and interest paid before service of SCN mentioned in section 73(3) from the notice of demand has been omitted.Thus the situations/ issues really happening in the field is not properly appreciated while bringing this provision.
In many a cases, the Internal audit, preventive wings and even the Anti Evasion Directorate are insisting the assesses to make lumpsum payments on the spot ,even before actual quantification of the period and quantum of the short payments. Invariably, in such cases the amount would have been paid only under the main head of account for the tax. Even the split up for cess would not have been shown; leave alone the interest payable. The real problem in such cases would be whether this amount will be excluded to quantify the penalty of 10% and the benefit of the NO penalty will be extended on this quantum of amount already paid before service of SCN. Similarly,for the reduced penalties of 15% if paid within 30 days of service of SCN and 25% ,if paid within 30 days of receipt of the adjudication orders in terms of new section 78 ,the already made lumpsum payments should be excluded. As per the letter of law, they have not paid separately the tax and interest dues to be eligible for this provision,as well.
Even though under the existing provisions of 73 (3) and 73(4A), there was provision for reduced penalty of NIL or 25% of tax,respectively, in cases where the tax and interest were paid before issue of SCN, in practice, this was not being allowed . There are umpteen pending appeal cases where lumpsum payments were made towards the admitted liability of tax before the service of SCN itself; still the penalties are imposed by the concerned adjudicators both under section 76 and 78 equal to the gross amount after confirming the demand of the gross amount and adjusting the payments already made towards the tax so confirmed !! . Even as per the new provisions, there is no clarity as to whether such instances of high handedness will ever be arrested.
Another area is the case of small scale service providers whose value of taxable services was below SIXTY lakhs during the any of the years covered by the notice or preceeding financial years.As per section 78,they were eligible for the extended period upto NINETY days to make the payments to avail the concessional rate of 25% penalty . Now in the new section 78, this facility has been withdrawn/omitted.
In the backdrop of the above analysis on the penal provisions under service tax law, it is suggested that instead of total abolition of section 80, a new provision may be incorporated making it explicit that any amount paid during the pendency of investigation or before the SCN, or within 30 days of actual service of the SCN, would be properly appropriated towards the taxes and interest payable for the quantification of penalty in terms of section 76 and 78.
At least an Explanation can be inserted on the above lines under section 76 and 78 to this extent. In other words, the payments made within 30 days after the service of SCN (nothing wrong even if all payments made before the issue of the adjudication order) are to be allowed to be accounted as compliance of the section 76 and 78 for quantifying the penalty. Even in cases, where the part payments are made of admitted liability, instead of the full quantum mentioned in the SCN, this provision should be made applicable.
All these changes of reduced penalties both under 76 and 78 has been made assessee friendly for genuine cases of short payments. This should be really made to feel so, by properly explaining the above mentioned grey areas and taking away the discretion in such situations.
Yet another discrepancy noticed is in the wordings of both section 76 and 78 (clauses 111 and 112 of the Bill) such as “date of service of notice”,”date of receipt of the order”. It appears that in both the cases, it could have been made “date of receipt”.
Let us hope that the above mentioned grey areas based on real issues will be brought before the visionary Finance Minister by the CBEC ,or the eminent experts in the Parliament and all concerned would raise upto the occasion to ensure that the real intention of legislation is actually reaching the stake holders.