SECTION 73(3) OF FINANCE ACT, 1994M DOES NOT TAKE INTO ACCOUNT THE QUANTUM OR PERCENTAGE OF AMOUNT WHICH WAS NOT PAID BEFORE ISSUE OF SHOW CAUSE NOTICE

[Mr. M. GOVINDARAJAN]

                        Sec. 73 of Finance Act, 1994 (‘Act’ for brevity) deals with the recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded.  Sec. 73(1) provides where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short levied or short paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice. 

                        This section further provided that where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of-

• fraud; or
• collusion; or
• willful misstatement; or
• suppression of facts; or
• contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax by the person chargeable with the service tax or his agent, the provisions of this section shall have effect, as if, for the words ‘one year’, the words ‘five years’ had been substituted.

                        The explanation to this section provides that where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case ma be.

                        Sec. 73 (1A) provides that where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded, by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Chapter or the rules made there under, with intent to evade payment of service tax, by such person or his agent, to whom a notice is served under the proviso to sub section (1) by the Central Excise Officer, such person or agent may pay service tax in full or in part as may be accepted by him, and the interest payable thereon under Section 75 and penalty equal to twenty five per cent of the service tax specified in the notice or the service tax as accepted by such person within thirty days of the receipt of the notice.

                        Sec. 73(2) provides that the Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and there upon such person shall pay the amount so determined.

                       Sec. 73(2) further provided that where such person has paid the service tax in full together with interest and penalty under sub-section (1A), the proceedings in respect of such person and other persons to whom notices are served under sub-section (1) shall be deemed to be concluded.

It is further provided further where such person has paid service tax in part along with interest and penalty under sub-section (1A), the Central Excise Officer shall determine the amount of service tax or interest not being in excess of the amount partly due from such person.

                        Sec. 73(3) provides that where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid:

Sec. 73 (3) further provides that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner, specified in this section, and the period of ‘one year’ referred to in sub section (1) shall be counted from the date of receipt of such information of payment.

                        Explanation to Sec. 73(3) for the removal of doubts  declared that the interest under section 75 shall be payable on the amount paid by the person under this sub section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer, but for this sub section.

                        Sec. 73(4) provides that nothing contained in sub section (3) shall apply to a case where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of-

• fraud; or
• collusion; or
• willful mis-statement; or
• suppression of facts; or
• contravention of any of the provisions of the Chapter or of the rules made there under with intent to evade payment of service tax.

Sec. 73(5) provides that the provisions of sub-section (3) shall not apply to any case where the service tax had become payable or ought to have been paid before the 14^th day of May, 2003.

           Sec.73 (6) defines the term ‘relevant date’ as-

• in the case of taxable service in respect of which service tax has not been levied or paid or has been short levied or short paid-

• where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;
• where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
• in any other case, the date on which the service tax is to be paid under this Chapter or the rules made there under.

• in a case where the service tax is provisionally assessed under this Chapter or the rules made there under, the date of adjustment of the service tax after the final assessment thereof;
• in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund.

 Thus if the assessee pays the service tax along with interest under Sec. 73(3) no show cause notice will be issued.   Penalty provisions will also not be attracted.   The assessee has to pay the entire amount of service tax due along with interest before issue of show cause notice.

                        In ‘Rockwool insulation V. Commissioner of Central Excise, Rajkot’ – 2010 -TMI - 78745 – (CESTAT AHMEDABAD) the appellants are engaged in providing construction services.   During the period from October 2006 to March 2007, there was a delay in payment of service tax.   On the basis of the scrutiny of the returns filed by the appellant the delay was found.  Even though the appellants paid the service along with the interest on subsequent dates, the appellants was found to have paid interest less to the extent of Rs.2221/-.   A show cause notice was issued to the appellant proposing to demand service tax and interest and also imposition of penalty.  The appellant paid Rs.4,141/- comprising of Rs.2221/- towards interest and Rs. 1,920/- towards service tax.  The appellant could not locate reversal entry of CENVAT credit, which according to them, they had made in their books, but could not give details at that time to the lower authorities.   The Lower Authorities have held that the penalty under Sec. 76 is imposable since the service tax and interest was not paid within time. 

                        The appellants contended that they had paid full amount of service tax before issue of show cause notice.   Therefore the show cause notice should not have been issued and also no penalty under Sec. 76 was imposable in accordance with the provisions contained in Sec. 73(3).   Whereas the Department contended that the amount of Rs.4141/- was paid only after issue of show cause notice and therefore the appellant was not eligible for the benefit of provisions of Sec. 73(3).  The Department further contended that even now the appellant is liable to pay Rs.8/- towards interest which has not been paid till date.  For this contention the appellant contended that this amount of Rs.8/- towards service tax is arising because of rounding off. 

                        The Tribunal considered the arguments put forth by the parties to this case.  It also analyzed the provisions of Sec. 73 in particular Sec. 73(3).  The Tribunal held that Sec. 73 is very clear and therefore, unless the service tax along with interest is paid before issue of show cause notice, the question of non issue of show cause notice does not arise.  Further penalty under Sec. 76 also becomes imposable.  The section does not take into account the quantum or percentage of amount which was not paid before issue of show cause notice and therefore, the fact that amount due from the appellant at the time of issue of show cause notice was small, does not really help the appellant.  On query of the Tribunal the appellant admitted that they have collected service tax and they have not paid the same due to financial difficulty.  Having collected the service tax and appellant’s action in non payment of the same to the Government warrants penalty.