CHANGES IN PENAL PROVISIONS FOR SERVICE TAX IN THE FINANCE BILL, 2011

[Mr. M. GOVINDARAJAN]

LATE FILING OF RETURNS:

                        Sec. 70 deals with the furnishing of returns by the service provider with the Superintendent of Central Excise in such form and in such manner and at such frequency.   The late filing of return is allowed subject to the payment of certain amount.  The maximum amount that is payable is Rs.2,000/-.The Finance Bill, 2011 now enhanced the same to Rs.20,000/-.

SEC. 73 – RECOVERY OF SERVICE TAX:

                        The Finance Bill, 2011 has brought a sea change in the provisions of Sec. 73.  It omits sub section (1A) of Sec. 73 and proviso to sub section (2).  In addition it inserts sub section (4A).

                        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 Sec. 75 and penalty equal to 25% of the service tax specified in the notice or the service tax so accepted by such person within thirty days of the receipt of this notice. In such cases the proceedings in respect of such person to whom notices are served shall be deemed to be concluded.

                        The newly inserted sub section (4A) provides that notwithstanding anything contained in sub-section (3) of sub-section (4), where during the course of any audit, investigation or verification, it is found that any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded, but the true and complete details of transactions are available in the specified records, (specified records means records including computerized data as are required to be maintained by an assessee in accordance with any law for the time being in force or where there is no such requirement, the invoices recorded by the assessee in the books of account shall be considered as the specified records) the person chargeable to service tax or to whom erroneous refund has been made, may pay the service tax in full or in party, as he may accept to be the amount of tax chargeable or erroneously refunded along with interest payable thereon under Sec. 75 and penalty equal to 1% of such tax for each month, for the period during which the default continues, up to a maximum of 25% of the tax amount, before service of notice on him 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 and proceedings in respect of the said amount of service tax shall be deemed to have been concluded. 

                        The Central Excise Officer may determine the amount of service tax, if any, due from such person which in his opinion to be paid by such person and shall proceed to recover such amount in the manner specified in sub section (1).

SEC.73B – INTEREST ON AMOUNT COLLECTED IN EXCESS:

                         The Finance Bill reduces the interest rate in case of interest on amount collected in excess in certain cases.The Finance bill inserts a proviso after the first proviso to Sec. 73-B which provides that in the case of a service provider, whose value of taxable services provided in a financial year does not exceed sixty lakh rupees during any of the financial years covered by the notice issued under sub-section (3) of Section 73A or during the last preceding financial year, as the case may be, such rate of interest shall be reduced by three per cent per annum.

SEC.75 – INTEREST ON DELAYED PAYMENT OF SERVICE TAX:

                        The Finance Bill, 2011 inserted a proviso after Sec. 75.   Sec. 75 deals with the levy of interest on delayed payment at such rate not below 10% and not exceeding 36% per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette for the period by which such crediting of the tax or any part thereof is delayed.  The rate of interest for the current year is fixed at 18%.  The new proviso provides that in the case of a service provider, whose value of taxable services provided in a financial year does not exceeding sixty lakh rupees during any of the financial years covered by the notice or during the last preceding financial year, as the case may be, such rate of interest, shall be reduced by 3% per annum.

SEC.76 – PENALTY FOR FAILURE TO PAY SERVICE TAX:

                        Sec. 76 provides that any person, liable to pay service tax shall pay in addition to such tax and the interest on that tax in accordance with the provisions of Sec. 75, a penalty, which shall not be less than Rs.200/- for every day during which such failure continues or at the rate of 2% of such tax, per month, whichever is higher.   The total amount of the penalty payable shall not exceed the service tax payable.

                        The Finance Bill reduces the penalty.   The penalty of Rs.200/- is reduced to Rs.100/- and the percentage 2% is reduced to 1%.  Further the total amount of penalty payable shall not exceed 50% of the service tax payable.

SEC.77 – PENALTY FOR CONTRAVENTION OF RULES:

                        The penalty imposable under this section is up to Rs.5,000/- or Rs.200/- for every day during which such failure continues, whichever is higher.   The Finance Bill enhances the penalty limit from Rs.5,000/- to Rs.10,000/-.

SEC.78 – PENALTY FOR SUPPRESSING THE VALUE OF TAXABLE SERVICE:

                        The Finance Bill, 2011 substitutes the existing provisions of Sec. 78.  The new Section 78(1) provides that where any service tax has not been levied or paid or has been short levied or short pair 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 this Chapter or the rules made there under with the intent to evade payment of service tax

The person, liable to pay such service tax or erroneous refund, as determined under sub section (2) of Sec. 73, shall also be liable to pay a penalty, in addition to such service tax and thereon, if any, payable by him, which shall be equal to the amount of service tax so not levied or paid or short levied or short paid or erroneously paid.

                        Where true and complete details of the transactions are available in the specified records, penalty shall be reduced to 50% of the service tax so not levied or paid or short levied or short paid or erroneously refunded.

                        Where such service tax and the interest payable thereon is paid within thirty days from the date of communication or order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person shall be 25% of such service tax.  This benefit is available only if the amount of penalty so determined has also been paid within 30 days.  The said limitation of 30 days is extended to 90 days in case of a service provider whose value of taxable services does not exceed Rs.60 lakhs during any of the years covered by the notice or during the last preceding financial year.

                        Sec. 78(2) provides that where the service tax is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court, then, for the purposes of this section, the service tax as reduced or increased, as the case may be, shall be taken into account.  The rates of penalty and time limit to make payment as applicable in Sec. 78(1) are applicable for the reduced or increased amount of service tax in appeal proceedings.

                        If the penalty is payable under Sec.76 these provisions shall not apply.

LIBAILITY TO BE FIRST CHARGE:

                        A new section 88 is introduced by the Finance Bill.  It provides that notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest, or any other sum payable by an assessee or any other person under this Chapter, shall, save as otherwise provided in Section 529A of the companies Act, 1956 and the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 and the Securitization and Reconstruction of Financial Assets and the Enforcement of Security Interest Act,2002, be the first charge on the property of the assessee or the person as the case may be.

OFFENCES AND PENALTIES:

                        The Finance Bill, 2011 also introduces a new section 89 dealing with offences and penalties.  Sec. 89(1) provides that whoever commits any of the following offences-

• provides any taxable service chargeable to service tax under Sec. 68(1) or receives any taxable service chargeable to tax under Sec. 68(2) without an invoice issued in accordance with the provisions of this Chapter or the rules made there under; or
• 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; or
• 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 (unless with a reasonable belief, the burden of proving which shall be up on him, that the information supplied by him is true) supplies false information; or
• 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,

shall be punishable-

• in the case of an offence where the amount exceeds fifty lakh rupees, with imprisonment for a term which may extend to three years; 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;
• in any other case, with imprisonment for a term, which may extend to one year.

Sec. 89(2) provides that for the second and for every subsequent offence the punishment is imprisonment for a term which may extend to three years.   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 less than six months.

                        The following are not considered as special and adequate reasons for warding a sentence of imprisonment for a term of less than six months-

• the fact that the accused has been convicted for the first time for an offence under this Chapter;
• the fact that in any proceeding under this Act, other than prosecution, the accused has been order to pay a penalty or any other action has been taken against him for the same act which constitutes the offence;
• the fact that the accused was not the principal offender and was acting merely as a secondary party in the commission of offence;
• the age of the accused