CONCLUSION OF ADJUDICATION PROCEEDINGS UNDER SERVICE TAX PROVISIONS

[Mr. M. GOVINDARAJAN]

            Section 73(1) of the Finance Act, 1994 ('Act' for short) gives powers to Central Excise Officer to serve notice on the service provider within one year from the relevant date for non levy or non payment or short levy or short payment of service tax or erroneous refund of service tax to show cause why he should not pay the amount specified in the notice. If the non levy or non payment or short levy or short payment or erroneous refund is by reason of-

> fraud; or

> collusion; or

> willful misstatement; or

> suppression of facts; or

> contravention of any of the provisions of the Act or of the rules made there under with intent to evade payment of service tax

the Central Excise Officer can invoke the extended period of five years for the issue of show cause notice. The Central Excise Officer, under Section 73(2),  after considering the representation, if any made by the service provider on whom notice is served, determine the amount of service tax due  and such person shall pay the amount so determined.

            The service provider, who received show cause notice, may pay the service tax in full or in part as may be accepted by him and the interest payable thereon under Section 75 of the Act and penalty equal to 25% of the service tax specified in the notice within thirty days of the receipt of the notice. If such person paid the service tax in full with interest and penalty the proceedings shall be deemed to be concluded.

            Section 73 (3) provides that the service provider may pay the amount of service tax on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not service any notice in respect of the amount so paid.

            Section 76 prescribes penalty for failure to pay the service tax as per Section 68. The penalty is over and above the amount of service tax due and interest payable thereon.

            Section 77 prescribes the penalty for contravention of Rules and provisions of Act for which no penalty is specified elsewhere.

            Section 78 prescribes the penalty for suppressing value of taxable service by reason of fraud, collusion, willful misstatement or suppression of fact.

            The tribunals, in many cases, set aside the penalty on the service provider, if he pays the service tax along with interest before the issue of show cause notice. Section 83A provides that any person is liable to a penalty, such penalty may be adjudged by the Central Excise Officer conferred with such power as the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 by notification in the official gazette.

            Section 78 provides penalty for the contravention of Section 73. In addition to this section, the Adjudicating Authority may impose penalty under Section 76 and 77 of the Act. Section 73 provides that the proceedings shall  deemed to be concluded if the service provider on whom show cause notice was issued pays the service tax in full with interest and penalty of 25% of service tax. The question posed in this article is whether the conclusion of proceedings limited to the action taken under Section 73 of the Act or for all proceedings under the Act. The Ahemedabad tribunal gives answer for the same.

            In 'KSL Industries Ltd., V. Commissioner of Central Excise, Vapi' - [2009 -TMI - 33476 - CESTAT AHMEDABAD] the appellant paid the service tax along with 25% of service tax within 30 days of the issue of show cause notice. The Commissioner, therefore, waived of to the extent of 75% penalty in terms of Section 73(1A) of the Act. However he has observed that the provisions of Section 73(1A) will not be applicable to Sections 76 and 77 of the Act and he imposed penalties under the said sections.

            The appellant filed the present appeal challenging the penalties imposed under Section 76 and Section 77 of the Act.  The appellant relied on the instructions issued by the Board vide No. 137/167/2006-CX4, dated 03.10.2007. The said instructions give clarification as under:

"Section 73(1A) of the Finance Act, 1994 provides for conclusion of adjudication proceedings in the cases of willful suppression/fraud/collusion if the tax payer pays service tax liability along with interest and a penalty equal to 25% of service tax amount, within a period of one month from the date of issue of show cause notices. Similarly Section 73(3) provides conclusion of adjudication proceedings in other cases on payment of service tax and interest.

2. A question has been raised as to whether the conclusion of proceedings in such cases is limited to the action taken under Section 73 of the Finance Act, 1994 or all the proceedings under the Act, including those under Sections 76, 77 and 78 get concluded.

3. The issue has been examined. The intention of Section 73(1A) has already been explained vide para 8(g) of the post budget instructions issued by TRU vide D.O.F. No. 334.4.2006-TRU, dated 28.2.2006 where it has been clarified that this sub section provides for conclusion of adjudication proceedings in respect of person who has voluntarily deposited the service tax.

3.1. The relevant portion of Section 73 is reproduced below:

            "Provided further that where such person has paid service tax in full together with interest and penalty under sub section (1A), the proceeding in respect of such person and other person to whom notices are served under sub section (1) shall be deemed to be concluded"

            Thus law prescribes conclusion of proceedings against such person to whom show cause notice issued under sub section (1) of section 73. Therefore, it is not merely a conclusion under sub section (1) but conclusion of all proceeding against such person. Similar is the position in respect of sub section (3) of Section 73.

4. Accordingly, conclusion of proceedings in terms of sub section (1A) and (3) of Section 73 implies conclusion of entire proceedings under the Finance Act, 1994."

            The tribunal relied on the above said instructions held that there is no justification for imposition of penalties in terms of Sections 76 and 77 of Finance Act, 1994 and set aside the same.