Simplification of Section 76 of Finance Act, 1994

[Pradeep Jain]

Introduction:- The budget 2015 has focussed on substituting penalty provisions under the Central Excise Act, 1944 and under the Finance Act. The major penalty section 11AC has been substituted and similar changes have been made in the section 76 and 78 of the Finance Act. It appears that the intention of the government is to align the penal provisions as contained in the Excise and Service tax laws. This article is an attempt to analyse the changes made in section 76 of the Finance Act which concerns with levy of penalty for non-payment or short payment of service tax for reasons other than fraud, collusion, wilful misstatement or suppression of facts with intend to evade payment of duty.

Erstwhile Section 76:-

Penalty for failure to pay service tax.

76. Any person, liable to pay service tax in accordance with the provisions of section 68 or the rules made under this chapter, who fails to pay such tax, shall pay, in addition to such tax and the interest on that tax in accordance with the provisions of section 75, a penalty which shall not be less than [one] hundred rupees for every day during which such failure continues or at the rate of [one] percent of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax:

Provided that the total amount of the penalty payable in terms of this section shall not exceed [fifty per cent of] service tax payable.

Amended provision of Section 76:-

“76. (1) Where service tax has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded, for any reason, other than the reason of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made thereunder with the intent to evade payment of service tax, the person who has been served notice under sub-section (1) of section 73 shall, in addition to the service tax and interest specified in the notice, be also liable to pay a penalty not exceeding ten per cent. of the amount of such service tax:

Provided that where such service tax and interest is paid within a period of thirty days of-

(i) the date of service of notice under sub-section (1) of section 73, no penalty shall be payable;

(ii) the date of receipt of the order of the Central Excise Officer determining the amount of service tax under sub-section (2) of section 73, the penalty payable shall be twenty-five per cent. of the penalty imposed in that order, only if such reduced penalty is also paid within such period.

(2) Where the Commissioner (Appeals), the Appellate Tribunal or, the court, as the case may be, modifies the service tax determined under sub-section (2) of section 73, then, the amount of penalty payable thereon, shall also stand modified accordingly, and the benefit of reduced penalty under the proviso to sub-section (1) shall be available if such service tax, interest and reduced penalty so payable, is paid within a period of thirty days from the date of receipt of the order by which such modification is made.”

Conclusion:- After pursuing the amended section 76, it is found that this section seeks to simplify the computation of the amount of penalty payable under this section because in the earlier section, the manner of determination of penalty was one hundred rupees for every day during which such failure continues or at the rate of one percent of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax. Further, there was a ceiling that the maximum penalty under this section could be 50% of the service tax payable. However, the substituted section simplifies the computation of penalty under this section and restricts the same to 10% of the amount of service tax payable. Not only this, the amended section also seeks to provide additional benefit that no penalty will be leviable if service tax and interest is paid within 30 days from the date of service of show cause notice. This provision is welcomed by the assessees so that they can get waiver from penalty imposed under section 76 for non-payment/short-payment of service tax.