SECTION 72 AND SECTION 73 OF CHAPTER V OF FINANCE ACT, 1994 INVOLVE COMPLETE ADJUDICATORY PROCESS

[Mr. M. GOVINDARAJAN]

Introduction

The provisions contained in Chapter V of the Finance Act, 1994 is a complete code in the matter of imposition of service tax, the duty cast upon a person providing taxable service to pay the service tax, furnishing return, determination of the liability to pay tax on the best judgment assessment and recovery of service tax not levied or not paid or short levied or short paid or erroneously refunded, interest, penalty on account of non payment of service tax.

Payment of service tax

Section 68  of the Act provides that every person providing taxable service to any person is, required to pay service tax at the rate prescribed in Section 66 in such manner and within such period as may be prescribed.  The assessee is required to himself assess the tax due on the services provided by him and is required to furnish to Superintendent of Central Excise, return in such form and in such a manner and within such period as may be prescribed.

Limitation to issue show cause notice

Section 72  of the Act provides that a person who is liable to pay service tax and who is required to file return, if he fails to the return or having filed a return, fails to assess the tax, in accordance with the provisions of Chapter V or the rules made there under, the Central Excise Officer is empowered to require such a person to produce such accounts, documents or other evidence as deemed necessary.   It further provides that after taking into account all the relevant material which is available or which has been gathered the assessing authority by an order in writing after giving the person an opportunity of being heard is required to make assessment of the value of taxable service, to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.

Section 73(1) of the Act enables the Central Excise Officer to serve notice on the person chargeable with the service tax within eighteen months from the relevant date, where any service tax has not been levied or paid or short levied or short paid or erroneously refunded, requiring to show cause why he should not pay the amount specified in the notice.  The proviso to this section provides that the limitation of eighteen months may be extended to five years from the relevant date in the circumstances where any service tax has not been levied or paid or 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 this Chapter or of the rules made there under

with intent to evade payment of service tax,

Section 73(6) defines the ‘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.

The explanation to Section 73(1) provides that the period during which the service of notice is stayed by an order of a Court, shall be excluded in computing the period of limitation as discussed above.

Subsequent notice

Section 73(1A)  provides that notwithstanding anything contained in Section 73 (1) the Central Excise Officer may serve subsequent to any notice or notices served under Section 73 (1) a statement, containing the details of service tax not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, on the person chargeable to service tax.  It further provides that then service of such statement shall be deemed to be service of notice on such person, subject to the condition that the grounds relied upon for the subsequent period are same as are mentioned in the earlier notices.

Non payment of self assessed tax

Section 73 (1B) was inserted in the Finance Act, 2015 with effect from 14.05.2015.  The said section provides that where the amount of service tax payable has been self-assessed in the return furnished under Section 70 (1), but not paid either in full or in part, the same shall be recovered along with interest thereon in any of the modes specified in section 87, without service of notice Section 73(1).

Determination of tax

Section 73(2) provides that the Central Excise Officer shall after considering the reply, if any,  submitted by the assessee on the show cause notice issued to him under Section 73(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 thereupon such person shall pay the amount so determined.

Section 73(2A) was inserted with effect from 10.05.2013.  Before that if the assessee is successful before the Appellate Authority or Tribunal or Court that the show cause notice is barred under limitation and the extended period of limitation could not invoked, then no demand in the show cause notice would not be liable to be paid.  The new Section 73(2A) provides that where any appellate authority or Tribunal or Court concludes that  the show cause notice issued under Section 73(1) is not sustainable for the reason that the charge of-

• fraud; or
• collusion; or
• willful mis-statement; or
• suppression of facts; or
• contravention of any of the provisions of this Chapter or rules made there under

with intent to evade payment of service tax has not been established against the person chargeable with the service tax, to whom the notice was issued, the Central Excise Officer shall determine the service tax payable by such person for the period of eighteen months, as if the notice was issued for the offences for which limitation of eighteen months applies under Section 73(1). 

Section 73(4B) provides that the Central Excise Officer shall determine the amount of service tax due-

• within six months from the date of notice where it is possible to do so, in respect of cases whose limitation is specified as eighteen months in Section 73(1);
• within one year from the date of notice, where it is possible to do so, in respect of cases falling under the proviso to Section 73(1)

Dispensing with the issue of show cause notice

Section 73(3) provides that where any service tax has not been levied or paid or 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 and the details of such payment is informed to the Central Excise Officer in writing.  The Central Excise Officer, on receipt of such intimation, shall not serve any notice under Section 73(1) in respect of the amount so paid.

The proviso to this section provides that the Central Excise Officer may determine the amount the amount short payment or service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person.  Then the Central Excise Officer may proceed to recover such amount in the manner specified in the said section and the period of eighteen months shall be counted from the date of receipt of such information of payment.

The explanation 1 to this section provides that the interest under Section 75 shall be payable on the amount paid under this 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 section.

The explanation 2 to this section provides that no penalty under any of the provisions of this Act or the rules made there under shall be imposed in respect of payment of service tax and interest thereon.

Section 73(4) provides that the above said eventualities shall not be applicable to a case where service tax has not been levied or paid or short levied or 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 this Chapter or rules made there under

with intent to evade payment of service tax.

Conclusion

In the provisions of both Section 72  and 73 The Legislature has taken  care to ensure that before the assessment is made and the amount payable is determined the assessee is given complete opportunity of either being heard or represented.    Thus both the two section is involving complete adjudicatory process in respect of service tax.