Interest and Penalties - Service Tax Practice Manual / Ready Reckoner - Service Tax

Interest and Penalties A. Interest Section 75 B. Penalty for failure to deposit service tax Section 76 C. Penalty for failure to pay Service tax for reason of fraud, etc. Section 78 D. Residual Penalty Section 77 E. Power of Adjudication of Penalty Section 83A F. [Power to reduce or waive penalty Section 80 ] - Omitted vide THE FINANCE ACT, 2015 w.e.f. 14th May 2015 ================== A. Interest Liability to Pay Interest For non-payment or late payment of Service Tax - Section 75 As per Section 75 , where a person is liable to pay service tax u/s 68 and fails to credit the tax or any thereof to the account of the Central Government within the prescribed time limit shall pay simple interest as prescribed in notification issued by Central Government. Notification no. 13/2016 - Dated 1-3-2016 w.e.f. 14.5.2016 Serial Number Situation Rate of simple interest (1) (2) (3) 1. Collection of any amount as service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due. 24 per cent. 2. Other than in situations covered under serial number 1 above. 15 per cent. W.e.f. 8.4.2011:- 3% relaxation in interest rate for small service provider, having turnover upto 60 lakhs is available. The variable interest rate as given in above table will apply on or after 1 st October, 2014. Interest under section 75 is mandatory and automatic. The assessee is required to pay interest along with the service tax or before filing of service tax return. He is not supposed to wait for a show cause notice from the department. The interest is liable to computed on day to day basis. There were different rate of interest for different duration. These are listed below: Sr. No. Rate of Interest Period Special provision for Small service provider (SSP) 1. 1.5% for every month or part of month From 16-10-1998 to 15-1-2001 Nil 2. 24% p.a. From 16-1-2001 to 15-08-2002 Nil 3. 15 % p.a. From 16-8-2002 to 9-9-2004 Nil 4. 13% p.a. From 10-9-2004 to. 31-3-2011 Nil 5. 18% p.a. From 1-4-2011 Where value of taxable services does not exceed 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, rate of interest shall be reduced by 3%. i.e. 15% p.a. 6 18% p.a. to 30% p.a From 1-10-2014 Refer Table of Notification No. 12/2014-ST dated 11-7-2014, w.e.f.1-10-2014 to 13-5-2016 table below: 7. 24% p.a. or 15% p.a. From 14.5.2016 Refer table or Notification no. 13/2016 - Dated 1-3-2016 w.e.f. 14.5.2016 as above Notification No. 12/2014-ST dated 11-7-2014 , w.e.f.1-10-2014 to 13-5-2016 Sl.No. Period of delay ( w.e.f.1-10-2014 to 13-5-2016) Rate of simple interest Special provisions for SSP-Taxable Services =60 lacs (1) (2) (3) (4) 1. Up to six months 18 per cent. 15 per cent 2. More than six months and up to one year 18 per cent. for the first six months of delay and 24 per cent. for the delay beyond six months. 15 per cent. for the first six months of delay and 21 per cent. for the delay beyond six months. 3. More than one year 18 per cent. for the first six months of delay; 24 per cent. for the period beyond six months up to one year and 30 per cent. for any delay beyond one year. 15 per cent. for the first six months of delay; 21 per cent. for the period beyond six months up to one year and 27 per cent. for any delay beyond one year. Rate of Interest for recovery of excess amount - Section 73B From 19-4-2006 to 13-5-2016 Interest on late deposit of excess collection of service tax is 18% p.a. read with notification no. 8/2006 ST dated 19-4-2006 . From 14-5-2016 Interest on late deposit of excess collection of service tax is 15% p.a. read with notification no. 8/2006 ST dated 19-4-2006 . W.e.f. 8.4.2011:- 3% relaxation in interest rate for small service provider, having turnover upto 60 lakhs is available. ================== B. Penalty for failure to pay service tax - section 76 - ( Substituted vide THE FINANCE ACT, 2015 w.e.f. 14th May 2015) In case of 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 mis-statement 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 shall, in addition to the service tax and interest , be also liable to pay a penalty not exceeding 10% of the amount of such service tax. However if payment along with interest has been made in 30 days from date of serving of notice, no penalty will be charged. Also there are provision of a reduced penalty equal to 25% of the penalty imposed by the Central Excise officer if Service Tax along with interest and reduced penalty has been paid in 30 days. In case of service tax liability is reduced in any appellate proceedings, penalty amount shall also be modified accordingly and benefit of reduced penalty shall be available if service tax along with interest and reduced penalty has been paid within 30 days of such appellate order. ================== C. Penalty for failure to pay Service tax for reason of fraud, etc. - Section 78 ( Substituted vide THE FINANCE ACT, 2015 w.e.f. 14th May 2015 ) When the penalty under section 78 is imposed Penalty under section is imposed, where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of (a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax. Before imposing penalty under section 78 , the department has to satisfy two ingredients: First of all, such non-payment of service must be due to either one or more of the circumstances mentioned from (a) to (e) above. Secondly, such non-payment must be with the intention to evade payment of service tax. If the central excise officer fails to satisfy both the conditions there cannot be any penalty under section 78 . Amount of Penalty Prescribed Penalty is equal to the amount of such service tax not levied or paid or short-levied or short-paid or erroneously refunded. Reduction in amount of Penalty In case true complete details of transactions are available in the specified records, penalty is reduced to 50% of service tax. This provision is valid for the period starting from 08th April, 2011 upto the date on which Finance bill receive the assent of the President i.e. 14th May, 2015. Penalty is reduced to 15% of service tax if such service tax with interest and reduced penalty is deposited within 30 days from the date of communication of the order. A Reduced penalty @ 25% will be charged if service tax amount along with interest and reduced penalty determined by the Central Excise Officer is paid within 30 days of communication of the order. In case of Service tax amount reduced in any appellate proceeding then penalty amount shall also be modified accordingly, and benefit of reduced penalty shall be admissible if service tax along with interest and reduced penalty is paid within 30 days of communication of the order. In case of small service provider, where turnover of taxable services does not exceed 60 lakh, period of 30 days extended to 90 days. ================== D. Residual Penalty - Section 77 Penalties provision for non-filing of return or late filing of return Refer Chapter- Returns Penalty for failure to take registration: Upto 10,000/- Penalty forfailure to keep, maintain or retain books of accounts or other documents Upto 10,000/- Penalty for failure to furnish information, produce documents or appear before central excise officer Penalty = 200/- per day or Rs.. 10,000 whichever is higher Penalty commence from the due date till the date of actual compliance. Penalty for failure ot pay tax electronically, through internet banking Upto Rs. 10,000/- Penalty for incorrect or incomplete details in Invoice or failure to account for an Invoice Upto Rs. 10,000/- Residual penalty For contravention of any other provision- Upto Rs. 10,000/- ================== E. Power of Adjudication of Penalty - Section 83A Section 83A provides that, penalty proceedings shall be executed by the Central Excise Officers conferred with such power as the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963, may, by notification in the Official Gazette, specify. Accordingly a notification no. 30/2005 ST dated 10-08-2005 as amended by notification no. 48/2010 ST dated 8-9-2010 issued u/s 83A . Refer table given in chapter Demand Recovery, point no. E. ================== F. Power to reduce or waive penalty u/s 80 - Omitted vide THE FINANCE ACT, 2015 w.e.f. 14th May 2015