The 2015-2016 Finance Budget is was presented by Hon’ble Finance Minister, Arun Jaitley on 28th February 2015. This budget was show time for the NDA Government that whether the lucrative promises made by the Prime Minister in his election campaigns were just the mushrooming for gaining the votes or he actually aimed at bringing the reforms. The country witnessed no such reforms in its nomenclature in the last 9 months and all it saw was the fancy lectures in various countries around the globe and impressive speeches and the sugarcoated expressions.
The budget moving on the same line brought no key reforms as promised by the ministers benefiting the assessee or the nation as a whole. All it has done is increased the rates further and hence burdening the assessee with taxes a little more.
With this articulation we would like to talk about the penalty provisions in Service Tax under Section 78 and the changes brought therein which has some sugary benefits extended to the assessee and at the same time some major benefits being snatched from them.
Prior to budget 2015:-
Section 78 earlier used to be:-
[(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of -
(c) willful 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, the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest 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 refunded:
Provided that where true and complete details of the transactions are available in the specified records, penalty shall be reduced to fifty per cent. of the service tax so not levied or paid or short-levied or short-paid or erroneously refunded:
Provided further that where such service tax and the interest payable thereon is paid within thirty days from the date of communication of order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person under the first proviso shall be twenty-five per cent. of such service tax:
Provided also that the benefit of reduced penalty under the second proviso shall be available only if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso:
Provided also that in case of a service provider whose value of taxable services does not exceed sixty lakh rupees during any of the years covered by the notice or during the last preceding financial year, the period of thirty days shall be extended to ninety days.
(2) Where the service tax determined to be payable 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:
Provided that in case where the service tax to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the second proviso to sub-section (1), shall be available, if the amount of service tax so increased, the interest payable thereon and twenty-five per cent. of the consequential increase of penalty have also been paid within thirty days or ninety days, as the case may be, of communication of the order by which such increase in service tax takes effect:
Provided further that if the penalty is payable under this section, the provisions of section 76 shall not apply.
Explanation.- For the removal of doubts, it is hereby declared that any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the second proviso to sub-section (1) or the first proviso to sub-section (2) shall be adjusted against the total amount due from such person.
Subsequent to budget 2015:-
For section 78 of the 1994 Act, the following section shall be substituted, namely:—
“78. (1) 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 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, the person who has been served notice under the proviso to 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 which shall be equal to hundred 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 the proviso to sub-section (1) of section 73, the penalty payable shall be fifteen per cent. of such service tax;
(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 service tax so determined:
Provided further that the benefit of reduced penalty under the first proviso shall be available only if the amount of 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 first 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.”.
Two sides of substituted section 78:- As it is said that there are two sides of a coin, likewise, the amendment made in the section 78 also has both positive and negative effect. The good side of the amendment is that a further additional benefit has been extended wherein if the assessee pays the service tax and interest as proposed in the show cause notice within a period of 30 days from the date of serving of show cause notice, then his penalty would reduce to 15% of the service tax amount in default. However, the condition is that 15% penalty will also be required to be paid within the period of 30 days. The benefit granted to the assessees is indeed an appreciatory step taken by the government for the assessees accepting the default occurred by them and to put litigation to an end. The amendment is advancement to the earlier benefit of reduced penalty to the extent of 25% of the duty if the assessee paid service tax and interest within a period of 30 days from the date of communication of the order. However, the negative side of the amendment overpowers the positive benefit as extended to the assessees. The substituted amendment seeks to snatch the following benefits from the assessee:-
a. Earlier in one of the proviso of section 78 if the transaction was traceable in books of accounts then waiver of 50% of penalty was granted to assessee. Hence a genuine assessee was forgiven with 50% penalty as he did not aim to evade the taxes and violate the law. No such proviso has been inserted in this substituted section which unnecessarily burdens a bonafide assessee who did not commit the said default intentionally.
b. Further to small assessees also a benefit was provided in earlier section that is that if the taxable value of service provider does not exceeds sixty lakh rupees during any of the years covered by the notice or during the last preceding financial year, the period of 30 days could be extended to 90 days. Now no such benefit has been extended in the new section which again burdens a small service provider to pay the penalty within thirty days anyhow to avail the benefit of reduced penalty.
c. One point that is worth noting is that the amended section 76 and 78 has upheld the position that the penalties under section 76 and 78 of the Act, 1944 are mutually exclusive. It is submitted that the issue as regards simultaneous imposition of penalties under section 76 and 78 of the Finance Act was under constant litigation prior to 10.05.2008. In this regard, there were a number of judicial pronouncements delivered by Hon’ble High Court that simultaneous penalties under section 76 and 78 cannot be imposed. Some of such decisions are quoted as follows:-
COMMISSIONER OF SERVICE TAX, BANGALORE VERSUS MOTOR WORLD [2012 (27) S.T.R. 225 (Kar.)]
COMMISSIONER OF CENTRAL EXCISE VS PANNU PROPERTY DEALERS, LUDHIANA [2010-TIOL-874-HC-P&H-ST]
COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH-I VS M.S COOL TECH CORPORATION, CHANDIGARH [2011-TIOL-23-HC-P&H-ST]
COMMISSIONER OF CENTRAL EXCISE COMMISSIONERATE VS M/S FIRST FLIGHT COURIER LTD. [2011-TIOL-67-HC-P&H-ST]
UNITED COMMUNICATION UDUPI VERSUS COMMISSIONER OF C. EX., MANGALORE-III [2012 (281) E.L.T. 168 (Kar.)]
COMMISSIONER OF C. EX., CHANDIGARH VERSUS CITY MOTORS [2010 (19) S.T.R. 486 (P & H)]
Thereafter, amendment was made in section 78 w.e.f. 10.05.2008 by way of insertion of the proviso wherein it was stated that when penalty under section 78 has been imposed, then the provisions of section 76 will not apply. It is appreciable that the government has taken sufficient precaution to maintain the effect of proviso in the amended sections. The drafting of the section 76 has been made so as to levy penalty under section 76 for reasons other than fraud, collusion, wilful misstatement or suppression of facts with intend to evade payment of duty. Whereas, the penalty under section 78 is imposable when there is fraud, collusion, wilful misstatement and suppression of facts with intention to evade payment of duty. Therefore, even after the amendment in sections 76 and 78 in the Budget, 2015, the mutually exclusivity of the penalties has been maintained.
While parting away:-
As noted above the reform was little pleasing little disappointing. It at one hand extended the benefit of reduced penalty if the assessees pays the service tax and interest and 15% duty within a period of 30 days from the date of service of show cause notice. However, on the other hand, it took away the penalty relaxation to the tune of 50% if the transaction were traced in the records maintained and also took away the time extension clause available for the small scale assessees. Furthermore the government in this budget has also omitted the section 80 from the act another indicator for the increase in the plight of assessee. The section 80, when it was introduced empowered the adjudicating authorities to waive penalties under section 76, 77 and 78. However, in the last budget declared in July, 2014, the power of waiver of 50% penalty as imposed under first proviso to section 78 was also dispensed with. Now, in the present budget, section 80 has been omitted in entirety so as to grant no waiver from penalty imposed under any of the sections of the Finance Act.
The intention of law makers should never be to harass the assessees through means of irrationally imposing penalty. However, the constant amendments in the penal provisions showcase a completely different picture. Ironically instead of seeing ‘ache din’ assessee memorizes the ‘good old days!!!’
By: - CA Pradeep Jain,
CA Neetu Sukhwani &