Service Tax Dispute Resolution Scheme, 2008: An Overview
By Pradeep Modi, FCA, DISA
Service tax was introduced from 1 July 1994 through the Finance Act, 1994.Administration of service tax has been vested with the central excise department under the Ministry of Finance (the Ministry). The Central Board of Excise and Customs (the Board) has set up a separate apex authority headed by the Director General Service Tax (DGST) at Mumbai for its administration.
Commissioners of central excise/service tax have been authorised to collect service tax within their jurisdiction. The number of services under the tax net had increased from 51 in 2002-03 to 97 in 2006-07. Finance Act, 2008 has brought six new services into the net which cause the total services to 103.
The number of cases and amount involved in demands for service tax outstanding for adjudication/recovery as on 31 March 2007 are mentioned in the following table:-
(Amount in crore of rupees)
|
Pending Decisions With
|
As on 31 March 2006
|
As on 31 March 2007
|
|||||||
|
No. of cases
|
Amount
|
No. of cases
|
Amount
|
||||||
|
More than five years
|
Less than five years
|
More than five years
|
Less than five years
|
More than five years
|
Less than five years
|
More than five years
|
Less than five years
|
||
|
Adjudicating officers
|
35
|
11378
|
0.01
|
358.45
|
74
|
10478
|
0.11
|
709.51
|
|
|
Appellate commissioners
|
0
|
197
|
0.00
|
82.46
|
7
|
732
|
0.20
|
173.50
|
|
|
Board
|
2
|
17
|
0.08
|
0.91
|
1
|
0
|
0.01
|
0.00
|
|
|
Government
|
0
|
1
|
0.00
|
0.06
|
0
|
8
|
0.00
|
0.81
|
|
|
Tribunals
|
5
|
221
|
1.32
|
73.49
|
5
|
471
|
0.89
|
570.33
|
|
|
High courts
|
6
|
48
|
0.01
|
5.49
|
15
|
87
|
15.87
|
30.03
|
|
|
Supreme Court
|
0
|
0
|
0.00
|
0.00
|
2
|
4
|
0.69
|
3.65
|
|
|
Pending for coercive recovery measures
|
2
|
2552
|
0.01
|
53.39
|
94
|
5448
|
45.74
|
228.70
|
|
|
Total
|
50
|
14414
|
1.43
|
574.25
|
198
|
17228
|
63.51
|
1716.53
|
|
* Figures furnished by the Ministry and relates to 40 commissionerates of central excise and three commissionerates of service tax.
The Table mentioned above depicts that total of 17,426 cases involving tax of Rs. 1,780.04 crore were pending as on 31 March 2007 with different authorities, of which 61 per cent in terms of number were with the adjudicating officers of the department. Pendency for recovery of demands had increased from 2,554 in 2005-06 to 5,542 cases in 2006-07 i.e. an increase of 116.99 per cent.
With the rampant litigation in service tax, a service tax dispute resolution scheme has been introduced for the period July- September 2008 i.e. The scheme is valid during 1st July, 2008 to 30th September, 2008. This scheme would settle disputes pending as of March 1, 2008.
The new ‘Service Tax Dispute Resolution Scheme, 2008 (STDRS) envisaged under Clauses 86 to 96 of the Finance Act is similar to Amnesty Scheme. This compounding scheme has been notified as a one time measure for quick resolution of disputes involving
(a) Tax arrear which includes service tax amounts upto Rs 25000; and
(b) Non-recovery of penalty or interest.
However, cases involving non-payment of service tax after having collected the same from client/customer are not included in the Scheme.
As per Clause 50 (e) of Service Tax Dispute Resolution Scheme, 2008 “tax arrear” means service tax, cess, interest or penalty due or payable or leviable under the Chapter but not paid as on the 1st day of March, 2008, in respect of which,—
(i) an order has been passed under the Chapter; or
(ii) a demand notice or a show cause notice has been issued on or before the 1st day of March, 2008 under the Chapter.
The Dispute Resolution Scheme Rules, 2008 have been issued vide notification No. 28/2008-ST, dated 4.6.2008. These rules prescribe the manner of declaration to be made under the Scheme by the person (declarant) opting for it. These rules read with the provisions of Chapter VI of the Finance Act, 2008, provide the procedure to be followed for operating the Scheme.
PROCEDURE AND PROCEEDINGS FOR OPTING THE SCHEME:
- A declaration to the designated authority i.e. an officer not below the rank of Assistant Commissioner of Central Excise to made on or after the 1st day of July, 2008, but on or before the 30th day of September, 2008, in respect of tax arrear.
- Such tax arrear includes the amount of service tax not exceeding twenty-five thousand rupees, at the rate of fifty per cent. of service tax amount;
- Such tax arrear consists of only interest payable, or penalty levied or both, at the rate of twenty-five per cent of such tax arrear:
- If the amount of penalty leviable exceeds the service tax amount to which it relates, service tax amount shall be considered to be the amount of penalty.
- A declaration shall be in Form 1 and shall be verified in such manner as may be prescribed.
- Within fifteen days from the date of receipt of the declaration, the designated authority shall, by order, determine the amount payable by the declarant in accordance with the provisions of this Scheme.
- If any material particular furnished in the declaration is found to be false, at any stage, it shall be deemed never to have been made and all the pending proceeding shall be deemed to have been revived.
- The declarant shall pay, the sum determined by the designated authority within thirty days of the order and intimate the fact of such payment to the designated authority along with proof of payment, the designated authority shall thereupon issue a certificate to the declarant in Form 2, certifying full and final settlement of tax arrears in the case in respect of which declarant had opted for this Scheme.
- Matter covered by such order shall not be reopened in any other proceeding.
- Where the declarant has filed an appeal, reference or a reply to the show cause notice against any order or notice giving rise to the tax arrear before any authority, tribunal or court, then, notwithstanding anything contained, such appeal, reference, or reply shall be deemed to have been withdrawn.
- Any amount paid in pursuance of a declaration shall not be refundable under any circumstances.
Compounding amount: The compounding amounts under the Scheme with Illustrations, as regards manner of computation of amount payable under the Scheme are:
(i) In a case where a pending SCN involves a service tax amount upto Rs 25000/-, with penalty or interest relating there to, amnesty under the Scheme would be available on payment of an amount equal to 50% of the service tax amount involved in the SCN. The penalty and interest would stand waived.
Illustration 1:
The show cause notice involves (i) a demand of service tax of Rs 20,000; (ii) interest at the applicable rate; and (iii) penalty as applicable under various sections of the Finance Act. The service tax amount has not been paid on the date of declaration under the Scheme:
The tax arrears as per section 94 (b) of the Finance Act, 1994:
(i) Service tax: Rs 20,000
(ii) Education cess: as applicable (as mentioned in the show cause notice)
(iii) Interest: as applicable (as mentioned in the show cause notice)= say Rs 5000
(iv) Penalty: not decided
The compounding amount shall be @ 50% of service tax amount plus education cess payable thereon= Rs 10,000 plus education cess on Rs 10,000.
Penalty and interest shall be waived off.
(ii) Similarly, in the case of a confirmed demand, where service tax arrears amount as on 1.3.2008 is upto Rs 25,000, with unpaid interest or penalty relating there to, amnesty under the Scheme would be available on payment of an amount equal to 50% of the service tax arrears. The penalty and interest would stand waived.
Illustration 2:
The order confirms (i) a demand of service tax of Rs 25,000; (ii) interest at the applicable rate; and (iii) penalties of Rs 10000. The service tax amount, interest and penalties have not been paid on the date of declaration under the Scheme:
The tax arrears as per section 94 (b) of the Finance Act, 1994:
(i) Service tax: Rs 25,000
(ii) Education cess: as applicable
(iii) Interest: as applicable = say Rs 5000
(iv) Penalty: Rs 10000
The compounding amount shall be @ 50% of service tax amount plus education cess payable thereon
= Rs 12,500 plus education cess on Rs 12,500.
Penalty and interest shall be waived off.
(iii) In a case where an SCN is pending only for imposition of both, penalty and interest, amnesty under the Scheme would be available on payment of 25 % of the interest payable plus 25% of the ‘maximum’ prescribed penalty leviable. If maximum penalty leviable exceeds the service tax amount, the penalty amount would be taken as equal to service tax amount for computation of compounding amount under the Scheme. Thus, in such case the compounding amount would be 25% of interest payable plus 25% of the penalty involved (taken as equal to service tax amount, if penalty exceeds service tax amount) in the offence.
Illustration 3:
The assessee has paid the service tax of Rs 25,000 along with education cess. However, interest and penalties as imposed by an order has not been paid. As per the order interest liability is Rs 10,000 and the penalties imposed are Rs 30,000. The order confirms (i) a demand of service tax of Rs 25,000; (ii) interest at the applicable rate; and (iii) penalties of Rs 30,000. The interest and penalties have not been paid on the date of declaration under the Scheme:
The tax arrears as per section 94 (b) of the Finance Act, 1994:
(i) Service tax: Nil
(ii) Education cess: Nil
(iii) Interest =Rs 10,000
(iv) Penalty: Rs 25,000 (Note: as the penalty imposed is more than the service tax amount involved in the case, the penalty amount shall be taken as equal to the service tax amount)
The compounding amountshall be @ 25% of Interest +25% of penalty
= 0.25X10,000 + 0.25X 25000 =2500+6250= Rs 8750
(iv) In a case where a confirmed demand involving only interest or penalty, amnesty would be available on payment of 25% of the unpaid amounts towards interest or penalty. In such cases too, if the penalty imposed is more than the service tax involved, for the purposes of the scheme, the penalty would be taken to be equal to tax amount.
Illustration 4:
The order only involves only a demand of interest of say Rs 10,000; and (iii) penalties of Rs 5,000. Service tax and cesses have already been paid.
The tax arrears as per section 94 (b) of the Finance Act, 1994:
(i) Service tax: Nil
(ii) Education cess: Nil
(iii) Interest =Rs 10,000
(iv) Penalty: Rs 5,000
The compounding amount shall be @ 25% of Interest +25% of penalty
= 0.25X10, 000 + 0.25X 5,000 =Rs 2,500+Rs 1,250=Rs 3,750
Conclusion
From the above discussion, it can be concluded that the opting of scheme is beneficial to those Small Service Providers who can’t afford to engage a lawyer to defend themselves at the original stage and or at subsequent appellate stages. So, for such of those unfortunate service providers, a boon has come in this year’s Budget in the form of Service Tax Dispute Resolution Scheme, 2008. Apart from the direct visible and obvious benefits, it accrues some more benefits to the Department also. It reduces the waste of precious time and energy of the CESTAT, commissioner (Appeals) and the original authorities. Arrears pendency may also reduce. Revenue realization may be better. Realizing the true intentions of the Govt., Assesses would also be more careful in future.
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