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The most awaited 2014-2015 Finance Budget was presented by Hon’ble Finance Minister, Arun Jaitley on 10th of July 2014. The sugar-coated budget did not aim at bringing any major change due to the reason that there was short time span but still changes in various issues have been introduced. The budget was both a shock as well as a surprise to the people. The model of changed India showcased by the NDA government was not seen in the budget but certainly initiations have been taken. The budget has been an experience of mixed feelings as at various instances, the caption “ache din aane wale hai” couldn’t be justified by the government. With this articulation, we try to make analysis of one such change brought in the section 80 of the penal provisions of Service Tax.

Looking into the history:-

Till 2010-2011, Section 80 was:-

“Notwithstanding anything contained in the provisions of section 76, section 77 or section 78, no penalty shall be imposable on the assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for the said failure.”   

This provision granted assessee full waiver of penalty in all the situations if bonafide belief of assessee was proved. This provision was indeed a rewarding provision for the law abiding assessee who had no malafide intention of not paying service tax but failed to pay service tax due to bonafide belief either backed by decisions by Tribunal or supported by clarifications issued by the Board.

Further amendment was made in Finance Act, 2011 wherein instead of section 78, “first proviso to sub section (1) of section 78” was inserted.

First proviso to sub section (1) of section 78 states that:-

“Provided that where true and complete details of the transaction 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.”

The insertion of this proviso indicated that waiver under section 80 was admissible for penalty under section 78 only if the true and complete details of the transaction was available in the records of the assessee. The proviso basically provided relief to the assessees from imposition of 100% penalty equal to the duty if the details were available in the records of the assessee because in that case, it cannot be said that there was suppression or concealment or facts by the assessee. In other words, we can say that the revenue department would lose 50% penalty if the details of the transactions were present in the books of the assessee and the revenue department was inefficient and incapable of unearthing the same. Further, section 80 gave the power to the adjudicating authorities to even waive the 50% penalty imposed under first proviso to section 78 if bonafide belief of assessee was proved and there was genuine reason for non/short payment of service tax.

Change in budget 2014-15:-

In budget 2014 following change has been brought in section 80 by the Finance Bill, 2014:-

(E) in section 80, in sub-section (1), for the words, figures and brackets “section 77 or first proviso to sub section (1) of section 78”, the words and figures “or section 77” shall be substituted.

The Tax Research Unit (TRU) Letter also stated that:-

“Section 80 is being amended to exclude the reference of first proviso to section 78. This amendment, in effect, removes the power to waive the 50% penalty imposable  in cases where service tax has not been levied, not paid or short levied or short paid on account of suppression of facts or willful misstatement but details of transactions are available in the specified record.”

This effect of this change is that from the date as notified, section 80 cannot be invoked to waive even the 50% penalty imposed under the first proviso to section 78 wherein the details of the transactions are available in the records of the assessee.

This change increases the plight of assessee and enhances the revenue share of the government as now even when the assessee has not committed the said failure intentionally and the transaction was present in the books, then also the assessee has to pay penalty upto 50% because the power to waive penalty as enshrined under section 80 has been amended.

However, it is worth observing that the proviso to section 78 still exists and has not been deleted whereby now, at the most, penalty under section 78 may be reduced to 50% if the details of transactions are available in the records of the assessee. The additional power to grant waiver under section 80 even of the 50% penalty imposed under proviso to section 78 has been done away with. As  a consequence, the genuine and bonafide assessees can only expect 50% relief in the penalty imposed under section 78, that too, if the details of transactions are traceable in the books of accounts.

Winding up:-

The intention of law makers is never to hassle the innocent assessees through means of irrationally imposing penalty. This was reflected by the first proviso to section 78 and also by the erstwhile section 80. However, it appears that after giving chance to the assessees to come clean under the Voluntary Compliance Encouragement Scheme, 2013, the government wishes to trap service tax defaulting assessees in every manner and to get maximum out of them. This is also clearly reflected by the tremendous hike in the interest rates for delay in service tax payment. Yet another indicator is the amendment in section 80 wherein power to waive 50% penalty under first proviso to section 78 has also been taken away. It is also worth observing that the penal provisions of section 11AC are similarly worded as section 78 in service tax. However, there is no provision to waive penalties in the Central Excise Act, 1944 as prevalent section 80 in the Service Tax Laws. It is also observed that the government is gradually phasing out section 80 as earlier it empowered the adjudicating authorities to waive penalty under section 78, then it restricted the power of waiver to 50% penalty as imposed under first proviso to section 78 and now, in the present budget, section 80 has been amended so as to grant no waiver from penalty imposed under section 78.  After examining certain amendments in Service Tax, all that a lament assessee can say is that ““Kya yehi hai ache din?”

An article by: CA. Pradeep Jain

CA Neetu Sukhwani

& Prayushi Jain


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