Service Tax

Interest on delayed payment of tax

Failure to pay service tax on time attracts simple interest u/s. 75 at a rate

1. Post 14-5-2016, the rate of interest for late payment of service tax would be as under:

Thus 14-5.2016, the service tax assessee would have to keep separate accounts / records as under:

1. Service tax paid on time without collection
2. Service tax paid belatedly without collection.
3. Service tax collected and paid on time
4. Service tax collected and paid belatedly

Note:

Small tax-payer means a taxpayer –

1. whose turnover, in any of the financial years covered by a show cause notice issued under section 73 does not exceed ₹ 60 lakh; or
2. whose turnover in the immediately preceding financial year does not exceed ₹ 60 lakh.

1. Recovery of service tax not levied or paid or short levied or short paid or erroneously refunded (sec.73) & adjudication of penalties (section 83A)

1. Time Limit for issue of SCN

Section 73 empowers Central Excise Officer to issue show cause notice where service tax has not been levied or paid or short levied or short paid or erroneously refunded (hereinafter referred to as "said defaults") and thereafter determine the amount of service tax due and payable. The show cause notice has to be issued within –

1. 5 years from the "relevant date" in case of :
   • fraud;
   • collusion; or
   • wilful misstatement; or
   • suppression of facts; or
   • contravention of any of the provisions of the Act or Rules with an intent to evade payment of service tax.
2. 30 months from the "relevant date" in other cases.

The "relevant dates" would be as under :

2.  In respect of follow-on show cause notices for subsequent period issued on the same ground, only statement of tax due for subsequent period served on assessee with reference to the earlier demand notice will be deemed as a show cause notice. Requirement of mentioning the grounds in respect of such subsequent show cause notice has been dispensed with.
3. The SCNs may have to be adjudicated within the prescribed time limit

The above time limits are to be adhered where it is possible to do so.

2. Payment of tax, etc. suo motu before the issue of show cause notice
   1. In case where there has been a short-levy, non-levy, short-payment or non-payment of tax and the assessee has –
      1. paid, before the issue of show cause notice, such service tax ascertained on his own or by the Central Excise officer, along with interest; and
      2. informed the Central Excise Officer of such payment in writing, then the Central excise officer shall not issue a show cause notice in respect of the above defaults. The above facility shall not be available in cases where short-levy, non-levy, short-payment or non-payment of tax is on account of fraud, collusion, wilful misstatement, suppression, etc.
3. Service tax collected to be paid to the Government :

Section 73A provides that if any service tax is collected in excess or collected when not required to be collected from any person, then it shall forthwith be paid to the Central Government. If it is not paid, the Central Excise Officer shall issue a SCN and thereafter determine the amount due after giving a hearing. Interest shall be payable on the amount not deposited at the notified rate i.e. 15% p.a. (notified rate was 18% prior to 14-5-2016).

4. Section 83A provides for adjudication of penalty proceedings by Central Excise Officers empowered by the Central Board of Excise and Customs.
5. 1.5 The Central Excise adjudication procedures are made applicable to service tax. The procedure provides as follows:
   1. An opportunity of being heard shall be given in all proceedings if the assessee so desires;
   2. Adjournments of hearings may be granted to an assessee if sufficient cause is shown;
   3. Not more than 3 adjournments shall be granted to an assessee.
6. Other Matters

In cases where a Show Cause Notice triggers the extended period of limitation on the allegation of an intent to evade payment of duty/tax, and an appellate authority holds that there is no intent to evade, the Central Excise Officer shall determine the duty/tax payable for the normal period as if the Show Cause Notice was issued for the normal period of limitation. Thus the demand for the normal period would survive.

7. Appeals to the Commissioner (Appeals)
   1. Appeals on review by the department (Section 84)
      1. An application maybe filed before the CCE(A) by an adjudicating authority subordinate to the CCE on the direction of the CCE who is satisfied that the order of the adjudicating authority lacks legality or propriety for determination of points arising out of the order.
      2. The CCE shall direct such subordinate authority within 3 months from the date of communication of Order-In-Original and subordinate authority shall make an application before the CCE(A) within 1 month from the date of receipt of such direction / order.
   2. Other Appeals by the assessee / department (Section 85 & Rule 8)
      1. An appeal may be filed before the Commissioner of Central Excise (Appeals) ["CCE (A)"] by any person aggrieved by an order passed by an adjudicating authority below the rank of a Commissioner of Central Excise ("CCE")
      2. The appeal is to be filed in duplicate within 2 months of receipt of adjudication order in Form ST–4 along with statement of facts, grounds of appeal, and a copy of decision or order appealed against.
      3. For filing appeals an assessee is required to make a mandatory fixed pre-deposit of duty demanded [See para 9.13]
      4. Appropriate court fees stamp would be applicable.
8. Appeals to the Appellate Tribunal [Section 86 & Rule 9]
   1. Appeals by the assessee
      4. An appeal may be filed before the Tribunal where an assessee aggrieved by an order passed by a CCE u/s. 73 or 83A or an order passed by a CCE (A) u/s. 85. However in respect of orders passed by CCE(A) in matters relating to grant of rebate on inputs/ input service used for export of services the remedy would be to file a revision application before Central Government u/s. 35EE of Central Excise Act, 1944 .
      5. The appeal is to be filed in quadruplicate within 3 months of receipt of order to be appealed against in Form ST-5 along with statement of facts, grounds of appeal and copies of order appealed against (including one certified copy).The Tribunal may admit filing of appeal after expiry of said period if it is satisfied that there was a sufficient cause for not presenting the appeal within the said period.
      6. The filing fees is based on the quantum of demand which is as follows:

In addition to the above, a fee of ₹ 500/- is payable for a application (other than that filed by the CCE / AC / DC) for rectification of mistake in the Tribunal's orders or for restoration of an appeal or for any other purpose.

4. For filing appeals an assessee is required to make a mandatory fixed pre-deposit of duty demanded [See para 9.13]

2. Appeal by the department
   1. An application to the Tribunal maybe filed by the –
      1. CCE on the direction of the Committee of Chief Commissioners of Central Excise (consisting of 2 Chief Commissioners) objecting to any order passed by a CCE u/s. 73 or 83A or
      2. A Central Excise officer on the direction of the Committee of Commissioners of Central Excise (consisting of 2 Commissioners) objecting to any order passed by the CCE(A) u/s. 85.
   2. The application is to be filed in Form ST-7, in quadruplicate, within 4 months from the date on which the order sought to be appealed against is received by the Committee of Chief Commissioners or by the Committee of Commissioners as the case may be.
   3. The appeal shall be accompanied by statement of facts, grounds of application, and
      1. Copy of order passed by CCE (including one certified copy) and copy of the direction issued by the Committee of Chief Commissioners; or
      2. Copy of the order passed by the CCE(A) (including one certified copy) and copy of the direction issued by the Committee of Commissioners, as the case may be.
3. Memorandum of cross-objections (Section 86 & Rule 9)
   1. An assessee or the CCE or a Central Excise Officer subordinate to the CCE may present a memorandum of Cross-objections, within 45 days from receipt of notice or information about appeal filed.
   2. The memorandum of Cross-objections is to be filed in quadruplicate in Form ST-6.

9. Mandatory fixed pre-deposit for filing appeals
   1. An assessee is required to make a fixed mandatory pre-deposit of certain percentage of adjudicated demands ('duty / tax demanded' or 'penalty') for filing an appeal as under:

Notes

1. "Duty / tax demanded" includes duty/tax collected (even if not payable), erroneous CENVAT credit taken, amount payable u/r. 6 of CENVAT Credit Rules, 2004.
2. The above provisions shall not apply to stay application/appeals pending as on 6-8-2014.

10. Refunds
    1. In the event the assessee has to claim a refund he has to comply with section 11B of the Central Excise Act, 1944 which is made applicable to service tax.
    2. A refund claim must comply with the following conditions:
       1. An application for refund should be made. No specific form is prescribed for making such application..
       2. It should be filed before the expiry of the limitation period of one year from the relevant date as specified in Explanation to Section 11B one of which is from the date of payment of tax.
       3. Proof should be adduced that the incidence of tax has not been passed on to any person i.e. tax has been borne by the applicant.
11.  Miscellaneous
    1.  The Act / Rules also provides for the following:
       1. Best Judgment Assessment;
       2. Interest on delayed refund of pre-deposit;
       3. Rectification of mistake apparent from record by Central Excise Officer;
       4. Power to search and power to seize documents, books or things during search;
       5. Deposit of excess service tax collected from any person along with interest to the Government.
       6. Provisional attachment
       7. Publication of information in respect of certain persons in certain cases
       8. Recovery of amounts due to the Government.
       9. Service tax return preparer scheme.
       10. Settlement Commission provisions
       11. Revision of Orders by the Central Government
       12. Mandatory furnishing of information returns by assessee and specified government and regulatory bodies
    2. Penal Consequences

Notes:

1. If the service tax amount gets increased in any appellate proceeding, then the benefit of reduced penalty (i.e. 25%) under para (iii) in respect of Section 76 and under para (iv) in respect of section 78 shall be admissible if service tax, interest and reduced penalty (i.e. 25% of the increase in penalty) is paid within 30 days of receipt of such appellate order.
2. If the service tax amount gets modified in any appellate proceeding where penalty u/s. 78 is sought to be imposed, then the person liable to pay service tax shall be liable to pay the modified tax, interest and penalty as specified in the order.
3. Further, the assessee can file an appeal and he can keep the matter alive even if he opts for the above options proposed except option under para (ii) in respect of section 76 or option under para (iii) in respect of section 78, since in such cases the proceedings are deemed to be concluded.
4. Where the proceedings under a SCN are concluded by exercising option under para (ii) in respect of section 76 or option under para (iii) in respect of section 78, then the proceedings for imposition of personal penalty u/s. 78A on directors, managers, secretary and other officers in charge of company shall also be deemed to have been concluded.

3. Prosecution under service tax law
   1. The prosecution provisions under the service tax law are governed by section 89. Further sections 9A, 9AA, 9B, 9E and 34A of the Central Excise Act, 1944 have been made applicable to service tax. These provisions together constitute the provisions relating to prosecution of offences which are briefly described below.
   2. Section 89 prescribes the offences and the quantum of punishment. The punishable offences enumerated in section 89(1) are the following :
      1. knowingly evading payment of service tax.
      2. availment and utilisation of credit without actual receipt of taxable service or excisable goods either fully or partially in violation of the Act or Credit Rules;
      3. maintenance of false books of account;
      4. failure to supply information or supply of false information;
      5. failure to pay to the Government any amount collected as service tax beyond a period of six months from the date on which such payment became due.
   3. The quantum of punishment imposable is detailed in the table below:

4. The provisions of ss. 9A, 9AA, 9B, 9E and 34A of the Central Excise Act, 1944 have been made applicable to service tax. These are briefly dealt with below:
   1. The offences would be 'non-cognizable' i.e. an offence in which a police officer has no authority to arrest without a warrant. Further the Principal Chief Commissioner/Chief Commissioner of Central Excise is also empowered to compound the offences on payment of the compounding amount as may be prescribed [s. 9A].
   2. If an offence is committed by a company (which includes a firm), the persons liable to be proceeded against and punished are: (a) the company; (b) every person, who at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business except where he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence; and (c) any director (who in relation to a firm means a partner), manager, secretary or other officer of the company with whose consent or connivance or because of neglect attributable to whom the offence has been committed. [s.9AA]. The court is empowered to publish the name, place of business, etc. of persons convicted under the Act [s. 9B]
   3. In case of a person who is less than 18 years of age, the court, under certain circumstances, is empowered to release the accused on probation of good conduct under section 360 of the Code of Criminal Procedure, 1973 or to release the offenders on probation under the Probation of Offenders Act, 1958. [s. 9E]
   4. The imposition of penalty would not prevent infliction of other punishment on the offender. [s. 34A].

4. Cognizance of offences and power to arrest
   The provisions relating to arrest of persons for offences under the Act are summarised below:
   1. Arrest can be made only in case of cognisable offence. Cognisable offences means an offence where the person can be arrested without 'warrant';
   2. Failure to pay tax collected beyond 6 months from due date where the 'amount' exceeds ₹ 50 lakh (200 lakh post 14-5-2016) is the only cognisable offence. In case of all other punishable offences (viz., knowingly evading service tax, availing bogus credits, supplying false information, etc.) arrest cannot be made.
   3. If the Principal Commissioner/Commissioner of Central Excise has reason to believe that any person has committed an offence u/s. 89 of the Act where the 'amount' exceeds ₹ 50 lakh (₹ 200 lakh post 14-5-2016) he may, by general or special order, authorise any officer of Central Excise, not below the rank of Superintendent of Central Excise, to arrest such person.
   4. Where a person is arrested for any cognizable offence [see point (ii) above], every officer authorised to arrest a person shall, inform such person of the grounds of arrest and produce him before a magistrate within 24 hours.
   5. All arrests shall be carried out in accordance with the provisions of the CrPC relating to arrests.