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  • Service Tax Penal Provisions

    Any non-payment of service tax by an individual or entity is liable to attract some form of penalty. This non-payment could take place under a myriad of different pretexts, for which the Finance Act has specified certain penal provisions based on the reason for non-payment.

    The following are the penal provisions outlined by the Act with regards to any violation or infraction of the Service Tax Law:

    • Failure To Register Or Deferred Registration:

      An individual or entity who is deemed to be liable to pay service tax is required to undertake service tax registration as per the guidelines stipulated by the Act. Failure to do so, or any delay in registration, will attract a penalty, which could rise to Rs. 5,000 or Rs. 200 for each day that goes by without any sign of registration, depending on which amount is of a higher value. This penalty is imposed as per the provisions laid out in Section 77(1)(a) of the Finance Act

    • Failure To Make Service Tax Payment Or Deferred Payment Of Service Tax:

      An individual or entity who is deemed to be liable to pay service tax but who fails to do so for whatever reason, or who delays the payment of service tax due to whatever reason, will be required to mandatorily pay a minimum penalty of Rs. 200 for each day that goes by with no sign of payment, or pay a penalty that is equivalent to 2 per cent of the service tax amount on a monthly basis, depending on which amount is of a higher value. Section 76 of the Finance Act states that this penalty shall be doled out at the behest of the adjudicating authority under the condition that the amount of penalty imposed will not be more than the total amount of service tax that the individual or entity was liable to pay.

    • Failure To File Service Tax Returns Or Deferred Filing Of Service Tax Returns:

      An individual or entity who is deemed to be liable to pay service tax but who fails to file his or her service tax returns for whatever reason, or who delays the filing of service tax due to whatever reason, will be required to mandatorily pay a penalty that could rise up to Rs. 5,000 as mentioned under Rule 7C of the Service Tax Rules, 1994 as well as Under Section 77 of the Finance Act

    • Violation Of Any Provisions Laid Out By The Finance Act, 1994:

      In the event an individual or entity, who is deemed liable to pay service tax, commits a violation or an infraction of the provisions laid out by Chapter V of the Finance Act 1994 or any of the Rules prescribed in the Act wherein no provisions for the imposition of a penalty are specifically outlined, a penalty amount that may rise up to a maximum of Rs. 5,000 will be required to be paid by the offending party as per Section 77(2) of the Finance Act

    • Failure Of Maintenance Or Retainment Of Books Of Accounts:

      An individual or entity who is deemed to be liable to pay service tax, but who fails to keep or maintain the necessary books of account or any other documentation specified by the rules or guidelines laid out by Chapter V of the Finance Act 1994, will be required to pay a penalty amount that may rise up to a maximum of Rs. 5,000 as per the provisions laid out by Section 77(1)(b) of the Finance Act.

    • Failure To Provide Relevant Information:

      An individual or entity who is deemed to be liable to pay service tax, but who fails to provide necessary or relevant information when requested by an authorised officer who is acting as per the provisions or rules laid out in Chapter V of the Finance Act 1994, will be required to pay a penalty amount that could rise up to Rs. 5,000 or Rs 200 for each day that goes by without any sign of furnishing the required data, depending on which amount is of a higher value. This penalty shall be imposed in accordance with the provisions laid out under Section 77(1)(c) of the Finance Act

    • Failure To Furnish Requested Documentation:

      An individual or entity who is deemed to be liable to pay service tax, but who fails to provide the necessary or relevant documentation when requested by the Central Excise Officer who is acting as per the provisions or rules laid out in Chapter V of the Finance Act 1994, will be required to pay a penalty amount that could rise up to Rs. 5,000 or Rs 200 for each day that goes by without any sign of furnishing the required documents, depending on which amount is of a higher value. This penalty shall be imposed in accordance with the provisions laid out under Section 77(1)(c) of the Finance Act

    • Failure To Make An Appearance When Called Upon By The Central Excise Officer:

      An individual or entity who is deemed to be liable to pay service tax, but who fails to make himself or herself available when requested by the Central Excise Officer, who has summoned the assessee for the purpose of providing any form of evidence or any documentation pertaining to an inquiry, will be required to pay a penalty amount that could rise up to Rs. 5,000 or Rs 200 for each day that goes by without any sign of furnishing the required documents, depending on which amount is of a higher value. This penalty shall be imposed in accordance with the provisions laid out under Section 77(1)(c) of the Finance Act

    • Failure To Make Payment Of Service Tax Electronically:

      An individual or entity who is deemed to be liable to pay service tax through electronic means ie: via internet banking portals, but who fails to make the payment through such means, will be required to pay a penalty that could rise up to Rs. 5,000 as per the provisions laid out under Section 77(1)(d) of the Finance Act.

    • Issuance Of Invoice With Erroneous Details:

      An individual or entity who is deemed to be liable to pay service tax, but who furnishes invoices that are found to contain errors or do not contain all relevant details or information, will will be required to pay a penalty that could rise up to Rs. 5,000 as per the provisions laid out under Section 77(1)(e) of the Finance Act. This penalty will also be applicable if the offending party is unable to provide the details required to explain away a certain invoice found in his or her books of account

    • Concealment Of True Worth Of Taxable Services Provided:

      An individual or entity who is deemed to be liable to pay service tax, who through means of fraudulent actions was

      • found to have been levied with less service tax than originally intended
      • found to have paid less service tax than the amount he or she was liable to pay
      • found to have received an incorrect refund

      will be required to pay a penalty that could range from anywhere between 100 per cent to 200 per cent of the service tax that was either not imposed or which was refunded in error. These fraudulent actions could entail acts such as concealment of information, willfully providing false information, collusion, violation of the provisions and rules of the Finance Act, and any other such activity that was carried out with the sole intention of avoiding service tax payment. As per the provisions laid out in Section 78 of the Finance Act, the penalty imposed on the offending party will required to be paid over and above the original amount of service tax that was either not paid or refunded in error, along with any interest that may have been charged on said amount.

    New Penal Provisions:

    As per the Finance Act, 2015, the following amendments have been made with respect to the penal provisions outlined in Section 76 and Section 78 of the Act:

    • With regards to the penalty levied in the event of failure of service tax payment or deference of service tax payment, Section 76 has been amended to determine whether the failure or deference was done with no unscrupulous intention to avoid the payment of service tax. This will also apply in the case of any refund that took place in error.
    • With regards to the penalty levied in the event of failure of service tax payment, deference of service tax payment or refund doled out in error due to any fraudulent activity or violation of any of the provisions or rules outlined in the Finance Act, Section 78 has been amended to take into consideration whether such failures, deferences or refunds were carried out with unscrupulous intentions

    Amendment Of Penal Provisions Under Section 76:

    As per the Finance Bill, 2015, the main aim of the amendment of penal provisions under Section 76 of the Finance Act, was to take into consideration penalties levied on those assessees who have failed to make service tax payments for reasons that are deemed to be without any intent of malice. This means that the penalties levied will not be in accordance with penalties levied on those assessees who actively avoid service tax payments due to unscrupulous activities such as fraud, concealment of information, violation of the provisions and rules of the Act etc.

    The amendments to the penal provisions under Section 76 are as follows:

    • If the assessee is found to have evaded the payment of service tax unintentionally, then the penalty levied shall not be more than 10% of the actual amount of service tax to be paid
    • If the assessee makes the service tax payment along with the interest charged within a period of thirty days from the time he or she was issued with a notice as per the provisions stated in Section 73(1), then no penalty shall be levied
    • If the Central Excise Officer issues an order wherein a penalty is required to be levied on an offending assessee, then this penalty shall be minimised to the equivalent of twenty five per cent of the actual penalty levied if the assessee in question has made the service tax payment along with the interest and penalty charges within a time frame of thirty days from the time he or she was issued with the order
    • If, during an appellate proceeding, the amount of service tax to be paid by the offending assessee is lowered, then the amount of the penalty levied will be required to altered in accordance with the service tax amount. In such as case, the penalty shall be minimised to the equivalent of twenty five per cent of the actual penalty levied if the assessee in question has made the service tax payment along with the interest and penalty charges within a time frame of thirty days from the time the appellate order was issued

    Amendment Of Penal Provisions Under Section 78:

    As per the Finance Bill, 2015, the main aim of the amendment of penal provisions under Section 78 of the Finance Act, was to take into consideration penalties levied on those assessees who have failed to make service tax payments due to reasons that are deemed to be unscrupulous by nature. This means that the penalties levied will be in accordance with cases where the avoidance of service tax payment involve fraudulent activities such as the concealment of information or facts, collusion, willingly furnishing false statements or the violation of any provisions rules laid out by the Act.

    The amendments to the penal provisions under Section 78 are as follows:

    • If the assessee is found guilty of evasion of service tax payment due to unscrupulous means, then the penalty levied will be equivalent to the entire amount of service tax that the assessee is required to pay
    • If the assessee in question makes the service tax payment along with the interest charges and lowered penalty within a time frame of thirty days from the issue of the notification, then a penalty that is equivalent to fifteen per cent of the total amount of service tax that he or she has to pay will be levied
    • If the Central Excise Officer issues an order wherein a penalty is required to be levied on an offending assessee, then this penalty shall be minimised to the equivalent of twenty five per cent of the actual penalty levied if the assessee in question has made the service tax payment along with the interest and penalty charges within a time frame of thirty days from the time he or she was issued with the order
    • If, during an appellate proceeding, the amount of service tax to be paid by the offending assessee is lowered, then the amount of the penalty levied will be required to altered in accordance with the service tax amount. In such as case, the penalty shall be minimised to the equivalent of twenty five per cent of the actual penalty levied if the assessee in question has made the service tax payment along with the interest and penalty charges within a time frame of thirty days from the time the appellate order was issued

    Frequently Asked Questions:

    1. A per Service Tax law, do provisions exist wherein penalties levied on offending assessees can be waived off?

      Any penalty that is levied on an assessee for evasion of service tax payment falls under the penal provisions stated within Section 76, Section 77, and Section 78 of the Finance Act, 1994. However, Section 80 of the Finance Act, 1994, states that penalties can be waived off if the assessee in question can furnish reasonable evidence or proof that can provide justification of failure to make payment of service tax.

    2. What is the purpose of the tax department for the issuance of show cause notices?

      The main purpose of the issuance of notices by the tax department is to ensure that should an event arise wherein

      1. An assessee has not been levied with service tax
      2. An assessee has not paid service tax
      3. An assessee has paid less than the original service tax amount
      4. An assessee has been levied with a lower amount of service tax than originally intended
      5. An assessee has been refunded an amount in error

      the assessee in question has full knowledge of why the charges or penalties were levied against him or her, and to ensure that the assessee has the opportunity to plead his or her case in the presence of an adjudicating officer

    3. Can show cause notices issued by the tax department be withdrawn?

      If the assessee in question makes the service tax payment as determined by himself or herself, or determined by a service tax official, and such payment has been intimated to the service tax official in writing, then the show cause notice can be waived off. However, as per the provisions laid out in Section 73(3) of the Finance Act, 1994, this waiver will not apply in cases where the assessee has been found guilty of unscrupulous activities such as fraud, concealment of information, collusion, violations of the provisions of the Finance Act, and willingly providing false information with clear intent to avoid making payment towards service tax. 

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