Penalties under Service Tax
The Penalty Provisions under Service Tax, have been revamped altogether in the Budget 2015. These Changes are effective from 14th May, 2015. A summary of amended provisions is given below.
Penalty For Short Payment / Non Payment of Tax
A. Section 76
If the Short or non payment of Service Tax is for reason other than fraud, collusion, wilful mis-statement etc. then a penalty under Section 76 is imposed.
Minimum Penalty :- Minimum penalty is not prescribed.
Maximum Penalty :- Upto 10% of the Tax Short paid.
If the amount of Service Tax demanded along with interest is paid within 30 days of the Show Cause Notice served, then no penalty will be imposed and proceedings in respect of the said short payment will be deemed to be concluded.
If the amount of Service Tax demand Confirmed along with interest is paid within 30 days of receipt of the Adjudication Order, the penalty amount will be reduced to Twenty Five percent of the Penalty imposed in the said Adjudication Order. The condition is that the amount of reduced penalty is also paid within the said period of thirty days.
Example :-
A Show Cause Notice dated 15.06. 2015 is issued to M/s. ABC Ltd. demanding Service Tax amounting to Rs. Ten Lakhs, along with interest and proposing imposing of penalty under Section 76. The said notice was received by M/s ABC Ltd. on 22.06.2015.
M/s ABC Ltd. can pay the amount of Service Tax upto 21.07.2015 with interest and the proceedings initiated under the said Show Cause Notice will be stand concluded.
M/s ABC ltd. does not pays the above amount within Thirty days of receipt of Notice. The case is adjudicated by Order in Original dated 25.07.2015, which is received by M/s ABC Ltd. on 28.07.2015. In the said adjudication Order, demand of Service Tax amounting to Rs. Six Lakhs is confirmed along with interest and a penalty of Rs. Forty Thousand is imposed under Section 76. Now, M/s ABC Ltd., upto 27.08.2015 pay the Service Tax amounting to Rs. Six Lakhs along with interest and Penalty amounting to Rs. Ten Thousand (@ 25% of Rs. Forty Thousand).
| If ABC Ltd. pays the Service Tax along with interest, within 30 days of Show Cause Notice, then no penalty is impossible.. But, since proceedings stand concluded, M/s ABC Ltd. cannot further question the correctness of demand of Service Tax.
However, if M/s ABC Ltd. pays the Service Tax within 30 days of the Adjudication Order, along with reduced penalty. It can still challenge the correctness of the demand before higher appellant forums |
Section 78.
If the non payment or Short payment of Service tax is by reason of fraud, collusion, wilful mis-statement etc. then penalty under Section 78 is imposed.
| Please take note that Section 76 and Section 78 are mutually exclusive.
If the short payment is by reasons of fraud, collusion, suppression of facts, wilful mis-statement etc. then penalty under Section 78 is imposed. In other cases, penalty under Section 73 is imposed. In any case, penalty cannot be imposed under both sections simultaneously. |
Quantum of Penalty –
It is a mandatory penalty and the Adjudicating Authority is bound to impose a penalty equal to the confirmed demand of Service Tax.
However, in cases of demand of Service Tax for the period from 8th April, 2011 to 14th May, 2015 (both days inclusive) , if the transaction on which the demand is raised, are duly recorded in specified records, then the quantum of penalty will be Fifty percent of the Service Tax demanded. Please take note that this provision is applicable for the given period only.
Reduction in Penalty
- If the Short paid / non paid Service Tax is paid within 30 days of the Receipt of Show Cause Notice, along with interest, then the penalty payable is 15 % of the Service Tax. Provided that the amount of penalty of 15 % is also paid within the said period of 30 days.
- If the short paid / non paid Service Tax is paid within 30 days of receipt of adjudication order along with interest, then the penalty will be equal to 50 % of the Service tax demand. Again the condition is that such reduced penalty is also paid within 30 days of receipt of the order.
Example :-
A Show Cause Notice dated 15.06. 2015 is issued to M/s. ABC Ltd. demanding Service Tax amounting to Rs. Fifty Lakhs, along with interest and proposing imposing of penalty under Section 78. The said notice was received by M/s ABC Ltd. on 22.06.2015.
M/s ABC Ltd. can pay Service Tax, amounting to Rs. Fifty Laks upto 21.07.2015 along with interest and penalty amounting to Rs. Seven Laksh Fifty thousand. On payment of the said amount the proceedings initiated under the said Show Cause Notice will be stand concluded.
M/s ABC ltd. does not pays the above amount within Thirty days of receipt of Notice. The case is adjudicated by Order in Original dated 25.07.2015, which is received by M/s ABC Ltd. on 28.07.2015. In the said adjudication Order, demand of Service Tax amounting to Rs. Forty Lakhs is confirmed along with interest and a penalty of Rs. Forty lakh is imposed under Section 78. Now, M/s ABC Ltd., upto 27.08.2015 pay the Service Tax amounting to Rs. Forty Lakhs along with interest and Penalty amounting to Rs. Ten Lakhs (@ 25% of Rs. Forty Lakhs).
| As explained above, if the option of reduced penalty is exercised at the stage of Show Cause Notice, the matter stands concluded and the demand cannot be contested. However, if the benefit of reduced penalty is exercised, after adjudication, the case can still be contested by way of appeals.
Please take note that if the adjudicating authority has confirmed demand less than the amount proposed in Show Cause Notice, the department can also prefer appeal. In case, the department succeeds in such appeals, a further period of thirty days will be given to pay differential demand of Service Tax, interest and penalty. |
Late Fee for delay in Filling of Return ( Section 70, read with Rule 7C of the Service Tax Rules, 1994)
In case of delay in filling of Service Tax Return, a late fee at the rates specified below is required to be paid.
v Rupees five hundred for a delay upto fifteen days,
v Rupees One thousand for a delay exceeding fifteen days but not more than thirty days.
v For a delay beyond thirty days, Rupees One thousand plus one hundred rupees for each day beyond thirty days of delay.
v However, the maximum late fee payable is Rupees Twenty Thousand only.
v If the gross amount of Service Tax payable is nil, then the Central Excise Officer, on being satisfied that there was sufficient cause for delay in filing the return, may reduce or fully waive the aforesaid late fee.
Penalty For Wrongly Taking Or Utilising CENVAT Credit.
v If any Wrongly taken or Utilises CENVAT credit, then a penalty under Section 76 will be imposed.
v If such Credit is taken or utilised with reasons of fraud, Collusion, suppression or wilful mis-statement etc. then penalty under Section 78 will be imposed.
v The benefit of reduced penalties under Section 76 and Section 78, as explained above, will also be available here.
Penalty upon Directors, Managers of Company. – Section 78A
Where a company has committed the following offences
- Evasion of Service Tax, or
- Issued Invoice/ Bill or Challan without providing taxable services or
- Availed and Utilised CENVAT Credit without actual receipt of Input or Input Services; or
- Failed to pay any amount collected as service tax l Government beyond a period of six months from the date on which such payment becomes due.
then any director, manager, secretary or other officer of such company, who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention, shall be liable to a penalty which may extend to one lakh rupees.
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