TIOL-DDT 1406 · the untouched capture
Rendered as it looked. Links and images are disabled in this view; the file itself is untouched.
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN"
"http://www.w3.org/TR/html4/loose.dtd">
<html>
<head>
<title>Untitled Document</title>
<meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1">
</head>
<body>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1406</font><br>
21.07.2010 <br>
Wednesday </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Is Penalty under Section 76 of Finance Act, 1994 is less severe than Penalty under Section 78?</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SECTION</strong> 76 and 78 are two important Sections of the Finance Act, 1994 dealing with penalty. Section 76, penalty shall not be less than two hundred rupees for every day during which failure to pay service tax continues or at the rate of two per cent. of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax (Provided that the total amount of the penalty payable in terms of this section shall not exceed the service tax payable). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Section 78 (applicable for cases of suppression etc) , person liable to pay service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall not be less than, but which shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded (Provided that where such service tax as determined under sub-section (2) of section 73, and the interest payable thereon under section 75, is paid within thirty days from the date of communication of order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent. of the service tax so determined) </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Normally in many orders of the appellate forums, in cases where the service tax is paid before the issue of SCN, a lenient view is taken and penalty under Section 78 is vacated and only penalty under Section 76 is sustained. But in cases where the Service tax is paid before the issue of SCN or within one month of the issue or Order-in-Original, it may so happen that the penalty under Section 78 would be less than the penalty under Section 76. This is due to the proviso to Sec 78 as per which the penalty stands reduced to 75% if the tax and interest are paid within 30 days of the Order-in-Original. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let us see this illustration where the assessee short paid service tax of Rs 1,00,000/- in the month of April 2008: </font></p>
<table width="450" border="1" align="center" cellpadding="3" cellspacing="0">
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></a>Amount short paid for the month of April 2008 </font></p></td>
<td><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">100000 </font></p></td>
</tr>
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Return filed on 25th Oct 2008 </font></p></td>
<td><div align="right"></div></td>
</tr>
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">SCN issued within one year on 24th Oct 2009 </font></p></td>
<td><div align="right"></div></td>
</tr>
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Paid ST on 1 lakh on 25th Oct 2009 on issue of SCN </font></p></td>
<td><div align="right"></div></td>
</tr>
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, </font></p></td>
<td><div align="right"></div></td>
</tr>
<tr>
<td bgcolor="#FFFFCC"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Penalty under Sec 76 </strong></font></p></td>
<td><div align="right"></div></td>
</tr>
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">at 200 per day for 17 months (or) </font></p></td>
<td><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">102000 </font></p></td>
</tr>
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">at 2% a month 17 months </font></p></td>
<td><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">34000 </font></p></td>
</tr>
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(Subject to maximum of Service Tax short paid) </font></p></td>
<td><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">100000 </font></p></td>
</tr>
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Max penalty u/s 76 restricted to ST payable </font></p></td>
<td><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">100000 </font></p></td>
</tr>
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Had it been under 78, it would have been only 25% (min-equal to ST of Rs 100000) OR </font></p></td>
<td><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">25000 </font></p></td>
</tr>
<tr>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Assuming twice the tax is penalty( max) </font></p></td>
<td><p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">50000 </font></p></td>
</tr>
<tr>
<td bgcolor="#FFFFCC"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Now, which one is less severe? 76 or 78 </strong></font></p></td>
<td><div align="right"></div></td>
</tr>
</table>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally, Section 78 has been amended with effect from 10.5.2008 to make the provisions of Section 78 not applicable in cases where penalty is imposed under Section 76. Hence section 78 and 76 are now mutually exclusive. So, may be now in cases where there is suppression etc, but Service Tax is paid before the issue of SCN the adjudicating authorities would in fact be helping the assessees in imposing penalty under Section 78 ( which stands reduced to 25%, a facility not available under Sec 76). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the final question is why the facility of reduced penalty of 25% is not made applicable for penalty under Section 76? After all, cases falling under Section 78 are more serious in nature than those of falling under Section 76. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">New Modus Operandi in Corruption - Officers ingenuity whether commendable or condemnable? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> appears that in Bangalore service tax assessees, especially those engaged in export of services viz., STPI units are having a harrowing time securing refund of duties/taxes in terms of Rule 5 of <em>CENVAT Credit</em> Rules, 2004. This is in spite of a plethora of circulars, directions and clarifications issued by the Board. CBEC even went to the extent of retrospectively amending the <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2006/exnt06_05.htm" target="_blank">Notification No. 5/2006-CE(NT)</a></strong></em> to facilitate hassle free refund mechanism for service exporters. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But Bangalore is far from Delhi and the Board's directions seem to be falling on deaf ears. Unfortunately, Board also should share the blame in this fiasco to a certain extent. A case in point is Circular No. 122 dated April 30, 2010 where inadvertently or otherwise it is mentioned that “service tax has to be paid to the Government Account”, thereby bringing in a new concept not supported by the prevailing statutory provisions, through the back door, though this is currently restricted to transactions with ‘Associated Enterprises'. Please also see our commentary on this in <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=10805" target="_blank">TIOL-DDT 1352 05.05.2010</a></strong>. While we mentioned therein that sincere field officers will not hesitate in denying eligibility of <em>CENVAT credit</em> in the absence of proof of this payment to Government Account by the service providers, there are some imaginative officers in the field (Bangalore) who have implemented this aspect for other transactions as well and gaining illegal pecuniary benefits legally. Sounds strange Doesn't it. Please read on. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For example, for allowing credit of service tax paid on renting of immovable property to STPI units and consequently refund of such credit amounts, the officers in Bangalore are insisting that they (STPI units) have to bring proof of payment of service tax to the Government account by their landlords. If they scamper to get the copies of ST-3 returns supported by the GAR-7 challans filed by their landlords (to the service tax authorities - their own colleagues sitting in the next cabin), the officers go one step further and raise an objection that the information provided does not specifically indicate if the landlord has paid any service tax on the lease rentals received from them. They are forcing them to get back-up work sheets prepared by the landlords to substantiate their claims. This is not the end of the story. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Obviously, the harried assessees cannot go back to their landlords and ask for the workings. So the officers suggest an easy way out not only for this sticky issue but also for a smooth and hassle free refund cheque for certain ‘designated input services' (though Rule 5 allows refund of credit without any discrimination amongst the categories of input services, in Bangalore, it appears, there is a restriction on allowing refund to only four or five input services). They brazenly ask the assessee to make a ‘decent contribution' to the ‘charity organizations/trusts' established by them either in their own names or in the names of their family members and which are engaged in running old age homes, schools, orphanages etc. They insist that the payments are made in cheques and also promise to issue IT certificates which in turn allows these assessees to claim income tax exemption benefits. The entire transaction between the officers and the assessees appears to be above board, courtesy income tax exemption certificates for receiving ‘contribution' </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What an ingenious way of institutionalizing corruption! </font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> – Thursday's cases</font></strong></font></strong></font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left">Income Tax </font></strong></p>
<p align="justify"><font color="#FF9933"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income tax - Sec 10(23C)(vi) - CBDT directs non-resident charitable body to spend 75% of income on education in India - Assessee questions such a condition - No infirmity in Board's direction: Bombay HC</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>PETITIONER</strong>, a non-profit organization established in the USA, applied for approval under section 10(23C)(VI) - the same was denied by the appropriate authority - petitioner filed writ before the Delhi High Court but the same was dismissed - Petitioner moved to Supreme Court - the Apex Court while setting aside the matter to the file of CBDT observed that the threshold condition required for the approval under section 10(23C)(VI) were fulfilled by the applicant and hence by applying monitoring conditions, approval may be granted to the petitioner. Pursuant to the direction of the Apex Court, the CBDT granted approval to the petitioner imposing a condition that petitioner should apply 75% of its income in the educational field in India. Aggrieved with the order of the Board, Petitioner filed writ before the High Court challenging the verdict of Board. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Customs </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Central Government empowered to reduce anti-dumping duties based on recommendations of Designated Authority after sunset review under Section 9A(5) of Customs Tariff Act, 1975 – CESTAT Special Bench on Anti-Dumping </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue before the CESTAT Special Bench for Anti-dumping cases was: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) W hether proviso to Section 9A(5) of the Customs Tariff Act, 1975 empowers the Central Government only to 'extend the period' of the duties already in place or whether it can also vary the duties levied under this sub-section earlier; and </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) Whether individual dumping margin can be determined for an exporter who has no exports and hence no export price to India. </font></p>
</blockquote>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax</font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">New clause w.e.f 10.09.2004 defining ‘Business Auxiliary Service' is couched in entirely different language within which appellant squarely fell and hence started paying service tax – Prior to amendment, Revenue has no case - Applicant as prima facie case - Pre-deposit waived and Stay granted: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>UNDER</strong> a contract entered into with the Income Tax department, UTI Technology Services Ltd., a Central PSU, undertook the process of allotment of PAN to Income Tax assessees. All expenditure incurred by the appellant for these purposes would be recovered and received from the PAN applicants in the form of Rs.60 per application. The department eyed this Sixty rupees being collected per PAN applicant and issued a Service Tax demand of Rs.3.67 crores for the period July 2003 to September, 2004 on 29.09.2005 invoking the extended period of limitation. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day </font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com"><strong>vijaywrite@taxindiaonline.com</strong></a></font></p>
</body>
</html>