A flight in unknown: Error in notification goes unnoticed - Service Tax Exemption Issued under Wrong Section
Notification No. Dated June 22, 2010 reads as:
IN exercise of the powers conferred by clause (aa) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the services referred to in clause (zzzo) of sub-section (105) of section 65 of Finance Act, 1994 from so much of service tax as is in excess of,-
(a) ten percent of the gross value of the ticket or rupees one hundred per journey, whichever is less, for passengers travelling in any class, within India;
(b) ten percent of the gross value of the ticket or rupees five hundred per journey, whichever is less, for passengers embarking in India for an international journey in economy class:
Provided that this exemption shall not apply xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Now, if you look at clause (aa) of sub-section (2) of section 94 of the Finance Act, 1994, you will find that this clause vests the Central Government with the power to make Rules for the determination of amount and value of taxable service under Section 67 of the Finance Act. This particular clause was inserted in Section 94 in the year 2006 by the Finance Act, 2006 w.e.f 18-04-2006 for the purpose of issuing Service Tax (Determination of Value) Rules, 2006 [Valuation Rules]. It is to be noted that all the amendments to the Valuation Rules have been effected by issuing a Notification under clause (aa) of sub-section (2) of Section 94 of the Finance Act.
Therefore, the correct provision under which the Notification for granting exemption from service tax to the passengers would have been Section 93(1) of the Finance Act, under which exemption from whole or part of service tax can be granted by way of a Notification. All this while, this technical error in the Notification has been happily ignored.
It is really unfortunate that the CBEC does not know under which Section of the Act, an exemption notification has to be issued and this is the Government which is ready to pounce on the assessee for the most insignificant mistakes. The Board is full of wise men and it may not be that they are ignorant – this is a case of sheer negligence. Some Under Secretary must have copied the phrase from an earlier notification and pasted it here and it must have gone right up to the top of the pyramid with nobody ever bothering to read it or finding out whether the provisions are correct. It is certainly a 'copy and paste' mistake but these mistakes should not be tolerated at the highest levels!
People across the Globe will read your notifications and laugh at your ignorance!!!
Will CBEC make a correction before some Tribunal Bench holds the notification as invalid as issued under a wrong Section of the ACT?
[DDT gratefully acknowledges the contribution of Nithyananda Shetty and Divya Pahwa, Senior Manager and Assistant Manager, respectively of Deloitte Touche , who brought this lapse to our notice.]