Service Tax – Evasion by Postal department?
The DG, Service Tax wrote a letter to the CBEC seeking some clarifications. The Subject of the letter reads as, “ Evasion of Service Tax by the Department of Post, Madhya Pradesh , Circle- reg ”
The question was that Indore Commissioner had a doubt that the postal department is liable to pay Service Tax on the charges it collects from mobile phone operators for “address verification and verification of other details”. It seems the postal department charges Rs. 25/- per address.
The DGST told the Board, Since the matter relates to Department of Post, a Central Government Department, Board may examine the taxability of this service rendered by the Postal Dept. and issue clarification before M.O. Circular is issued by this Directorate. The Commissioner has also requested that the matter may be taken with the Department of Post for depositing the tax. The same may be considered by the Board if it is felt that the Dept of Post is liable to pay service tax for such activity.
(In case you don't remember, MO Circular means Modus Operandi Circular – these are circulars by which the senior babus share their wealth of information on how crooked assessees are defrauding the tax administration and how vigilant the taxman should be against such frauds – and this now includes another Central Government Department!)
The Board replied after seven months. The Board's reply reads as,
Sub: - Evasion of Service Tax by the Department of Post, Madhya Pradesh , Circle-reg.
The issue has been examined. The service provided by Department of Post to BSNL (or for that matter to any other cell phone company) for verification of details of customers of BSNL falls within the purview of ‘support services of business and commerce' and accordingly, it is liable to service tax under the said category of taxable service.
Board wants the DGST to advise the field formations accordingly. From tomorrow, the Central Excise officers will be busy collecting data from the post offices to find out how much duty was evaded. SCNs will fly at all directions and the postal department will be imposed penalties and interest. Let us hope that no Post Master General will be imposed a personal penalty of Rs. 50 Crores as was imposed on a BHEL employee by a Commissioner. Wilful suppression and intent to evade will be charged and proved and the postal department is not going to take it lying down. They will appeal and maybe right up to the Supreme Court. In the process, many lawyers will become richer and thousands of man-hours will be wasted in both the departments and the courts – all to decide in which pocket of the government the money should be kept.
The Department of Posts is a Department under the Government of India working for and on behalf of the President of India and so is the Service Tax department and all the income that these two departments earn will go into the consolidated fund of India. Can we really afford a protracted legal battle between two government departments? Should so much time, effort and intelligent interpretation go into dispute settling between two government departments?
What is evasion? Can a government department be charged with evasion? Evasion requires an intention to avoid, to cheat the government. Can the President of India represented by the Postal Department be charged with cheating the President of India represented by the Finance Ministry?
++ Black's Law Dictionary defines evasion as the wilful attempt to defeat or circumvent the tax laws to illegally reduce one's tax liability.
++ The mere failure or wilful failure to pay any tax does not constitute an attempt to evade or defeat the payment of any tax.
++ Evasion involves deceit, subterfuge, camouflage, concealment, some attempt to colour or obscure events, or makes things seem other than they are.
++ The attempt in any manner to evade or defeat any tax must be wilful. Wilfulness is an act or conduct done with a bad or evil purpose. Mere understatement of income and the filing of an incorrect return does not in itself constitute wilful attempted tax evasion.
Is it fair on the part of the Revenue Department to correspond about the evasion by another Department of the Government of India, when for the last one year or so, even the Revenue Department is not sure whether tax was payable on the service?
If this is how Revenue treats a sister Department, you can well imagine what they must be thinking of the common citizens – all evaders and smugglers?
CBCE's letter F.No. dated the 14 th January, 2008