This article is written by Devashish Jain, a student of UPES, Dehradun.
Starting with a quote of franklin D. Roosevelt ‘Taxes after all, are dues that we pay for the privileges of the membership in an organized society’.
Introduction
Service tax means a tax imposed on transaction on certain specified services by the central government[1]. The said service tax comes under the head of indirect taxes. This tax is imposed only on taxable services which are defined under the section 65 of finance act 1994
At present the amount of service tax payable is calculated on ‘gross value of taxable service’ and as per section 66 of finance act 1994, a total of 12.36% is payable on the account of service tax, which includes Educational Cess of 2% and Secondary and Higher Education Cess of 1% but this is also subjected to the condition.
As per the rule the person who provides the taxable services to the customer, on the receipt of those indirect tax i.e. service charge is liable to pay the service tax to the government under section 68(1) of the Finance Act 1994
SERVICE TAX REGISTRATION
Service tax registration is a mandatory requirement imposed by the government on every person who has provided taxable services of more than 9 lakh rupees in a financial year. The main purpose for imposition of such a mandatory condition on registration is to identify the assesse, proper deposition of service tax along with the premises from where the assesse is operating so that the concerned department can identify the taxable entity.
In the case of Healthways Dairy Products Co. v. UOI[2] it was held that it is necessary to get the registration to render taxable services[3].
But for paying service tax there is no pre condition that the assesse should be registered. Though the non-registration may invoke a penalty under section 77 of the finance act but such penalty cannot at any time exceed Rs. 1000/- This is a stand-alone provision.[4]
Government of India has created the office of director general (ST) and has empowered him to look over this matter throughout India[5]. General principle, that is applicable, it is the service provider who has to get statutorily registered under the finance act 1994 but this is also subjected to exception that in certain cases where the service provider is the non –resident than as per the provision it is the service receiver who has to get registered[6] This principle is applicable in the insurance auxiliary services where the services are provided by the insurance agent it will be the insurance company who has to get itself registered as per rule (1)(d)(iii) and (iv) of service Tax Rules 1994.
All service providers availing exemption upto 4 lakh in a financial year whose value of taxable services exceeds Rs 3lakh in a financial year need to be registered[7]. This principle won’t be applicable to those who provides with a taxable service of upto 9 lakh but to those who claim an exception upto 4 lakh.
Time period
According to rule 4(1) of Service Tax Rules the person is liable to the service tax and to get himself registered within 30 Days from the date on which the service tax is levied.
Liability of a new owner
In Bhuvaneshwari Chemicals v. CCE[8] this question was brought to a rest where it was held that the new purchaser will not be held liable for the service tax that was previously unpaid. The previous liability ambit was explained and was held not only the raw amount rather no penalty, interest or any other charges will be acquired from such a new party.
CENVAT Credit
In the case of mPortal India Wireless Solutions (P) Ltd. v. CST[9] this issue was resolved where it was held that there is no statutory provision regarding compulsion of registration of service tax to claim refund of the CENVAT Credit of Service Tax that was paid on Input services and this judgment was further supported in the case of CST v. Varizon Data Services.
But this is amended from April 1 2015 no as per rule 4(7) and rule 9 there is no requirement of payment of the value of input services as indicated in invoice. Partial reverse charges can be availed right after the payment of the service tax.
Failure to register assesse
For all those who have a liability to register themselves, if fails to do the same than under section 75A of the finance act 1994 penalty for the failure of an assessed to get himself registered was fixed at Rs. 500/- as a onetime payment but subsequently this section was deleted by the virtue of the finance act 2004 and now the general penalty that is applicable is Rs. 1000/- as per section 77 of Finance act.
PENALTIES
Late Payment
It is a common principle as per which noncompliance with the taxation rules lead to the imposition of the penalty[10]. In West Minister International Pvt. Ltd. v. CCE[11] it was held that the penalty for the late submission can only be imposed on the ground of the provision applicable on that date and by the virtue of the notice issued on 21-10-1999 which amended the section 77 of the finance act maximum penalty that can be imposed is Rs 2000/- and the same was imposed.
Failure to pay Service Tax
As per the finance act 1994 under section 76 it was stipulated that, any person who fails to pay the tax in manner prescribed will be liable to the penalty which shall not be less than Rs. 200/- for each day but the maximum penalty cannot at any point exceed the amount of the service tax which the person has failed to pay[12]. But subsequently this was overruled by the provision stipulated under the finance act 2004 and now the penalty will be no less than Rs.100/- per day and if the failure continues it can exceed upto Rs.200/- and at no point of time the penalty for nonpayment of the service tax will exceed the unpaid service tax amount .further even this was overruled and now the provision that is applicable till date is either no less than Rs. 200/- or 2% per month whichever is higher will be applicable.
With this view an important case of M/s Jayraj enterprises v. CST where the said enterprise was in the business of providing “Manpower recruitment and supply agency services” which they were the sub-contractor under an impression that being a sub-contractor they don’t have to pay the service tax and the same service tax will be payable by the contractor. Even though their business came under the ambit of taxable services which is being provided under the 65(105) (k) they neither registered their business under the service tax registration neither they paid taxes from the very inception of the commencement of the business. The court held that they are entitled to pay the service tax along with the interest and fine using the maxim of ignorantia juris non excusat which mean the ignorance of law is not an excuse and using the judgment of M/s. Sew Construction Ltd. Vs. CCE, Raipur[13] the CESTAT held there is no provision under the finance act 1994 that exclude the sub-contractors from the said act. And the enterprise will be held liable to pay the penalty amount along with cumulative service tax till date from the inception of the commencement of the business.
Section 77 of finance act 2004 will is applicable till date and subsequently has been converted into a general provision is a person who fails to file a service tax return which is required to be furnished every half yearly will be liable to pay a penalty which may exceed to Rs. 1000/-
Imposition of interest
In terms of the section 75 of the finance act 1994 failure to pay the service tax to the central government will attract a simple interest of 15% p.a. but this was brought down to 13%[14]. So as per this principle the person who have not paid the service tax that he was entitled to pay than court can impose a simple interest on the amount that was unpaid for a certain tenure.
But where the fault was on the government side because of the work load or any other reason the interest cannot be charged on. This was held in G.M. telecom BSNL v. CCE, Chandigarh[15].
EXCEPTIONS
- If the assesse has a reasonable justification for the failure on his account to submit the service tax than as per section 80 it provides with a great relief to the assesse. In the case of Pratibha Processors v. UOI[16] it was held that penalty is ordinarily applicable where there is a deliberate violation of provision of the statues
- Penalty cannot be imposed for the default of payment of the penalty
- Penalty not imposable for a mere procedural lapse without proving that there was a malafide intension
- Penalty will not be applicable with respect to ex-post facto laws.
CONCLUSION
The paper have drawn attention to various parts starting from introduction of what is service tax, what is the amount of service tax that is payable and who are entitled to pay it. Focusing on the main issue whether the registration is mandatory or not and for who it is mandatory i.e. the person who are doing business which are mentioned under the head of taxable services under the finance act and have a total taxable turnover of more than 9lakhs will be held liable to for the mandate of registration of service tax ; and whether a person can plead ignorantia juris in that regard this was made clear in M/s Jayraj enterprises v. CST, where it was held that ignorantia juris non excusat and the person was held liable for the payment of penalty, and all the condition and limitation regarding the same and what happens if a person doesn’t register under the service tax. Then a special reference was made to CENVAT Credit along with what is the current ruling regarding it. In the latter part of the paper it was explained that what happens if one doesn’t pay service tax and various condition attached to it with references to various case laws an understanding towards the current position of such penalties was made clear. At the end it was explained what happens if a person justifies the non- payment of the service tax and what happens where state is at fault.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:
https://t.me/joinchat/J_
[1] As per Finance act 1994
[2] 1978(2) ELT J457 (SC)
[3] There is an identical provision in Central Excise Act for the registration of excise assesses and hence these ruling is also applicable in service tax.
[4] R.Krishnan and R.Parthasarathy, Service tax law, practice and procedure 12th edn. 2006 commercial law publishers (India) pvt. Ltd.
[5] By a Notification No. 46/98-ST dated 28-1-1998
[6] Service Tax (Fifth amendment) Rule 2005
[7] Notification 6/2005-ST dated 1-3-2005
[8] 1989 (44) ELT 569
[9] CST 34 STT 322
[10] Ref. to section 75A,76,77,78,79 and 80 of Finance Act 1994
[11] 2002 (140) ELT 244
[12] As per service tax rules
[13] 2011 (22) STR 666 (Tri.-Del)
[14] Notification No.26/2004-S.T. dated 10-9-2004
[15] 2003 (160) ELT 318(T)
[16] 1996 (88) ELT 12(SC)
