However, according to the provisions of Service Tax Rules, 1994 (Rule 7C) some allowance is available to the assessee for if the delay in filing of return is within specified period as shown under. [Please Refer : Rule 7C, Service Tax Rules, 1994]

Illustration :

Due date is 25^th April

What would be the late fees chargeable in case of filing of return of service tax under following situations.

April : 25, 26, May : 10, 11, 25, 26 28 June : 04, 05, 22

Solution :

Penalty is generally levied on the assessee for intentional violation of provision of the Act or Rules made thereunder. It is penal in nature and charged to the assessee in addition to the Interest and Service Tax.

Other Points :

The authority which is levying penalty should issue a speaking order.

If assessee proves there was a reasonable cause for failure in payment of service tax  no penalty should be imposed on him [ Please Refer : Section 80, Finance Act 1994 ]

In case of Penalty amount of Rs. 1,000/- or less, the jurisdictional officer shall give an opportunity to the assessee to deposit Service Tax along with interest within 30 Days. If assessee  pays the sum  within specified time then no penalty should be levied [ Please Refer : Service Tax Circular No. 76/ 6/ 2004 – ST]

A person, who is liable to pay service tax, but fails to pay the same, shall pay, in addition to service tax and the interest, a penalty which is not less than Rs. 200 for each day during which such failure continues or at the rate of 2% p.m. of such tax, whichever is higher, starting with the first day after the due date till the date of actual payment of service tax. However, the total penalty payable shall not exceed the Service tax Payable. [ Please Refer : Section 76, Finance Act, 1994 ]

Illustration :

A person, fails to pay service tax of Rs. 20,00,000/-. Due Date of payment was 5^th January. Actual Payment is made on 20^th January. What would be the amount of Penalty u/s 76?

Solution :

The default has continued for 15 days.

2% of the Service Tax for days for which default is continued

 = 2% x 20,00,000 x 15/31= Rs. 19,355/-                                                  (A)

Penalty calculated @ Rs. 200 per day for 15 days =Rs. 3,000/-             (B)

Penalty to be paid : (A) or (B) whichever is higher, i.e. Rs. 19,355/-

It is pertinent to note that there is neither methodology provided for the calculation of no. of days in the said section 76, nor the department has issued any instruction / circulars to clarify the same.

Some Violations for which amount of Penalty to be levied is Higher out of (i) penalty which may extend to Rs. 5,000/- rupees or (ii) Rs. 200 for each day till such failure continues, starting with the first day after the due date, till the date of actual compliance.

(1)  Any person, who is liable to pay service tax, or required to take registration, he fails to register in accordance with the section 69.

(2)  Any person who fails to Furnish information, Produce Documents, Appear before Central Excise officer

General Penalty and Some Specific Violations for which penalty leviable may extend to Rs. 5,000/-.

(1)  Failure to keep, maintain or retain books of account and other documents which are required by the Act or rules made thereunder.

(2)  When tax is required to be paid electronically, failure to pay tax electronically.

(3)  Issuing invoice with incorrect or incomplete details or failure to account of invoice issued in his books of account.

(4)  Contravention of any Service Tax Provision or any rules made there under for which no penalty is provided specifically elsewhere in the Act (General Penalty)

[ Please Refer : Section 77, Finance Act, 1994 ]

When service tax has been not ‘levied or paid’ or has been ‘short-levied or short-paid’ or ‘erroneously refunded’, by any of the below mentioned reason :

(1) Fraud

(2) Collusion

(3) Wilful Mis-statement

(4) Suppression of facts

(5) Contravention of any of the provisions of Service tax or of the rules made thereunder with intent to evade payment of service tax,

The person, liable to pay such evaded service tax or erroneous refund, shall also be liable to pay a penalty, ( In addition to Service Tax and Interest ) 

Amount of Penalty

Such penalty shall not be less than amount of service tax, but also shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded.  [ Please Refer : Section 78, Finance Act, 1994. ]

E.g. if the amount of service tax (short paid, not paid, short levied, not levied or erroneously refunded) was  Rs. 1,00,000/- then penalty shall not be less than Rs. 1,00,000/- and shall not be more than Rs. 2,00,000/-

Relaxation in Penalty Payment :-

If service tax determined u/s 73(2) along with interest and penalty are paid within 30 days from the date of communication of order determining service tax, then the amount of penalty shall be 25% of Service Tax so determined. [ Please Refer : Proviso to Section 78, Finance Act, 1994. ]

E.g. If Service Tax determined u/s 73(2) by Central Excise Officer is Rs. 1,00,000/- on 01-01-2009 and all the three i.e. Service Tax, Interest and Penalty(Reduced Amount) is paid within 30 days then penalty would be Rs. 25,000/- 

Penalty Increases/Reduces in further appeal :

Where the service tax determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, the court, then, such reduced or increased service tax shall be taken into account. It must be kept in mind that benefit of relaxation of 25% penalty by payment within 30 days will be available, if the service tax so increased by higher authority, interest and increase in penalty is paid within 30 days. In such case penalty payable will be 25% of such increased penalty.

E.g. If Service Tax liability determined by Central Exercise Officer is Rs. 1,00,000/- then subsequently in appeal made the Service Tax determined by the Commissioner (Appeals) was Rs. 1,50,000/-,  in further appeal Appellate Tribunal determined tax liability of Rs. 1,20,000/- then in such case if payment is made within 30 days then amount of penalty would be Rs. 30,000/- (25% of Rs. 1,20,000/- i.e. Service Tax Liability Determined by the Higher Authority in Appeal Hierarchy)   

No Simultaneous Penalty (Amendment by Finance Act 2008) :

If the penalty is payable under this section, the provisions of section 76 shall not apply i.e. If Penalty u/s 78 is levied then Penalty u/s 76 cannot be imposed simultaneously.   [ Inserted vide Finance Bill 2008, w.e.f. 16th May, 2008 ]

It is to be considered that benefit of such reduced penalty provided u/s 78 is also available to cases where orders issued determining service tax u/s 73(2)  relate to notices prior to Finance Act 2003. [ Please Refer : Explanation to Section 78, Finance Act, 1994 ]

Any amount paid to the Central Government prior to the date of communication of the order u/s 73(2) or order issued by Appellate Authority shall be adjusted against the total amount payable. [ Please Refer : Explanation to Section 78, Finance Act, 1994 ]

If the Central Government is of the opinion that it is necessary in the public interest to publish the name of any person and any other particulars relating to any proceedings, it has power to publish such names and particulars in such manner as conferred by Service Tax (Publication of Names) Rules,2008.

Publication under this section shall not be made in relation to any penalty until the time for presenting an appeal u/s 85 to the Commissioner (Appeals) or u/s 86 to the Appellate Tribunal, has expired without an appeal having been presented or If  the appeal, is presented, has been disposed of by the competent authority.

Whose name can be published?

Persons who have been ADJUDGED under the provision of the Act to have contravened any of the provisions of the Act or rules made thereunder with the intent to evade payment of duty. Persons who have ADJUDGED to pay but has not paid any amount u/s 73 of the Act. Adjudged means a person against whom adjudication proceedings started by department have already been completed. [Please Refer : Service Tax (Publication of Names) Rules, 2008]

However, In the case of artificial entities like partnership firm, company or other association of persons, the names of the partners of the firm, directors, managing agents, secretaries and treasurers or managers of the company, or the members of the association, shall also be published if circumstances of the case justify such action in the opinion of the Central Government.

Whether there is any monetary limit?

Publication of information would be resorted to only in respect of offence cases wherein the service tax liability is Rs. 1 crore or more. However, in cases of repeat offences, and in cases involving collection of an amount representing tax, not deposited, to the Central Government under section 73A of the Finance Act, 1994, the tax liability limit would be Rs.25 lakh. [Please Refer : Service Tax Circular No. 100/3/2008-ST ]

When any person is liable to a penalty, such penalty may be adjudged by the appropriate Central Excise Officer conferred with necessary powers.

In a case, where the CENVAT credit in respect of input services has been taken or utilized wrongly by reason of fraud, collusion, willful mis-statement, suppression of facts, or contravention of any of the provisions of the Finance Act or of the rules made thereunder with intention to evade payment of service tax, then, Service provider shall also be liable to pay penalty u/s 78 of the Finance Act, 1994. 

Any order levying  above mentioned  penalty shall be issued by the Central Excise Officer following the principles of natural justice, i.e. the assessee should be given the opportunity of being heard before levying such penalty order. [ Please Refer : CENVAT Credit Rules 2004, Rule 15(5) ]