FM for stiffer penalties for service tax cheats

The finance ministry is planning to strengthen the penal provisions for service tax offences. The new clauses are expected to be introduced as part of the amendments to the tax laws promised by Finance Minister P Chidambaram in his Budget speech.

The ministry will also soon begin an exercise to set up more service tax commissionerates through redeployment of staff.

"There is a thinking now that since a threshold limit has been introduced to exempt the small service tax payers, the penal provisions should be made stricter to ensure better compliance. The matter is under consideration," a senior ministry official told Business Standard.

The budget has already proposed to extend the powers to the Central excise officers to issue show-cause notice and determine the amount of short levy. The ministry is also planning to set up additional commissionerates in addition to the existing six to cope with the expanded list of services, officials said.

According to PricewaterhouseCoopers, the present penal provisions do not include provision for prosecutions. "There is a likelihood of such provisions being included. Alternatively, the government might make the existing penal norms more stringent since there are concerns many service tax providers do not pay up," Anita Rastogi, manager, PricewaterhouseCoopers, told Business Standard.

At present, under Section 76 of the Finance Act of 1994, non-payment of service tax within the stipulated time frame not only attracts payment of interest but also a minimum penalty of Rs 100 per day for each day of delayed payment or a maximum penalty of Rs 200 per day for each day of delayed payment.

In addition to the above, Section 77 entails that contravention of any provision of the Finance Act would be lead to a penalty of not more than Rs 1,000. Similarly, Section 78 includes penal provisions for taxpayers who deliberately pay less tax than they are required to.

The penalty includes up to twice the amount of service tax not paid.

The government wants to mop-up Rs 17,500 crore, an increase of around 24 per cent from the service tax proceeds in 2005-06, against a target of Rs 14,150 crore this fiscal years.

The Budget for 2005-06 has included nine new services such as membership of clubs, packaging and construction of residential complexes while service providers with taxable services of up to Rs 4 lakh in a year have been exempted from the purview of the tax from April 1, 2005. The scope of 12 existing services has also been expanded.

In addition, the Finance Act of 1994 (which pertains to service tax) has been amended to cover such services that are provided outside India to a recipient in India. This was until now restricted to services provided in India.

The service tax rules are also being amended from April 1, 2005 under which the due date for service tax payment by all assessees would be the 5th of the following month and invoices would have to be issued within 14 days from the date of completion of provision of service or receipt of payment.