Mohan R Lavi : Service firms must file tax returns

Suzanne La Follette said, "Laws are only felt when the individual comes in conflict with them." A new campaign created by the Department of Audio Visual Publicity (DAVP) for the service tax department promises to make compliant service tax assessees never to come in conflict with the department.

The ad, which reminds one of a middle-aged man who has saved enough for the rest of his life, promises not to ask any questions or levy any penalty on service providers who register themselves before October 31, 2004.

To implement the promise of the finance minister in the Budget speech, the ad speaks of creating new service tax commissioner offices in six metros, on-the-spot registration, no separate accounts to be maintained, no supporting documents to be filed, online filing, no inquiries to be made and no questions asked. Service providers could not have asked for more, it would appear.

Penal provisions are so integral to Indian laws that it would appear the penal provisions are drafted first and then the main laws are incorporated in order that one is certain what the possible ways are to transgress a particular law.

Since inception, interest and penal provisions have been included vide Sections 77/78 of the service tax laws. These sections have been tested before the tribunals in quite a few cases.

Service providers, who do not provide any taxable service or nil taxable service, could do well to file their returns since the case laws provide ambivalent results.

In the Ramesh Chandra Khanna v Collector of Central Excise, Kanpur, case, 1998 103 ELT 51, it was held that penalty was not imposable if no taxable services were rendered in a period since it was possible and necessary for the officers to advise the assessee to file a return before issuing a show cause notice for penalty.

But in the Rajinder Kumar Somani v Commissioner of Central Excise, Kanpur, case, 113 ELT 111, it was held that in case of a stock broker, penalty was leviable even if he did not conduct any business for consistent failure of the assessee to submit returns but the penalty could be reduced.

That a penalty could not be levied without a show cause notice was upheld in the Mukund K Roongta vs Commissioner of Central Excise, Jaipur, case, 1999 107 ELT 38. In the same case, the assessee did something innovative "" he paid all the taxes but did not file a return. The penalty levied was quashed by the Tribunal. In a very interesting judgment, the Mumbai CESTAT in the Harilal and Co Ltd vs Commissioner of Central Excise, Mumbai, case, 2000 115 ELT 375 held that the wording of the provisions of Section 77, being so different from the sister Sections 11A of the Central Excise Act and 28 of the Customs Act, would make one believe that the assessee had to decide upon the penalty himself and pay it voluntarily.

In the Smitha Shetty vs CCE case, 2003 156 ELT 84, the Bangalore Tribunal held that if a person bona fidely believed that he/she was not liable under this Act, no penalty could be levied. In Santosh Travels Vellas P Ltd v Commissioner of Central Excise, Mumbai, 2001 136 ELT 1410, the assessee was a transporter as well as a manpower recruitment agent.

Amidst the brouhaha over the liability of the service tax on transporters, the assessee kept mum on his manpower recruitment since he had rather optimistically asked for a repeal of the levy on transporters too vide his association. The tribunal upheld the levy of penalty on the recruitment business.

While the ad apparently promises the moon, what happens if one does not comply with the October 31 deadline is a moot question. If the case laws given above are an indication, levy of interest or penalty cannot be ruled out although the quantum will depend on one's bargaining skills.

With the lapse of time, the bargaining skills too may not work since the department can point to the deadline. Service providers who have missed out on registering must do so, a priori.