Businesses that have intentionally defaulted on service tax payments in the last four years will get partial relief from the hefty 100% penalty, as per the Finance Bill, 2015 approved by the Lok Sabha last week.
The amended provision introduces 50% penalty for intentional defaults from April 2011 to the time the Bill gets presidential ascent. For wilful defaults or fraud beyond this period, the penalty, however, would be 100% of the tax dues.
In case of unintentional defaults, the Bill has modified the penalty from the current 2% per month of the service tax dues, which might work out to 24% if unpaid for a year, to a flat 10% fine.
The penalty payable is in addition to the interest on tax dues in all cases. The Bill has also introduced incentives for quick recovery of outstanding payments by way of relief on penalty if paid within a month of demand.
Once these norms come into force, businesses that have unintentionally defaulted will get full waiver from penalty if payment is made within a month of receiving a showcause notice. Businesses also have the option to respond to the notice with their side of the story and seek re-computation of the tax dues. Once the dues are recalculated by the authorities, any payments made within a month will be eligible for a reduced 25% of the re-assessed penalty to encourage quick recovery of the dues. Those making payments after a month of re-computation are liable to pay the full penalty as per the reassessment.
In the case of intentional defaults, the current law itself provides for a reduced payment of 25% of penalty if made within a month of re-computation.
Over the period, service tax coverage has become almost all-pervasive with limited exceptions and penalty provisions more stringent. The government had two years ago made non-payment of tax collected above Rs 50 lakh a cognisable offence, for which officers require no warrant from a court to initiate a probe or to arrest the accused. The department collected Rs 1.45 lakh crore of taxes in 2014-15 up to February, indicating 8.1% growth.