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Deemed conclusion under section 78a

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The budget, 2016-17 has fulfilled the wishes of the assessees to a great extent and one of the provision that is being welcomed by the assessees is the deemed conclusion of proceedings under section 78A of the Finance Act.

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Deemed conclusion under section 78a

  1. 1. Deemed conclusion under section 78a
  2. 2. 2 The budget, 2016-17 has fulfilled the wishes of the assessees to a great extent and one of the provision that is being welcomed by the assessees is the deemed conclusion of proceedings under section 78A of the Finance Act. This article is an attempt to discuss the amendment made in section 78A of the Finance Act. This section pertains to penalty on any director, manager, secretary or officer who is engaged in the day to day operations and conduct of business and was knowingly party to the contravention made by the organisation. The penalty provisions contained in the section 78A are produced for the sake of convenient reference as follows:-
  3. 3. SECTION 78A. Where a company has committed any of the following contraventions, namely:— (a) evasion of service tax; or (b) issuance of invoice, bill or, as the case may be, a challan without provision of taxable service in violation of the rules made under the provisions of this Chapter; or (c) availment and utilisation of credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter; or (d) failure to pay any amount collected as service tax to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, then any director, manager, secretary or other officer of such company, who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention, shall be liable to a penalty which may extend to one lakh rupees.". The Finance Bill, 2016, proposes to insert an explanation in this section which reads as follows:- "Explanation.–– For the removal of doubts, it is hereby clarified that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, and the proceedings with respect to a notice issued under sub-section (1) of section 73 or the proviso to sub-section (1) of section 73 is concluded in accordance with the provisions of clause (i) of the first proviso to section 76 or clause (i) of the second proviso to section 78, as the case may be, the proceedings pending against any person under this section shall also be deemed to have been concluded.". 3
  4. 4. 4 It is pertinent to explain the various provisions referred in the explanation as follows:- Clause (i) of First Proviso to section 76:- According to this provision, if service tax along with interest is paid within a period of 30 days from the date of service of notice under section 73(1), no penalty shall be payable. Clause (i) of the second proviso to section 78:- According to this provision, if service tax along with interest and 15% penalty is paid within a period of 30 days from the date of service of notice under section 73(1), the penalty under section 78 will be restricted to 15% instead of 100%. It is submitted that it is very practical and common that along with invoking provisions of section 76 or 78 of the Finance Act, personal penalties are also proposed against the officers of the organisation under section 78A of the Finance Act. However, it would sound absurd if the assessee being company or firm has concluded the proceedings under section 76 or 78 whereas the penalty proceedings are not settled with respect to the concerned persons. Consequently, amendment is being introduced by way of explanation wherein it is clarified that if the proceedings have been concluded according to the provisions of clause (i) of the first proviso to section 76 or clause (i) of the second proviso to section 78, then the penal proceedings initiated against the officers of the organisation will be deemed to have been concluded as well. Similar provisions have been incorporated in Central Excise Laws also under Rule 26 of the Central Excise Rules, 2002. The above provisions are highly appreciated by the assessees as they seek to settle disputes and reduce unwarranted litigation. Furthermore, the incorporation of such provisions will re-build the trust of the taxpayers in the revenue administration and will definitely increase tax compliance. The introduction of 'deeming conclusion proceedings' are step towards the objective of the government to rationalize tax reforms so as to reduce litigation and develop a stable and predictable tax environment.
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