This document summarizes recent amendments to India's service tax law, new penal provisions, and the Voluntary Compliance Encouragement Scheme introduced in 2013. Key points include: increased penalties for non-compliance by companies and their directors; certain offenses made cognizable; power of arrest if tax evaded exceeds 50 lakhs; and a one-time amnesty scheme until December 2013 to encourage voluntary compliance through waived penalties and interest for those declaring unpaid service tax dues since 2007. The presentation provides details on these changes and clarifies provisions, exceptions, and implications to improve tax compliance.

1. Presents
6th Knowledge Master Class
On
Understanding Service Tax Law Nuances
Conducted by
Dr. Sanjiv Agarwal
FCA, FCS
Wednesday,
17th April, 2013
Mumbai © Dr. Sanjiv Agarwal
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2. SESSION – IV
Recent Amendments,
New Penal Provisions
&
VCES, 2013
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3. This Presentation Covers
• Recent Amends in Service Tax
• New Penal Provisions
• Power to Arrest
• Voluntary Compliance Encouragement Scheme, 2013
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4. Changes in Budget 2013-14
 Stability in negative list maintained with only a few changes.
 Vocational courses offered by institutes affiliated to the State Council of
Vocational Training and testing activities in relation to agriculture and
agriculture produce to be in the negative list.
 Definition of "process amounting to manufacture" will also include processes
under Medicinal and toilet preparations (Excise Duties) Act, 1955.
 Service Tax to be levied on all restaurants which are air conditioned. The
condition of liquor license done away with.
 Benefit of exemption to copyright on cinematography to be limited to films
exhibited in cinema halls / theatres.
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5. Changes in Budget 2013-14
 All types of testing in relation to agriculture to be in Negative List
 Certain exemptions curtailed / withdrawn in relation to auxiliary education
services and renting by educational institutes, transportation of goods by
railway / vessel, vehicle parking to general public, repair or maintenance of
government aircrafts, charitable activities etc. (w.e.f. 1.4.2013)
 Retrospective exemption to Indian railways for services provided between 1st
July, 2012 upto 28th February, 2013 to the extent notices have been issued.
 Where it is held that extended period of limitation u/s 73 is not sustainable for
making demands, Department's demand for normal period of 18 months shall
be sustainable.
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6. Changes in Budget 2013-14
 Penalty u/s 77(a) (in case of non-registration) shall be restricted to a maximum
of Rs. 10,000.
 Abatement reduced w.e.f. 1.3.2013 from 75% to 70% in case of luxury
apartments / residential complexes and others (with carpet area of 2000 sq. ft.
or more or value of Rs. 1 crore or more).
 New provisions for revised punishments for offences u/s 89, makes certain
offences cognizable and others non cognizable and bailable.
 New Section 78A inserted to impose penalty on directors and officials of
company for specified willful actions / offences.
 Power to arrest provided u/s 91 where Service Tax contravention / default is
more than Rs. 50 lakhs.
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7. Changes in Budget 2013-14
 Advance Ruling can be sought to ascertain eligibility of Cenvat
Credit on input services for a manufacturer of excisable goods.
(w.e.f 1.3.2013)
 Resident public limited companies also allowed to seek advance
ruling from Advance Ruling Authority (W.e.f. 1.3.2013)
 Stay orders of CESTAT to have a maximum period of 365 days
(180+185) upto which stay granted will be operational even when
assessee is not at fault.; Stay to get vacated after 365 days
(Section 37C of Central Excise)
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8. Changes in Budget 2013-14
 In Cestat appeals, single member bench can hear and dispose off
appeals upto a monetary limit of Rs. 50 lakhs (previously Rs. 10
lakh).
 Mode of delivery of letters, orders etc will also include speed post
and approved courier agency.
 Voluntary Compliance Encouragement Scheme, 2013 (VCES)
introduced as a one time amnesty measure to effect compliance
and recovery and provide amnesty from interest and penalties
(last date 31.12.2013).
 Service Tax appeal forms ST – 5,6,7 amended w..e.f. 1.6.2013
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9. Section 78A Penalty for offences by director etc.
of a company
Section 89 Offences & penalties
Section 90 Cognizance of offences
Section 91 Power to arrest
Goes against non- adversarial tax policy of Government
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10. Penalty for Non- registration
Penalty for failure to take registration (Section 77(1)(a)]
Now:
 Penalty which may extend upto Rs. 10000 or Rs. 200 per day
during which default continues, whichever is higher, starting
from first day after due date till the date of actual compliance
Proposed:
 Penalty which may extend upto Rs. 10000
 Penalty not to exceed Rs. 10000 in any case
 For non payment, there are already strict penalties u/s 76 and 78
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11. Penalty for Offences by Company Officials (Section 78A)
 To impose penalty for contraventions / violations by
Company
 Penalty may extend up to Rs. one lakh per official
 Penalty on any director, manager, secretary or officer
of Company
 Incharge / responsible to Company for conduct of
business of Company
 If knowingly involved in specified contraventions
 Penalty may be levied on more than one person for
single contravention / offences
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12. Penalty for Offences by Company Officials (Section 78A)
Specified Contraventions
 Evasion of Service Tax
 Issuance of bill / Invoice / challan without provision of
service in violation of rules.
 Availment and utilization of credit of taxes /duties
without actual receipt of services /goods either fully or
partially.
 Failure to pay amount collected as service tax to the
credit of Central Government beyond 6 months of the
due date
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13. Who is Punishable
Any person who is
• director
• manager
• secretary
• other officer
and who at the time of contravention was in charge of /
was responsible to company
 for conduct of business, and
 was knowingly concerned with such contravention.
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14. Penalty for Offences by Company Officials (Section 78A)
Personal Penalty
 Till now, there was no provision in the Finance
Act, 1994 to levy personal penalty for contraventions
by Companies (also legally held)
 There can be no penalty on directors /officers /
manager / secretary of non-company assessees
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15. Offences & Penalties (Section 89)
Punishment to whoever commits any offence :
a) Knowingly evades payment of Service Tax
b) Wrongly avails / utilizes credit of taxes
c) Maintains false books of accounts/ supplies false information
d) Collects tax but fails to pay within 6 months of due date
• In such cases, prosecution to be initiated
• Cases of no intent to defraud also covered
• ‘Knowingly’ is very subjective; to be proved
Contd…..
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16. Offences & Penalties (Section 89)
 For (a), (b) &(c) and amount > Rs. 50 lakhs –
imprisonment from 6 months to 3 years
 For (d), if amount > Rs. 50 lakh –
imprisonment from 6 months to 7 years
 For any other offence– imprisonment upto 1 year
 For second or subsequent conviction
 For (a), (b), (c), other offences – imprisonment upto 3
years
 For (d) – imprisonment upto 7 years
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17. Cognizance of Offences (Section 90)
 Cognizable Offence
Failure to deposit to the credit of Central Government
service tax collected where amount exceeds Rs. 50 lakhs
 Non-Cognizable and Bailable Offences
All offences except cognizable offence as above
 Detailed Instructions to be issued
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18. Power to Arrest (Section 91)
 Similar provisions existed earlier but withdrawn in 1998
 Provides power to arrest (where evasion exceeds Rs. 50 lakhs)
 Covers all classes of assessees
 Empowers Commissioner of Central Excise
 He may authorize any officer not below the rank of
Superintendent to arrest
 Who can be arrested – any person as per Section 89
 Trigger for arrest – offences – as per Section 89(1) (Reasons to
believe that offence has been committed to exist )
 Arrests to be made in terms of Code of Criminal
Procedure, 1973 (CCP)
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19. Power to Arrest (Section 91)
 For Cognizable offences
 Grounds of arrest to be informed to such person
 Produced before Magistrate with in 24 hours
 Asstt. / Deputy Commissioner empowered to release
an arrested person on bail in case of non -cognizable /
bailable offences
 To have same powers as Officer -in -charge of Police
Station in terms of Section 436 of CCP
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20. Offence u/s 89 Imprisonment on
first default
Imprisonment on
subsequent
defaults
Cognizable or non-
cognizable
Knowingly evades payment of
Service tax
3 years ** 3 years Non- cognizable
Avails & utilizes credit of taxes
without actual receipt of inputs/
services, whether partly or fully
3 years ** 3 years Non- cognizable
Maintains false books or fails to
supply any information or supplies
false information
3 years ** 3 years Non- cognizable
Collects any amount as service tax
but fails to pay the same to
government exchequer within 6
months of due date
7 years ** 7 years Cognizable
Any other offence 1 year 3 years Non- cognizable
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21. Impact of Power to Arrest (Section 91)
 Punitive punishments measures
 Possible harassment of small service providers (sole
proprietors etc.)
 But tax amount of Rs. 50 lakhs provides a breather
 May improve compliances
 Regressive; possible threat to otherwise bonafide cases
 May increase litigation
 Need to distinguish between willful and genuine defaults
 Arrest can be made at the beginning of proceedings
itself, investigation may follow
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Power to Arrest

22. Possible Measures to avoid Arrest
 Suo moto compliance
 Independent due diligence
 Promptly attending to notices / summons
 Ensuring timely / full payment of Service Tax – Taxes not to
be used for working capital / funding other requirements
 Where delay is expected, get in touch with Department.
 Take aggressive tax positions with utmost care – Risk
Management
 Strengthen internal processes and controls to avoid
unintended failures
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26. Voluntary Compliance Encouragement Scheme, 2013 (VCES)
 Chapter VI (Clause 94-104 of Finance Bill, 2013)
 17 lakh assessees, 7 lakh returns filed
 Stop filers / non-filers
 Only a one time scheme
 To chase assessees not possible
 Hope to collect reasonable money / litigation to come down
 Action & consequences
 Truthful declaration of service tax dues since 1.10.2007 upto
31.12.2012 by defaulters as on 1.03.2013
 Payment of due tax in 1 or 2 installments
 Interest , penalties and other consequences waived
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27. Voluntary Compliance Encouragement Scheme, 2013 (VCES)
 Not applicable to period before 1.10.2007 or after 31.12.2012
 Not applicable to cases involving search, audit, investigation, SCN
or summon issued cases as on 1. 03. 2013
 Not eligible if return furnished u/s 70 but disclosed amount not
paid
 To be rejected if audit etc. initiated as on 1st March, 2013
 Pay at least half of tax before, 31st December, 2013
 Pay balance by
 30th June, 2014 without interest
 31st December 2014 with interest w.e.f. 1.07.2014
 Dues for period after 31st December, 2012 to be settled as per
present Law
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28. Voluntary Compliance Encouragement Scheme, 2013 (VCES)
 No refund of amount paid under VCES
 Tax dues declared but not paid – to be recovered as per Law
 Even in default, only Service Tax and interest is payable
 False declaration to be rejected - reason to believe, notice to be served
 Declaration to be final – no withdrawal / no revision
 Satisfaction of designated authority required where audit /
investigation / summons/ notice issued and pending as on 1.3.2013;
Declaration liable to be rejected by written reasoned order.
 No action can be taken after one year from date of declaration
 Acknowledgment is a must
 Once acknowledgement is issued - no re-opening permissible before
any authority
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29. THANK YOU
FOR
YOUR
PRECIOUS TIME
AND
ATTENTION
Dr. Sanjiv Agarwal
FCA, FCS, Jaipur
asandco@gmail.com
sanjivservicetax@gmail.com
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