Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
(Tax Research Unit)
******
New Delhi dated the 12th May, 2011.
To
Chief Commissioners of Central Excise and Service Tax (All),
Director General (Service Tax),
Director General (Central Excise Intelligence),
Director General (Audit),
Commissioners of Service Tax (All),
Commissioners of Central Excise and Service Tax (All).
Madam/Sir,
Subject: Prosecution provision in Finance Act, 1994 – regarding.
With the enactment of Finance Act, 2011 (No.8 of 2011), Section 89 which
provides for prosecution of specified offences involving service tax, becomes a
part of Chapter V of Finance Act, 1994.
- Prosecution provision was introduced this year, in Chapter V of Finance Act,
1994, as part of a compliance philosophy involving rationalization of penal
provisions. Encouraging voluntary compliance and introduction of penalties based
on the gravity of offences are some important principles which guide the changes
made this year, in the penal provisions governing service tax. While minor
technical omissions or commissions have been made punishable with simple penal
measures, prosecution is meant to contain and tackle certain specified serious
violations. Accordingly, it is imperative for the field formations, in
particular the sanctioning authority, to implement the prosecution provision
keeping in view the overall compliance philosophy. Since the objective of the
prosecution provision is mainly to develop a holistic compliance culture among
the tax payers, it is expected that the instructions will be followed in letter
and spirit.
- In the following paragraphs, some important aspects of the prosecution
provision are explained, to guide the field formations:
- Clause (a) of section 89(1) of Finance Act, 1994, is meant to apply, inter alia, where services have been provided without issuance of invoice in
accordance with the prescribed provisions. In terms of rule 4A of the Service
Tax Rules, 1994, invoice is required to be issued inter-alia within 14 days from
the date of completion of the taxable service. Here, it should be noted that the
emphasis in the prosecution provision is on the non-issuance of invoice within
the prescribed period rather than non-mention of the technical details in the
invoice that have no bearing on the determination of tax liability.
- In the case of services where the recipient is liable to pay tax on reverse
charge basis, similar obligation has been cast on the service recipient, though
the invoices are issued by the service provider. It is clarified that the date
of provision of service shall be determined in terms of Point of Taxation Rules,
2011. In the case of persons liable to pay tax on reverse charge basis, the date
of provision of service shall be the date of payment except in the case of
associated enterprises receiving services from abroad where the date shall be
earlier of the date of credit in the books of accounts or the date of payment.
It is at this stage that the transaction must be accounted for. Thus the service
receiver, liable to pay tax on reverse charge basis is required to ensure that
the invoice is available at the time the payment is made or at least received
within 14 days thereafter and in the case of associated enterprises, invoice
should be available with the service receiver at the time of credit in the books
of accounts or the date of payment towards the service received.
- Further, invoice mentioned in section 89(1) will include a bill or as the
case may be a challan, in accordance with the Service Tax Rules, 1994. Invoice,
bill, or as the case may be, challan, shall also include “any document”
specified in respect of certain taxable services, in the provisos to Rule 4A and
Rule 4B of Service Tax Rules, 1994.
- Clause (b) of section 89(1) of Finance Act, 1994, refers to the availment and
utilization of the credit of taxes paid without actual receipt of taxable
service or excisable goods. It may be noted that in order to constitute an
offence under this clause the taxpayer must both avail as well as utilize the
credit without having actually received the goods or the service. The clause is
not meant to apply to situations where an invoice has been issued for a service
yet to be provided on which due tax has been paid. It is only meant for such
invoices that are typically known as “fake” where the tax has not been paid at
the so called service provider’s end or where the provider stated in the invoice
is non-existent. It will also cover situations where the value of the service
stated in the invoice and/or tax thereon have been altered with a view to avail
Cenvat credit in excess of the amount originally stated. While calculating the
monetary limit for the purpose of launching prosecution, the value shall be the
amount availed as credit in excess of the amount originally stated in the
invoice.
- Clause (c) of section 89(1) of Finance Act, 1994, is based on similar
provision in the central excise law. It should be noted that the offence in
relation to maintenance of false books of accounts or failure to supply the
required information or supplying of false information, should be in material
particulars have a bearing on the tax liability. Mere expression of opinions
shall not be covered by the said clause. Supplying false information, in
response to summons, will also be covered under this provision.
- Clause (d) of section 89(1) of Finance Act, 1994, will apply only when the
amount has been collected as service tax. It is not meant to apply to mere
non-payment of service tax when due. This provision would be attracted when the
amount was reflected in the invoices as service tax, service receiver has
already made the payment and the period of six months has elapsed from the date
on which the service provider was required to pay the tax to the Central
Government. Where the service receiver has made part payment, the service
provider will be punishable to the extent he has failed to deposit the tax due
to the Government.
- Certain sections of the Central Excise Act, 1944, have been made applicable
to service tax by section 83 of Finance Act, 1994. Section 9AA of the Central
Excise Act provides that where an offence has been committed by a company, in
addition to the company, every person who was in charge of the company and
responsible for conduct of the business, at the time when offence was committed,
can be deemed guilty of an offence and can be proceeded against. A person so
charged, however has an option to establish that offence was committed without
his knowledge or he had exercised all due diligence to prevent the commission of
offence.
- Section 9C of Central Excise Act, 1944, which is made applicable to Finance
Act, 1994, provides that in any prosecution for an offence, existence of
culpable mental state shall be presumed by the court. Therefore each offence
described in section 89(1) of the Finance Act, 1994, has an inherent mens rea.
Delinquency by the defaulter of service tax itself establishes his ‘guilt’. If
the accused claims that he did not have guilty mind, it is for him to prove the
same beyond reasonable doubt. Thus “burden of proof regarding non existence of ‘mens
rea’ is on the accused”.
- It may be noted that in terms of section 89(3) of Finance Act, 1994, the
following grounds are not considered special and adequate reasons for awarding
reduced imprisonment:
- the fact that the accused has been convicted for the first time for an
offence under Finance Act, 1994;
- the fact that in any proceeding under the said Act, other than prosecution,
the accused has been ordered to pay a penalty or any other action has been taken
against him for the same act which constitutes the offence;
- the fact that the accused was not the principal offender and was acting
merely as a secondary party in the commission of offence;
- the age of the accused.
On the above grounds, sanctioning authority cannot refrain from launching
prosecution against an offender.
- Sanction for prosecution has to be accorded by the Chief Commissioner of
Central Excise, in terms of the section 89(4) of the Finance Act, 1994. In
accordance with Notification 3/2004-ST dated 11th March 2004, Director General
of Central Excise Intelligence (DGCEI), can exercise the power of Chief
Commissioner of Central Excise, throughout India.
- Board has decided that monetary limit for prosecution will be Rupees Ten Lakh in the case of offences specified in section 89(1) of Finance Act, 1994, to
ensure better utilization of manpower, time and resources of the field
formations. Therefore, where an offence specified in section 89(1), involves an
amount of less than Rupees Ten Lakh, such case need not be considered for
launching prosecution. However the monetary limit will not apply in the case of
repeat offence.
- Provisions relating to prosecution are to be exercised with due diligence,
caution and responsibility after carefully weighing all the facts on record.
Prosecution should not be launched merely on matters of technicalities. Evidence
regarding the specified offence should be beyond reasonable doubt, to obtain
conviction. The sanctioning authority should record detailed reasons for its
decision to sanction or not to sanction prosecution, on file.
- Prosecution proceedings in a court of law are to be generally initiated
after departmental adjudication of an offence has been completed, although there
is no legal bar against launch of prosecution before adjudication. Generally,
the adjudicator should indicate whether a case is fit for prosecution, though
this is not a necessary pre-condition. To launch prosecution against top
management of the company, sufficient and clear evidence to show their direct
involvement in the offence is required. Once prosecution is sanctioned,
complaint should be filed in the appropriate court immediately. If the complaint
could not be filed for any reason, the matter should be immediately reported to
the authority that sanctioned the prosecution.
- Instructions and guidelines issued by the Central Board of Excise and
Customs (CBEC) from time to time, regarding prosecution under Central Excise
law, will also be applicable to service tax, to the extent they are harmonious
with the provisions of Finance Act, 1994 and instructions contained in this
Circular for carrying out prosecution under service tax law.
- Field formations may be instructed accordingly.
- Please acknowledge the receipt of the Circular. Hindi Version to follow.
(J. M. Kennedy)
Director, TRU
Tel: 011-23092634
F. No. 354/45/2011-TRU
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