FEBRUARY 28, 2015

By S Sivakumar, LL.B., FCA, FCS, ACSI, MBA, Advocate

AS per the new version of Section 11AC of the CEA, as proposed in the Finance Bill, 2015, in the case on non-suppression cases, the following shall be the penalty that is imposable:

a) in addition to the duty as determined under sub-section (10) of section 11A, a penalty not exceeding 10% of the duty so determined or Rs.5000 whichever is higher shall be payable;

b) if duty and interest payable thereon under section 11AA is paid either before issue of show cause notice or within 30 days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of said duty and interest shall be deemed to be concluded;

c) if duty as determined under sub-section (10) of section 11A and interest payable thereon under section 11AA is paid within 30 days of the date of communication of order of the Central Excise Officer who has determined such duty, the amount of penalty shall be equal to 25% of the penalty so imposed, provided that such reduced penalty is also paid within 30 days of the date of communication of such order.

To my mind, this is perhaps, the first time that I can remember of, in so far as central excise law is concerned, that penalty is proposed even when there has been no fraud or collusion or suppression or misstatement of facts with an intent to evade duty. A closer look at the new Section 11AC, which seems draconian to say the least, indicates that the assessee would be completely left at the mercy of the Department, even in cases involving genuine issues involving interpretation of the statutory provisions, etc. Mere failure to pay duty within the time frame would now lead to drastic consequences, even in cases where the assessee had genuine reasons not to or delay the payment of duty.

We have similar statutory provisions that are being introduced in the Finance Act, 1994 in terms of the newly proposed Sections 76 and 78 and with Section 80 no longer being in the statute book, even honest assessees will have to face drastic consequences in the form of imposition of penalties. The ‘penalty related' consequences under the service tax law would seem more draconian, vis-à-vis the honest assessees.

I am forced to draw a parallel from the VAT law (that prevails in Karnataka), in terms of which, a mandatory penalty of 10% of the VAT is imposed on any non or short payment of VAT, irrespective of whether there has been a suppression of facts or not. In fact, we have a common penalty of10% across all cases and the concept of ‘mens rea' is not relevant under the KVAT Act, 2003 in so far as imposition of penalty is concerned.

Talking of the new amendments, one is scared as to how these provisions would be implemented by an unfriendly tax administration?

And as always, the constitutional validity of these provisions can always be challenged!