FEBRUARY 28, 2015

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

THE Finance Bill has proposed to introduce a new Section 78B, which reads as under:

“78B. (1) Where, in any case,––

(a) service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded and no notice has been served under sub-section (1) of section 73 or under the proviso thereto, before the date on which the Finance Bill, 2015 receives the assent of the President; or

(b) service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded and a notice has been served under sub-section (1) of section 73 or under the proviso thereto, but no order has been passed under sub-section (2) of section 73, before the date on which the Finance Bill, 2015 receives the assent of the President,then, in respect of such cases, the provisions of section 76 or section 78, as the case may be, as amended by the Finance Act, 2015 shall be applicable.

(2) Notwithstanding anything contained in sub-section (1), in respect of cases falling under the provisions of sub-section (4A) of section 73 as was in force prior to the date of coming into force of the Finance Act, 2015, where no notice under the proviso to sub-section (1) of section 73 has been served on any person or, where so served, no order has been passed under sub-section (2) of section 73, before such date, the penalty leviable shall not exceed fifty per cent. of the service tax.”.

A plain reading of this proposed new Section makes it amply clear that, the new draconian provisions related to levy of penalties, as contained in the new Sections 76, 78 and 78A would govern the show cause notices issued after the date the Finance Bill receives the Presidential assent. Thus, for transactions which happened in the earlier periods, so long as show cause notices are issued after the date of the Presidential assent, the new penalty provisions contained in Section 76 and 78 would apply. And, don't forget that, Section 80 is also getting deleted.

One can see that, assessees would be put to lot of difficulty and hardship due to this new Section 78B. But, then, how far is this Section constitutional, in respect of SCNs issued for transactions that happened prior to the date this Section comes into being? In my view, the proposed new Section 78B would be violative of Article 20(1) of the Constitution, as per which, “no person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence ”.

While the Government might have a justification to strengthen the existing statutory provisions related to levy of penalties, etc. for reasons best known to it, any attempt to implement Section 78B to cover SCNs issued for past periods is bound to face judicial challenges.