MARCH 11, 2015

By Zubin J F Poovathinkal

ONE of the lesser talked about changes in the Budget, 2015 came in the form of an Amendment to Section 73 of the Finance Act, 1994 where by the following sub-section is being inserted (w.e.f. enactment of Finance Bill, 2015):

"(1B) Notwithstanding anything contained in sub-section(1), in a case where the amount of service tax payable has been self-assessed in the return furnished under sub-section (1) of section 70, but not paid either in full or in part, the same shall be recovered along with interest thereon in any of the modes specified in section 87, without service of notice under sub-section (1)".

The implication of the above insertion would be that if on self assessment, an assessee declares the amount of service tax payable by him in his ST-3 return but does not pay the service tax either in full or in part, immediate recovery proceedings can be initiated under Section 87 of Finance Act, 1994, without issuing any show cause notice under Section 73(1) of Finance Act, 1994.

While Section 73(1B) is being inserted, Rule 6(6A) of the Service Tax Rules, 1994 which provides for recovery of Service Tax self assessed and declared in the return under Section 87 is being omitted consequent to the above insertion. Thus, not only is this recovery provision being given statutory recognition, but it also starts with the words 'Notwithstanding anything contained in sub-section (1)' and ends with the words 'without service of notice under sub-section (1)'. This makes it quite clear that once liability is admitted by the assessee in his returns, no show cause notice is required for recovery and since the provisions of Section 73(1) will not apply, the period of limitation will not apply either.

The issue that remains unanswered is what would happen in a situation where the assessee needs to rectify a wrongly filed ST-3 Return? Rule 7B of the Service Tax Rules, 1994, provides that an assessee can submit a revised return to correct a mistake or omission within 90 days of filing the original return. Therefore, the issue here is that the Department could proceed with recovery under Section 73(1B) even before the expiry of 90 days from filing the return and thus the assessee may not be given a chance to fully utilise the period of 90 days provided for filing a revised return to rectify any unintentional mistakes that are not all that uncommon.

Further, in the light of non-obstante clause that the proposed Section 73(1B) begins with, the Department would have the power to recover an admitted liability at any point of time in the future without limitation and unless otherwise provided for, the assessee would not be left with any remedy of rectifying even a clerical error in the return once the period of 90 days has expired.

However, considering that a similar provision exists at present in the form of Rule 6(6A) of the Service Tax Rules, 1994, and which, as mentioned, will die when the FB, 2015 receives the asseent of the President, we'll have to wait and see what practical repercussions this amendment will have. Nonetheless, it clearly shows the Government's intention to speed up the recovery of Service Tax that has already been brought within its reach.

The new provision will compel the assessee to be extremely cautious and accurate while computing his Service Tax liability as in the current battle of recovery vs. remedy, the former seems to have gained the upper hand.

(The Author is an Associate with Lakshmi Kumaran & Sridharan, Hyderabad)