No Time Limit for subsequent demands of service tax – Nizam Sugar Factory judgment sidestepped - Officers will resort to foul play

By TIOL News Service

NEW DELHI, MAR 16, 2012: SECTION 73 of the Finance Act, 1994 is amended as follows:

a) The normal period of limitation for issue of show cause notice is proposed to be extended from the current one year to eighteen months. The JS (TRU) explains the reason for extension as follows:

“The period for issue of demands in normal situations is being raised from 12 months to 18 months. This is being done to take care of the shorter period available due to the periodicity of the new return EST-1 (to replace ST-3 and discussed later) being reduced to 1 month for large assessees from the existing 6 months and to have the benefit of audited accounts available for the purpose of scrutiny of returns.”

Thank God, they did not enhance the five year time limit as well. But is it really so, because the Devil is in the detail incorporated through a new sub-section (1A) which is discussed below.

b) A new sub-section (1A) after sub-section (1) which reads as follows:

"(1A) Notwithstanding anything contained in sub-section (1), the Central Excise Officer may serve, subsequent to any notice or notices served under that sub-section, a statement, containing the details of service tax not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, on the person chargeable to service tax, then, service of such statement shall be deemed to be service of notice on such person, subject to the condition that the grounds relied upon for the subsequent period are same as are mentioned in the earlier notices.";

By virtue of this new provision, the authority is empowered to issue a simple statement detailing the amount of service tax not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, i.e. the time periods subsequent to the period which is already covered through a notice issued in terms of sub-section (1) therein. The proposed provision states that service of this statement would be deemed to be service of notice provided the grounds relied upon for the subsequent period are same as that mentioned in the earlier notice.

This provision, on the face of it appears to be all pervading because it empowers the authority to compile a simple statement and serve it on the assessee without any prescription of time limitation. The authority can compile a statement for any number of years and serve it on the assessee after any number of years. This is what one can infer after a plain reading of the provision. Another question that crops up is whether the statute wishes to acknowledge and sanctify the lethargy of field officers in not issuing notices on time.

Also, this provision appears to overcome the Apex Court judgment in Nizam Sugar Factory case - 2006-TIOL-56-SC-CX. Indeed, a clever way of sidestepping an Apex Court judgment.

c) Lastly, an amendment is being proposed in sub-section (4A) whereby reference to sub-section (3) is deleted. The JS (TRU) explains that this amendment is made so that the latter section will not overrule the earlier one.