MARCH 16, 2012

Amnesty for RIPS service providers – Is it applicable for all defaulters?

By Santosh Hatwar, Advocate

A new sub-section numbered as sub-section (2) is proposed to be incorporated in section 80 of the Finance Act, 1994 which is as follows:

"(2) Notwithstanding anything contained in the provisions of section 76 or section 77 or section 78, no penalty shall be imposable for failure to pay service tax payable, as on the 6th day of March, 2012, on the taxable service referred to in sub-clause (zzzz) of clause (105) of section 65, subject to the condition that the amount of service tax along with interest is paid in full within a period of six months from the date on which the Finance Bill, 2012 receives the assent of the President.”

In the Home Solutions Retail case - 2011-TIOL-610-HC-DEL-ST-LB , the Full Bench of Delhi High Court, while deliberating on the aspect of levy of penalty, observed as follows:

“73. On the question of penalty due to non-payment of tax, it is open to the government to examine whether any waiver or exemption can be granted. It may be noted that the appeal against Home Solutions-I is pending before the Supreme Court but the operation of the said judgment has not been stayed.”

Now, taking a cue from this observation, the Government considered the High Court's observation and incorporated the above provision. By virtue of this provision, no penalty shall be imposed under the said sections, for failure to pay service tax as on March 6, 2012, provided the tax liability is discharged within six months from the date of enactment of Finance Act, 2012. While clarifying on this provision, the JS (TRU) says that those who fail to avail the benefit will be treated as if this section did not exist.

Netizens may be aware that in Retailers Association of India vs. Union of India & Ors - 2011-TIOL-104-SC-ST, the Apex Court directed as follows:

“(i) all members of the appellant association, namely, Retailers Association of India, who are before us, shall deposit with the concerned department 50% of the arrears towards the said tax within six months in three equated instalments, on or before 1st November,2011; 1st January 2012 and 1st March, 2012;

(ii) for the balance 50% all the members shall furnish a solvent surety to the satisfaction of the jurisdictional Commissioner;

(iii) they shall file individual affidavits in this Court, within four weeks from today undertaking to pay the balance arrears of service tax, stayed in terms of this order, as may be directed by this Court at the time of final disposal of the appeal and

(iv) the successful party in this appeal shall been titled to interest on the amount stayed by this Court at such rate as may be directed at the time of final disposal of the appeal.

It is clarified that this interim order shall apply only in the case of those members of the association who were petitioners before the High Court in the writ petition giving rise to this appeal and who shall file the requisite affidavits within the aforesaid period of four weeks from today. We further direct that any default in deposit of any one of the instalments by the dates fixed above, would result in vacation of this stay order and it will be open to the department to recover the balance amount in accordance with law.”

Similar directive was issued by the Apex Court in r/o three other appellants as well in the same interim order. As per the Apex Court, the directions contained in interim order dated October 14, 2011 shall apply to only those members of the association and the appellants who were in appeal to the Supreme Court for relief and the directive on payment of arrears in instalments and through provision of surety was with regard to the arrears payable prior to September 30, 2011. However, the new sub-section (1A) of section 80 supra neither makes any distinction between the defaulters nor restricts its application to the arrears prior to September 30, 2011.

The moot point is whether the benefit of this provision could be availed by all defaulters, because, this new provision merely says that no penalty shall be imposable for failure to pay service tax, as on March 6, 2012 (significance of this date also was not explained by TRU because the third instalment of 50% dues shall be payable by March 1, 2012 if we go by the Apex Court directive), if the said dues are discharged within six months from the date of enactment of Finance Act, 2012. It does not specifically mention about its applicability to only those defaulters covered by the Apex Court order, though, the clarification by JS (TRU) makes a mention of this judgment, but also adds that those who fail to avail this benefit will be treated as if this section did not exist, which could mean that all defaulters could avail this amnesty. However, a more detailed clarification from TRU in this regard, would clear the air because there is a prospect of the field formations reading it in a narrow sense.