MARCH 18, 2012

No protective safeguards for sunset clauses – Fodder for litigation

By Santosh Hatwar, Advocate

THE Negative List is on the threshold of becoming a reality. The government has proposed certain services as 'declared services' and is contemplating a long list of exemptions. All of this would become a part of the taxing statute after the enactment of Finance Act, 2012 and subsequent notification of a suitable date for implementation of the relevant provisions. So, all this is bound to become law from a certain date in the near future.

But, what would be the status of the transactions under the previous regime i.e. positive list regime. There could be instances where there were disputes on the characterization of a particular activity as a service and if so, whether it was a taxable service and, if it was a taxable service whether it is classifiable under the Head A or Head B and so forth. Also, there could be disputes on eligibility of exemptions, abatements and exclusions or even classification. And these disputes could be at the various stages of litigation between the assessees and the department.

In the Finance Bill, 2012, for sections 65(121), 65A, 66, 66A and 68 of Finance Act, 1994 a provision is being proposed to be inserted under the above mentioned sections which reads as follows, " the provisions of these sections shall not apply from such date as the Central Government may, by notification, appoint".

Now, in my view two things emerge from this:

1. What will happen to the provisions of section 65, 65A, 66, 66A and 68 after the appointed date? Obviously they would become redundant. But what about safeguarding the acts or omissions done under these sections prior to the date they would become redundant.

2. Assuming that an assessee takes a position that a service provided by him is under Head A and a dispute is pending on this with the department, be it a matter of exemption, abatement or even classification. After the introduction of the 'taxation of services based on negative list', assuming for a moment that this service is neither in the negative list nor is getting any exemption, the assessee obtains a registration and starts paying service tax from the date on which the new regime is brought into force. How would the department view this turn of events from the assessee's side while deciding the previous dispute in the previous regime?

The above two situations are only illustrative. There could emerge many more situations depending on various permutations and combinations of facts for various assessees.

The Finance Bill, 2012 does not seem to put forth any safeguard provisions in this regard. At this juncture, it may be noted that in the above instances the proposed provisions to be inserted under the respective sections are neither omitting nor repealing the existing provisions but only act as sunset clauses to those sections. Even sections 6, 6-A, 7 and 8 of General Clauses Act, 1897 expressly deal with repealed enactments and do not deal with sunset clauses. In such a scenario, how should one interpret these sunset clauses in the absence of any saving clauses?

In view of the above, these aspects and any other incidental aspects surrounding these sunset clauses proposed in the Finance Bill, 2012 especially with regard to their existence when the new provisions are brought into force, and the manner in which they would operate when the new provisions take effect, needs urgent attention of the TRU.