Service Tax Default or Evasion –Relevant Aspects of Penalty under section 76

1. Section 76 of Finance Act,1994 : Penalty under section 76 of the Finance Act, 1994, as amended by the Finance Act,2015, w.e.f.14.05.2015, is to be levied in following circumstances where:

(a)			Service tax has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded,
(b)			Such non-levy, non-payment, short-levy, short-payment or erroneous refund has occurred for any reason, other than the reason of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of the Act or of the rules made thereunder with the intent to evade payment of service tax, and
(c)			The person has been served a notice under section 73 (1).

2. Maximum amount of penalty:-

A person who has been served a notice under section 73(1) would be liable to pay penalty under section 76, not excluding 10% of such amount as mentioned in notice .The penalty is in addition to service tax and interest thereon as specified in the notice. Further, the Adjudicating Authority may at his discretion to impose even lesser amount of penalty depending on the timing of the payment of service tax and interest and such lesser amount may be from nil to 25%as follows:

(a)		In case, service tax and interest are paid within a period of 30 days of the date of service of show-cause notice under section 73(1) -- No penalty is imposable.
(b)		In case, service tax and interest are paid within a period of 30 days of the date of receipt of the Adjudication Order passed under section 73 (2) -- Only 25% of the penalty imposed in the order.

It is to be noted that benefit of reduction in penalty shall be available only if such reduced penalty would be paid within such period.

For example : If notice was received on 1.7.2015 demanding service tax of 10 lakh (non- evasion case) then if service tax and interest thereon was paid by 1.8.2015, no penalty was to be levied. In any other case, penalty up to 1,00,000 would be imposed.

3. Effect of Appellate/Court's order under section 76(2):-

Where Commissioner (Appeals), the Tribunal or, the Court modifies the service tax determined under section 73 (2) then, the amount of penalty payable thereon shall also stand to be modified accordingly. Further, where penalty amount gets reduced consequent to Appellate/ Court order (such order).The benefit of reduced penalty under the proviso to sub-section (1) shall be available if the service tax, interest and reduced penalty so payable, is paid within a period of 30 days from the date of receipt of the order by which such modification is made. It is to be noted that the reduced or otherwise of the amount of penalty shall be payable and counted from the date of such order of the Commissioner or the Tribunal or the Court , as the case may be.

4. Pendency of proceedings on 14-5-2015:-

By the Finance Act 2015, w.e.f. 14.5.2015, a new section 78B was inserted. The sub-section (1) of 78 B provides that 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 a notice has been served under section73 (1) or under the proviso thereto, before 14-5-2015; 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 section 73 (1) or under the proviso thereto, but no order has been passed under section73 (2) , before 14-05-2015, then, in respect of such cases, the provisions of section 76 or of section 78, as the case may be, as amended by the Finance Act, 2015, shall be applicable. Further, where Adjudication proceedings was pending as on 14.5.2015 and in respect of which show-cause notice is issued after the said date, penalty under section 76 shall be imposable in accordance with the substituted sections 76 and 78.