APRIL 15, 2014

By G Jayaprakash, Advocate

IN Service Tax, whether a person can be arrested for an offence committed before the insertion of power to arrest under the statute after its enactment on 10.05.2013 is now a subject matter of debate. I had made a detailed analysis in my article Service Tax - Arrest for offences prior to 10.05.2013 is illegal. A section of legal luminaries is of the view that being a continuing offence, it is permissible to arrest a person who is coming within the ambit of section 89(i) &(ii) of Finance Act, 1994 and in case of section 89(ii) it is non bailable too, if arrested. Whether the default in payment of service tax prior to 18.4.2011, between 18.4.2011 and 10.5.2013 and after 10.5.2013 is a continuing offence?

Section 472 of CrPC- Continuing offence- In the case of a continuing offence, a fresh period of limitation shall begin to run at every moment of the time during which the offence continues. The expression "continuing offence" has not been defined in CrPC. P er Black's Law Dictionary (5th Edition), ‘continuing' means ‘enduring; not terminated by a single act or fact; subsisting for a definite period or intended to cover or apply to successive similar obligations or occurrences'.

A continuing offence is one which is susceptible of continuance and is distinguishable from the one which is committed once and for all. It is one of those offences which arises out of a failure to obey or comply with a rule or its requirement and which involves a penalty, the liability for which continues until the rule or its requirement and which involves a penalty, the liability for which continues until the rule or its requirement is obeyed or complied with. (State of Bihar v Deokaran Nenshi (1972) 2 SCC 890 ….) It has been opined that it is not the continuing liability for punishment but the liability for continuing punishment which makes an offence a continuing offence. (Ramnuggar Cane & Sugar Co Ltd v Asstt. Registrar of Companies (1989 Cri LJ 2395 (Cal HC) [Quoted from :R.V.Kelkar's Criminal procedure 4 th Edition, Revised by Dr.K.N. Chandrasekharan Pillai]. To treat different acts as continuing offence, the ‘type of crime which is committed over a span of time should have the liability for continuing punishment'.

The power to arrest under the provisions of Chapter V of Finance Act, 1994 (Service Tax) was introduced by Finance Act, 2013w.e.f 10.05.2013 by inserting Section 91. This section   inter alia empowers an officer not below the rank of a Superintendent to arrest a person if he defaulted in payment of service tax collected equal to 50 lakhs or more (a cognizable offence) and authorised by the jurisdictional Commissioner for such arrest. Section 90 was also enacted along with Section 91 to enable classification of offences into cognizable and non cognizable offences. Relevant provisions of Section 89 of the Act relating to Offences and Penalty were also substituted to align with newly inserted provisions under Section(s) 90 & 91.As stated above, there was no provision to arrest a defaulter prior to 10.5.2013. The act of default in payment of service tax collected was not an offence punishable with imprisonment prior to 18.4.2011. Can we term it as an Offence?

Section 38(3) of General Clauses Act, 1897 defines Offence as – Any act or omission punishable by any law for the time being in force. Prior to 18.4.2011, the statute prescribed only a penalty for non-payment of service tax collected. The statute then did not create a criminal offence for the non-payment of service tax collected. It is the general law that "if the word "Penalty" as distinct from the word "fine" is used, the penalty must be recovered as a debt in a civil court.{Halsbury's Law of England, 4 th Edition, Vol.11 para2p.12F.N.5- as appears in Mitra's Legal and Commercial Dictionary(Fifth Edition)}.

Based on the above, this paper is an attempt to study the case law in re:Kandra Ramesh Babu Naidu - 2014-TIOL-307-HC-MUM-ST of Hon'ble High Court of Bombay. The relevant period of the case is from 2010-11 to 2013-14. Factual matrix of the case informs that the service tax assessee failed to deposit more than 2.5 crores of rupees collected as service tax from his customers from 1.4.2010 to 31.3.2014. The balance sheet of the assessee also accepts the liability. The assessee submits that the default amount is only Rs.5 lakhs from 10.5.2013 to 21.7.2013. These two dates need a bit of elaboration. As stated earlier the power to arrest a defaulter for an offence as provided in section 89 (1) (d) (ii) of Finance Act, 1994 is enacted only with effect from 10.5.2013. In as much as the assessee was arrested on 21.1.2014, only amount defaulted up to 21.7.2013 can be computed to arrive at the target amount of Rs.50 lakhs specified in section 89(1) (d) (ii).

The assessees' contention is that the default amount for the period prior to 10.5.2013 and after 21.7.2013 cannot be computed to determine the amount of default to invoke the provisions of section 91 of the Act. It is trite law that the amount payable after 21.7.2013 cannot be computed for the purpose of section 89(d) (ii) of the Act to invoke the power under section 91 of the Act because of the grace period of six months from the date of collection for its payment provided in the statute.

The difference of opinion is narrowed down to the period prior to 10.5.2013. The cause of action starts from 2010-11. The non-payment of service tax collected from customers and failure to deposit it with the Central Government was not an offence punishable with imprisonment during the period. It became so only from 18.4.2011. Even then the punishment prescribed for non-payment of tax collected and exceeding Rs.50 lakhs was imprisonment for three years where as from 10.5.2013, it is seven years. So, in this case the default prior to 18.4.2011 was not an offence punishable with imprisonment at all. From 18.4.2011 up to 10.5.2013, the maximum punishment for default was three years. From 10.05.2013 onwards, it is seven years.

Can we treat these three periods of default as a continuing offence? Type of offence (crime) is classified based on the maximum punishment prescribed for the offence in the statute.

The moot question is whether differently classified crimes can be clubbed to treat it as a continuing offence. Similar types of crime can only be considered to treat them as a continuing offence. In this case the punishment prescribed for the three periods specified above are zero, three and seven years as per statute. Inasmuch as the offence committed during the different periods are not having the liability of continuing punishment and hence the default in payment of service tax collected during these periods to the account of the Central Government cannot be considered as a continuing offence.

Since the facts of the present case do not constitute a continuing offence, the arrested person is not falling within the ambit of section 89(1)(d)(ii) of the Actto be subject to the provisions of section 91. His arrest being illegal, consequential relief is available to the arrested person.

Hope that the matter is taken to the next level of appeal and the issue is settled once and for all.