FEBRUARY 28, 2015

By S Sivakumar, LL.B., FCA, FCS, ACSI, MBA, Advocate

ONE Budget proposal which strikes me hard is the proposal to delete Section 80 of the Finance Act, 1994. This draconian proposal is contained in Clause 114 of the Finance Bill.

Section 80, as we know, reads as under, in its current form:

SECTION 80. Penalty not to be imposed in certain cases. - (1)] Notwithstanding anything contained in the provisions of section 76,section 77 or first proviso to sub-section (1) of section 78, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure.

(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.

Section 80 has enabled the Appellate Authorities in general and the CESTAT, in particular, to drop penalty in cases, where it was felt that the law was not clear and consequently, the assessee cannot be faulted for not complying with the relevant statutory provisions governing the levy of service tax. And, given the fact that, penalty is imposed in 999 out of 1000 cases at the maximum possible level, this Section has been of great help to the hapless assessees and the CESTAT has been quite liberal is giving the benefit of doubt to the assessees and waive or reduce penalties.

With draconian provisions being proposed to be introduced in the to be replaced/new Sections such as 76, 78, 78A, 78B, etc., of the Finance Act, 1994, the continuance of Section 80 would have ensured that, the Appellate Forums and especially, the CESTAT, have a say in imposition of penalty, given the context of an extremely adversarial service tax administration.

By proposing to delete Section 80, the Government, very unfortunately, is indicating that the adversarial nature of service tax administration is bound to continue, post this Budget . It would seem that, in the absence of Section 80, the Appellate Forums and especially, the CESTAT, would not be able to take a view that, the assessee had a reasonable cause not to have complied with the statutory requirements.

In my view, this draconian proposal to do away with Section 80 would lead to more arm-twisting by the Department, to the detriment of assessees, who fail to pay service tax due to bona-fide reasons.