MARCH 09, 2015

By Preetam Singh

THE draftsmen of the Finance Bill,2015 havegiven a painful birth to unwarranted discrimination to the Assessee seeking penalty waiver under unvaried circumstances for similar non-payment, or short payment or erroneous refunds of duty/tax involving absence of collusion or willful misstatement or suppression of facts etc. in different statutes namely Customs, Central Excise and Service Tax.

The Bill proposes the following, in respective statutes for granting complete immunity from penal measures for the cases not involving fraud, collusion, willful misstatement, suppression and contraventions of provisions with the intention to evade duty, where duty and interest is paid:

Punitive Tax measures, as redefined in this Union Budget are the new pancakes in town, not affording ignorance toany taxpayer.The Bill has also proposed to unreasonably divorce the concept of ‘reasonable cause' as existing in Section 80 of the Service Tax, and contrary adding the Doctrine of “ any other reason than fraud collusion suppression etc… ”for imposing penalty on non-levy, short levy, and default in payments thereto or erroneous refunds of duties and taxes in Service Tax and Excise.

Coming to usage of the word ‘receipt' in customs, ‘issue' in central excise and ‘service' in service tax which has added the chaos flavor to this tax March. The department has assumed the words to be used interchangeably, however, in legal parlance the significance is high and distinction exists. One cannot presuppose and equate the Issue of Notice to Receipt or Service of Notice. With this context, we now move to the statute wise amendments for acute analysis of the wordsmith's efforts, as follows

1.Customs

….."Provided that where notice under clause (a) of subsection (1) has been served and the proper officer is of the opinion that the amount of duty along with interest payable thereon under section 28AA or the amount of interest, as the case may be, as specified in the notice, has been paid in full within thirty days from the date of RECEIPT of the notice, no penalty shall be levied and the proceedings against such person or other persons to whom the said notice is served under clause (a) of subsection (1) shall be deemed to be concluded.";

The insertion of above proposal provides if the amount of duty along with the interest has been paid in full within 30 Days from the date of RECEIPT OF NOTICE , no penalty shall be levied in the cases other than collusion, willful misstatement or suppression or provision contraventions with the intention to evade duty the penalty.

2.Central Excise

….. (1)(a) where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, for any reason other than the reason of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty , ……..

…. Provided that where such duty and interest payable under section 11AA is paid either before the ISSUE of show cause notice or within thirty days of ISSUE of show cause notice , no penalty shall be payable ……

On being compared to the Customs, one can see the difference of words, and for the identical case i.e. other than fraud collusion etc. the penal immunity in Excise is available on payment of duty and interest before Issue of SCN OR within 30 days of the ISSUE of SCN .Going by the literal meaning, the words ‘before issue of notice 'and‘within 30 days of issue of notice', has really no distinction, as the immunity remains same until 30 days. The considerable point for discussion is the ‘issue' used at the second stance of the paragraph, where the intent might have been to convey the receipt of notice but not expressed in right words.

3.Service Tax

“Section 76. (1) Where service tax has not been levied or paid, or has been short levied or short paid, or erroneously refunded, for any reason, other than the reason of fraud or collusion or wilful misstatement or suppression of facts…….

Provided that where such service tax and interest is paid within a period of thirty days of–

(i) the date of SERVICE of notice under sub-section (1) of section 73, no penalty shall be payable ;

To signoff the comparison, one needs to see the service tax provisions offering total penal immunity where the tax along with interest has been paid, in cases other than fraud, collusion, willful mis-statement or suppression. The benefit in such cases is available only when tax and interest is paid within 30 days of the SERVICE of Notice.

Tracing the other wrath interchange of words, Attention is also invited toTRU letter II annexed to budget documents, which has used the words interchangeably and treats the Issue of Notice as Service of Notice for the purpose of Section 76 of the Finance Act 1994 but not for the cases falling under Section 78 of the Act. However the Bill provides the words “Service of Notice” in both the cases and leaves no scope of interchange. In our understanding, TRU folks considered the Issue of Notice and Service of Notice as pipes and tubes i.e. synonymous in usage.

The word receipt not at all requires a deep pondering;and our prime concern revolves around the Issue / Service of Notice which (1) take the Assessee on a short time footing for seeking complete penalty waiver and (2) creates confusion when treated to be served and when issued.The sunshine of the next day or the undefined darkness of midnight may lead to loss of total penalty immunity, once the benchmark of 30 days is crossed in ambiguity of issue or service of notice.

Amusingly, Indirect Tax is not the only regime facing such difficulty over the words ‘issue of notice' or ‘service of notice', few sections of the Income Tax also bears the akin litigated character and have witnessed many proceedings, though unresolved.

One of the Jurisprudence in this context can be referred as held in the case of CIT v. Sheo Kumari Debi 1986 157 ITR 13 Patna , wherein full bench of Patna High Court had an occasion to consider whether the limitation provision of Section 149 of the Income-tax Act, 1961, envisages the issuance of a notice only, or its actual service subsequently on the assessee. Hon'ble High Court contrastedthe ‘Issue of Notice'and ‘Service of Notice' and its reference lends credence to the present discussion, the Court concluded;

++ In plain ordinary English, the word ‘issue' and the word ‘serve' are synonyms or identical in terms, but with great respect, it is not so.

++ Their plain dictionary meaning runs directly contrary to any such assumption.

++ Issuance of an order is not necessarily the service of an order on a person, nor vice versa is also true.

++ It would appear that the words ‘issue' and ‘serve' are distinct and separate.

++ The gap between the two may be wide, both in point of time and place.

++ An order or notice may be issued today, but may be served two years later.

++ An order or notice may be issued at one place and may be served at a point 1,000 or more miles away.

The ‘Service of Notice' commands cognizance of it in the hands of the Noticee and when used with reference of time, ideally mean time when the delivery of notice is complete. Unlike Service, Issue of Notice is seen as an incomplete process and with reference to time can be comprehended to happen when it is put in the course of transmission from sender's end or when the delivery is initiated. The expression “Service/Issue of notice” is in great turmoil of litigation andreceives a meaning as the time and purpose demands.

Issue of Notice is initiation of the delivery process and Service of Notice is the completion of delivery process irrespective of receipt of the same by the Noticee, if that be true then the chapter of litigation continues….

There should have been uniform usage of expression to accord complete penal waiver in all three statues where tax/duty and interest is paid i.e. within 30 days of the receipt of the Notice while leaving no scope of interchange of words. The authority has done the same in even fashion in usage of words at ‘receipt of Order' and ‘Communication of Order' thus conveying same meaning and opportunity.

(The author is Senior Analyst, Indirect Tax, PwC )