MARCH 16, 2015

By Rishabh Singhvi & S Rahul Jain

THE recent Budget has introduced certain amendments on the levy of penalty under the Customs, Central Excise and Service Tax laws. The amendment provides for different slabs of penalty under different circumstances depending on the existence of circumstances like fraud, collusion, willful suppression, etc (we can term them as 'act(s) of evasion') and the period within which the tax/duty (along with interest) is to be deposited with the Government Treasury (we can term it as 'relief period'). It is evident that the amendments have been introduced to induce the assessees to deposit the tax dues at the earliest instance available and avail the benefit of NIL/reduced penalty as against a full penalty of 100% of the tax evaded.

While the provisions introduced are more or less similar under the Customs, Central Excise and Service Tax laws, there seems to be some variance on the starting point for calculation of the relief period. In this article, we are addressing the limited issue on point in time from which the clock for availing the benefit of the reduced penalty starts ticking.

On going through the provisions of Section 11AC, Section 76 & 78 and Sections 28, 112 and 114 of the Excise, Finance Act and Customs Act respectively, various terms such as 'service', 'Receipt', 'issue' and 'communication' have been used. The summary of the penalty provisions under the said statutes have been tabulated below:

It is well settled that terms in a statute should be understood in the context in which it is used. Moreso, where different terms in relation to the same subject matter are used, the presumption is that they are not used in the same sense. Therefore, it becomes necessary that these phrases are examined in detail.

Date of 'Service' or 'Receipt'

Section 37C of the Central Excise Act, 1944which is also extended to the Service Tax law sand Section 153 of the Customs Act, 1962provides for the manner in which a notice or order is served. The sections also provide that a decision, order etc tendered or delivered by post would be deemed to be served on the date on which it is so tendered or delivered by post.

Where a notice or decision is served as per the stipulation in the above section, the notice or order can be said to be received by the assessee.

Having so discussed, the law does not provide for cases when a notice or order can be said to be 'issued','received' or 'communicated'. To understand one has to look into the judicial pronouncements made in this regard.

Date of 'Issuance'

The term 'Issue of Notice' has been examined by the Hon'ble Supreme Court in the case of R.K. Upadhyaya 1987 166 ITR 163(SC). In this case, the Court made a clear distinction between the terms 'issue of notice' and 'service of notice' used in Sections 147, 148 and 149 of the Income Tax Act, 1961 and held that condition of 'issue of notice' would be satisfied when a notice was actually issued, in this case the date when registered post was sent by the officer.

Date of 'Communication'

In an occasion pertaining to the Motor Vehicle Act, Hon'ble Apex Court in case of Sri Nand Singh 1979 (4) ELT J510 (S.C) was deciding on whether an order is said to be communicated on the date when RTO communicated the order or the date when the Assessee received the order. The Court, relying on a landmark decision of Raja Harish Chandra Raj Singh 1962 1 SCR 676 held that date of communication would be the date when the order is known directly or constructively to the party who is affected by the Order.

Conclusion

Having noted that different terminologies have been consciously used by the Legislature for different provisions, one may be inclined to adopt the literal and strict meanings of the said terms. This may give varying results depending on the facts of the case. However, in our humble view, the purpose of the amendment (as also stated above) is to grant a relief from penalty where tax dues are deposited at the earliest. Keeping this intention in mind, the relief period should ideally be calculated from the date on which the assessee comes to know of the tax proposal / demand being raised on him (i.e. date of service) which effectively allows him time to take a decision to deposit the tax proposed/ demanded and limit the exposure to penalty. It is incumbent on the industry to urge the CBEC to issue necessary clarifications to this effect.

(The authors are associated with Lakshmi kumaran & Sridharan, Chennai)