INDIRECT TAXES

PROJECT ON
“PENALTIES UNDER
SERVICE TAX”
Submitted to: Submitted by:
Ravinder Singh Mitika(14bcom29)
Jeannie(14bcom20)
 PENALTIES UNDER SERVICE TAX

The Penalty Provisions under Service Tax, have been revamped altogether in the Budget 2015.
These Changes are effective from 14th May, 2015.

Penalty For Short Payment / Non Payment of Tax

A. SECTION 76

If the Short or non payment of Service Tax is for reason other than fraud, collusion, wilful mis-
statement etc. then a penalty under Section 76 is imposed.
Minimum Penalty :- Minimum penalty is not prescribed.
Maximum Penalty :- Upto 10% of the Tax Short paid.
If the amount of Service Tax demanded along with interest is paid within 30 days of the Show
Cause Notice served, then no penalty will be imposed and proceedings in respect of the said
short payment will be deemed to be concluded.
If the amount of Service Tax demand Confirmed along with interest is paid within 30 days of
receipt of the Adjudication Order, the penalty amount will be reduced to Twenty Five percent
of the Penalty imposed in the said Adjudication Order. The condition is that the amount of
reduced penalty is also paid within the said period of thirty days.
 B. SECTION 78

If the non payment or Short payment of Service tax is by reason of fraud, collusion, wilful mis-
statement etc. then penalty under Section 78 is imposed.

Summary chart of the new provisions is as follows:

Particulars Old Provisions New Provisions w.e.f 14.05.2015

u/s 76 (No Fraud) u/s 78 (Fraud)
Penalty 100 Rs per day or 1 % per Non discretionary Non discretionary Minimum
month from the date of Minimum Penalty of Penalty of 100% of Service
default 10% of Service Tax Tax
Liability. Liability.
Maximum ceiling 50% of the tax liability No maximum ceiling, No maximum ceiling.
implied 10%.
Waiver of Penalty No Waiver – Penalty could Complete waiver if Waiver of 85%, if Service Tax +
be dropped on grounds of service tax + Interest is Interest + 15% Penalty is
reasonable cause u/s 80. paid within 30 days of deposited within 30 days of
date of service of notice. service of notice.
Relaxation in Penalty No relaxation 75% penalty is waived if 75% penalty is waived if
after the order. Service Tax + Interest is Service Tax + Interest + 25%
paid within 30 days of Penalty is paid within 30 days
the order. of the order.
It should be noticed that section 80 which provided for waiver of penalty under reasonable
causes was first introduced in Finance Act 2012 and the same has been withdrawn by Finance
Act 2015 with the introduction of new provisions u/s 76 & & 78 of Finance Act 1994.
It is well established fact under Service Tax Law that penalty cannot be levied without the issue
of Show Cause Notice (SCN) to the assessee. Since the Finance Act 2015 has been enforced
from 14.05.2015, there are three different scenarios possible under which the penalty
provisions can be enforced, the details of which are as follows:

Situation Applicable Provisions

SCN issued after 14.05.2015 New Sections 76 & 78 shall apply
SCN issued before 14.05.2015 but order passed New Sections 76 & 78 shall apply as per the
after 14.05.2015 transitory provisions of Section 78B introduced by
Finance Act 2015
Order in original issued before 14.05.2015 Old Sections 76 & 78 shall apply subject to
reasonable cause u/s 80.