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Unit 7: Collection and Recovery of Service Tax and Assessment Procedure

(vii) Penal provisions do exist in respect of Service Tax also. Failure to obtain registrations, Notes
failure to pay the tax, failure to furnish the prescribed returns, suppression of the correct value
of the taxable services and failure to comply with notice do attract penal provisions as prescribed.
But, it is specifically provided that no penalty is imposable on the assessee for any of the above
failures, if the assessee proves that there was reasonable cause for the failure. This provision has
been inserted to take care of the genuine difficulties of the new assessees.
(viii) Service Tax Credit Rules, 2002, have been replaced by the CENVAT Credit Rules, 2004,
introduced by the Finance Act, 2004, where under CENVAT credit has been extended across the
sectors i.e. goods and services.

7.4 Non-recovery of Service Tax in certain situations

Service Tax is a relatively new tax and as with any new tax its understanding and correct
implementation may take time. This applies equally to the service providers and the tax
administrators. Therefore, it may so happen that a practice may develop regarding either the
levy or non-levy of the tax on a particular service, which may not be strictly legally correct. For
instance, it may so happen that in respect of a particular service the tax may not be levied or be
short levied on account of the practice. In this situation there is an apprehension that on discovery
of the fact of non-payment or short payment, the service providers would be burdened with
duty demands which would adversely impact them. On the other hand, Section 11 C of the
Central Excise Act, 1944 takes care of similar problem in the case of central excise duty by
empowering the Government to direct that in such situation the duty not paid or short paid shall
not be required to be paid. It is the view that like provision in respect of Service Tax would
bolster the confidence of the service providers.

7.5 Recovery of Service Tax

Sections 73, 73A to 73D and Section 87 provide for recovery of service tax under various
circumstances. Let us discuss the provisions made under each section separately.
Section 73: This section empowers the Central Excise Officer to serve notice to the person,
chargeable with service tax, which has been not levied or paid or short-levied or short-paid or
erroneously refunded. Time limit for serving a notice under this situation is ‘one year’ from the
relevant date. Definition of ‘relevant date’ is given at the end of this chapter.
In cases where service tax has been not levied or paid or short-levied or short-paid or erroneously
refunded by the reason of fraud; or collusion; or wilful mis-statement; or suppression of facts; or
contravention of any of the provisions of this Act or rules made there under with an intent to
evade payment of service tax, then the time limit for serving the notice is extended up to five
years.
Section 73(1A) provides for conclusion of adjudication proceedings in respect of a person to
whom a notice is served under the proviso to sub-section (1) of section 73 (i.e. deliberate evasion
of service tax), if such person voluntarily deposits the service tax demanded in full and the
interest payable thereon under section 75 and penalty equal to 25% of the service tax demanded,
the adjudication proceedings can be treated as conclusive.
Section 73A provides for voluntary payment by an assessee of any amount collected in excess of
the service tax leviable or recovery of any amount as representing service tax, that has been
collected by a person but not deposited with the Central Government.
Section 73B enables the Central Government to collect interest on the amount as determined
under sub-section (4) of section 73A at a rate notified by the Central Government. (not less than
10% but not exceeding 24% p.a.)

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