1. Amarchand & Mangaldas & Suresh A. Shroff & Company
Service Tax: Advance Rulings, Appeals, Interest, Penalties and Prosecutions
Mekhla Anand
Amarchand & Mangaldas & Suresh A. Shroff & Company
July 2, 2011

2. Agenda Advance Rulings (‘AAR’) Appellate Remedies in Service Tax
Interest
Penalties
Prosecution

3. Advance Rulings

4. Advance Rulings : Scope
Definition
Determination of a question of law or fact by an authority with respect to the liability to pay service tax in relation to a service proposed to be provided by the applicant
Objectives
Trade facilitation measure
Determination of tax liability prior to commencing business
Avoid long drawn litigation
Relatively expeditious

5. Advance Rulings : Scope
Questions entertained
Classification
Valuation
Applicability of exemption notifications
Admissibility of cenvat credit
Liability to pay service tax
Questions not entertained
Those based on a hypothetical situation
Where services are ongoing
Taxability of a particular service
Pertaining to circulars
Those already pending before the authority
Those which have already been answered by the authority

6. Advance Rulings : Who Can Apply?
Permitted Applicants
Joint Venture
Non resident setting up in collaboration with another Non residents/resident
Resident setting up in collaboration with non resident
Any joint venture in India
Wholly owned Indian subsidiary of a foreign holding company
Any other category notified by the Government
Public Sector Companies

7. Advance Rulings: Procedure
Application
Application to be filed in prescribed form, with valid verifications along with filing fees
Details of questions proposed and applicant’s analysis to be provided
Applicant permitted to withdraw application within 30 days
Examination
Application forwarded to the jurisdictional Commissioner
Commissioner to provide relevant records
Admission
AAR may admit or reject the application after examination
Applicant to be given a reasonable opportunity to be heard before rejection
Acceptance/rejection to be communicated

8. Advance Rulings: Procedure
Hearing
AAR can call for additional information, where necessary
Additional facts/ questions can be admitted at the AAR’s discretion
AAR to hear applicant as well as the Commissioner
Default in appearance could result in an ex-parte order
Ruling
AAR to pronounce a ruling within 90 days of receipt of a defect free application
Order to be in writing
Copy to be provided to the applicant/ Commissioner at the earliest
Appeal
Writ petition filed before the High Court
Special Leave Petition (SLP) filed before the Supreme Court
Writ / SLP can be filed either by the applicant or the tax authorities

9. Advance Rulings: Key Considerations
Binding nature
Binding on both the applicant and the tax authorities
no change in the factual matrix or in the law
limited to the transaction in respect of which the ruling was obtained
Advance rulings are not binding on other tax payers; however rulings do have a persuasive value
Other Considerations
No limitation on the duration of validity of the advance ruling
Can be declared void ab initio in cases of fraud or misrepresentation of facts
No obligation on the service provider to undertake the activity proposed

10. Appellate Remedies in Service Tax

11. Appeal to Commissioner (Appeals)
Who can appeal
Any person aggrieved by any decision or order passed by an authority subordinate to the Commissioner may appeal to Commissioner (Appeals)
Commissioner may also examine records of a proceeding and request his subordinate to file an appeal
Where adjudicating authority makes an application against an order of the Commissioner Central Excise, such application to also be treated as an appeal
Limitation period
three months from the date of receipt of the order
Extendable by another 3 months at discretion of the Commissioner (Appeals)

12. Appeal to Commissioner (Appeals)
Appeal to be filed in prescribed form. Separate application for condoning delay/waiver of pre - deposit
Personal Hearing and determination of appeal
Proper speaking order to be passed taking into account grounds of appeal
Commissioner (Appeals) to pass any order as he thinks fit, including an order enhancing assessment and remand
Enhancement order not to be passed without reasonable opportunity being given to assessees

13. Appeal to Tribunal Who can appeal
Any person aggrieved by order of Commissioner or Commissioner (Appeals)
Committees consisting of two Chief Commissioners or two Commissioners of Central Excise may direct Commissioner/Commissioner (Appeals) to file appeal to Tribunal if it objects to any order passed by Commissioner
Limitation period
Appeal to be filed within three months of receipt of the order
Tribunal may condone delay in filing of appeal

14. Appeal to Tribunal Filing Appeals to be filed in prescribed form
Separate application for waiver of pre- deposit and condoning delay
To be filed in quadruplicate
Fees
Rs.1,000/- where demand is upto Rs.5 lakhs
Rs.5,000/- where demand is more than Rs.5 lakhs and upto Rs.50 lakhs
Rs.10,000/- where demand is more than Rs.50 lakhs
Department not required to pay any fees
Objections
The other party can file cross-objection within 45 days of notice in ST -6

15. Appeal to High Court/Supreme Court
On questions relating to classification or valuation, appeal lies to the Supreme Court from the order of the Tribunal
On all other issues, appeal lies to the High Court from the order of the Tribunal, if the case involves substantial question of law
Appeal to the High Court within 180 days from the date of receipt of the order of the Tribunal
An appeal lies to the Supreme Court from the order of the High Court

16. Interest

17. Interest Section 75 of the Finance Act 1994 (“Act”)
Interest on delayed payment of tax
Section 73 B of the Act
Doctrine of unjust enrichment
Interest recoverable
Rule 14 of the CENVAT Credit Rules, 2004 (“Rules”)
Where any CENVAT credit has been taken or utilised wrongly or refunded erroneously

18. Interest Rate of Interest
Simple interest between 10% and 24% per annum as may be prescribed
Interest rate revised to 18% per annum vide Budget Announcements
Reduced rate of 15% per annum for small service providers i.e. those below threshold of INR 60 lakhs for the last preceding year or period covered in notice
Mandatory levy
Interest under service tax is a mandatory levy

19. Calculation of interest
Payable for the period of default
Suppose service tax of INR 10,000/- was due
Due date of payment was 05/04/2011
Payment made on 02/07/2011
Period of default (P) = 88 days
Rate of interest(I) = 18%
Interest would be calculated as follows
Interest=P*I*Service Tax due
365
i.e. 88*18%*10,000 = INR 434

20. Interest: Key Considerations
Calculating period of default
Payment made by cheques
In case of a stay obtained from appellate authority
retrospective operation of law
Tax is paid prior to issuance of a show cause notice
Can interest be demanded in absence of tax liability No
Paid in excess
Doctrine of unjust enrichment not applicable
Adjustment of excess tax

21. Penalties

22. Penalties Payable over and above service tax and interest
Not mandatory
Where reasonable cause is proved, mitigation available under Section 80 of the Act
Provisions revised vide Finance Act, 2011
Monetary limits revised
Mitigation provisions in case records maintained

23. Penalty Provisions Provision Particulars Penalty 70
Delay in filing returns
INR 20,000/- 76
Failure to pay service tax
INR 100 per day during which failure continues or 1% tax per month whichever is higher
Capped at 50% of the value of service tax
Penalty order required to be a speaking order

24. Penalty Provisions Provision Particulars Penalty 77
Penalty for specified contraventions:
Failure to get registered
INR 10,000/- or INR 200/per day whichever is higher
Failure to furnish information, produce documents or appear before Central Excise Officer
Failure to keep, maintain and retain books of accounts
INR 10,000/-
Failure to pay tax electronically
Issuance of invoices with incorrect or insufficient details or non accounting thereof

25. Penalty Provisions Provision Particulars Penalty 78
Suppression of taxable value on account of
Fraud
Collusion
Willful misstatement
Suppression of facts
Intention to evade tax
Equal to the amount of service tax
Mitigation available where true and complete information captured to 50% of the tax amount
Where tax is paid within a period of one month along with interest and penalty: amount reduced to 25% of the tax amount
For small service providers time period for payment of tax amount and penalty increased to 90 days
Penalty under Section 76 and Section 78 mutually exclusive
Waiver of penalty under Section 80 only where records maintained

26. Prosecution Provision Particulars 89
Provision or receipt of service without issuance of an invoice
Availment and utilisation of CENVAT credit without actual receipt of inputs/input services
Maintaining false books of accounts or failure to supply any information or false information
Non payment of service tax collected for a period more than 6 months
Punishment
If amount > 50 Lakhs – Imprisonment upto 3 years
Others – Imprisonment upto 1 year
No power of arrest
Prosecution can be launched only with the approval of the Chief Commissioner

27. Thank You