Huge penalty for service tax violations

Eyeing a massive Rs 34,500 crore (Rs 345 billion) revenue from service tax in the next fiscal, the Budget has proposed to strengthen the penal provisions for service tax.

"The government has proposed to bring Rules for Valuation under service tax. Provisions similar to what we have under central excise are being made," service tax expert J K Mittal told Business Standard.

The valuation rules include provisional attachment of properties for six months to two years during pendency of any service tax case under Section 73C of the Finance Act.

There is also a provision for publishing the names of persons relating to any proceedings under Section 73D.

Similarly, Section 76 (which provides for penalty for failure to pay service tax) is being substituted with a new Section 76 under which a penalty at the rate of Rs 200 would be imposed for every day of failure to pay service tax or at the rate of two per cent of the tax per month, whichever is higher, in case of failure to pay the tax by the due date.

Practicing chartered accountants, cost accountants and company secretaries will now have to pay a service tax for all services barring accounting, auditing and statutory certification services.

Similarly, sponsorship for an event provided by a company, including media sponsorship, will attract a service tax of 12 per cent.

Mittal said the service sector would benefit from the government's decision to give powers to the Advance Ruling Authority for determination of the liability to pay service tax on a taxable service.

"That means that the advance ruling authority can now decided whether service tax is applicable on a particular activity or not rather than merely determining if an activity was liable to service tax or not," he said.

Mittal pointed out that the Budget had also amended the abatement notifications to disallow credit of service tax paid on input services.

"There is no rational for this, as abatement is provided for the value of goods/ material involved in the service contract. How can the credit of service tax on input service be disallowed when it was allowed till February 28," he said.

The government has proposed to frame rules for services provided from outside India but received in India on the line of the Export of Services Rules, 2004. Services received and consumed outside India will not be taxable, Mittal said.