Revised Guidelines for Arrest for Failure in Service Tax Payment
Arrest provisions under Service Tax Act were first introduced by subsection (J) and (K) of section 103 Finance Act 2013 which introduced section 90 and 91 in the Finance Act 1994 and replaced section 89 of the Finance Act 1994. In the Finance Act 2016 vide section 155, 156 and 157 w.e.f. 14.05.2016, Sections 80, 90 and 91 have been amended in the Finance Act 1994.
As per the amendments, the power to arrest under Service Tax can be exercised only when the person collects the service tax and fails to deposit the same to the credit of Central Government beyond the period of 6 months from the date on which such amount falls due and the amount exceeds rupees two crore.
- Care should be taken while exercising these powers since arrest impinges personal liberty on an individual.
- The arrest shall be based on credible material that will stand for judicial scrutiny and there are reasons to believe that the person liable to arrest has committed such offence.
- Apart from fulfilling the legal requirement, it is needed to be ensured that no tampering with evidence or no intimidation of witness should be there, proper investigation should be done.
Department is continuously emphasizing since it is the single offence for which power of arrest exist therefore power should be used judiciously.
Conditions Precedent-Legal
There must be proper and clear noting in the file, bringing out all the evidences of the offence that has been committed. Noting must contain following evidences:
- Evidences of Service Tax amount collected – Copy of bills, invoices or contracts in which such service tax has been charged covering the period of investigation shall be kept as evidence in the file.
- Amount exceeds Rupees two crore
- Proper evidence of failure of deposit of such amount to credit of central government- ST-3 return filed by the assessee for the relevant period clearly stating the taxable value of service provided and service tax payable should be available in the file. If no return has been filed by the assessee then proper observation to have this effect should be made by the department.
- Failure should be for a period exceeding six months- Month-wise detail of invoices, service tax payment due date and the date on which 6 months’ period has expired must be kept
Reasons for introduction of such provisions are intended to bring uniformity in approach relating to these matters and ensuring the evidences are readily available for perusal of judicial body, when required.
Conditions Precedent – Factual
Even if all the above mentioned conditions are fulfilled, that does not mean that an arrest must be made. Once all the legal conditions are fulfilled, the commissioner must determine the answer of following question is yes or not.
- Is the alleged offender likely to hamper the further course of the investigation by his unrestricted movement?
- Is the alleged offender likely to tamper the evidences or intimidate or influence the witnesses?
If the answer of both questions is yes then decision of arrest can be made.
If the alleged offender assists in investigation and deposits at least half of such evaded tax, then there will be no need to arrest.
For procedure of arrest, post arrest formalities and reporting system guidelines issued vide Board Circular F.No. 137/47/2013- Service Tax dated 17.09.2013 may be referred.
To have uniformity in Service Tax and Central Excise Act corresponding amendments have been made in clause (a) and (b) of subsection 1 of Section 9 of Central Excise Act for arrest. Only in case of offence of misuse of Cenvat and evasion of central Excise Duty of more than two crore, it can be made.
No arrest shall be made when additional demand of duty/tax is based on interpretation of law.
Transitional Provisions
Transitional provision prescribed in section 11 of Circular No. 1009/16/2015-CX dated 23.10.2015 shall apply mutatis mutandis.
In cases where sanction of prosecution is made after issue of this circular, shall be dealt according to this circular, irrespective of the date of offence. Cases in which prosecution was sanctioned but no complaint has been presented in front of the magistrate, the prosecution authority shall have to review the case accordingly in light of new provisions of revised offences and monetary limit.
The power of arrest shall be exercised with great caution and responsibility since an arrest impinges on personal liberty of an individual.
