R S Sharma : No penalty when service tax, interest paid before SCN
The sword of penalty continues to hang over the head of service provider if there is failure to pay service tax. But penalty can be avoided by the tax payer if he fulfills the conditions of Section 73(3) of the Finance Act,1994 as amended which provides that where any service tax has not been levied or paid or has been short-levied or short-paid, the person chargeable with the service tax, may pay the amount of such service tax, alongwith interest, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid.
Further vide Finance Act 2010 the following Explanation has been inserted in Section 73(3) :
“Explanation 2—For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service-tax under this sub-section and interest thereon”
Since the insertion of Explanation 2 in Section 73(3) of the Finance Act, 1994 has been done by an Explanatory amendment ; the amendment has retrospective effect and even the penalty levied for the past period is liable to be set aside by Appellate Authorities as the amendment merely clarifies the position and makes explicit what was implicit.
Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force.
In Brij Mohan Das Laxman Das Vs. Commissioner of Income Tax [(1997) 1 SCC 352] ; Explanation 2 added to Section 40 of the Income Tax Act from 1.4.1985 on a question on which there was divergence of opinion was held to be declaratory in nature by Supreme Court.
In Heydon’s Case, in 1584, it was resolved by the Barons of the Exchequer “that for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered: (1) What was the common law before the making of the Act (2) What was the mischief and defect for which the common law did not provide, (3) What remedy the Parliament hath resolved and appointed to cure the disease of the commonwealth, and, (4) The true reason of the remedy; and then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro private commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico”. In 1898, Lindley M.R: said: “In order properly to interpret any statute it is as necessary now as it was when Lord Coke reported Heydon’s Case to consider how the law stood when the statute to be construed, was passed, what the mischief was for which the old law did not provide, and the remedy provided by the statute to cure that mischief.” Although Judges are unlikely to propound formally in their judgements the four questions in Heydon’s Case, consideration of the “mischief” or object of the enactment is common, and will often provide the solution to a problem of interpretation.
It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended as held in Channan Singh Vs. Jai Kaur AIR 1970 SC 349
A proviso added from 1.4.1988 to Section 43 B inserted in the Income Tax Act, 1961 from 1.4.1984 came up for consideration by Supreme Court in Allied Motors (P) Ltd V. CIT AIR 1997 SC 1361 and it was given retrospective effect from the inception of the section on the reasoning that the proviso was added to remedy unintended consequences and supply an obvious omission.
It is high time adjudicating authorities follow the law in spirit as imposition of penalty, when tax and interest stands paid before SCN; is unwarranted litigation for taxpayers but a bonanza for Lawyers who relish taking litigation to High Court and Supreme Court. When I appeared before a Lady Commissioner; I was surprised to see Munshi of a lawyer appearing on behalf of the lawyer in an important matter before the Commissioner. I rang up to my lawyer friend to know why he did not appear before the charming Lady. The lawyer told me it is a sheer waste of time as one cannot expect any relief at this level. Who is responsible for this attitude? This question needs to be adjudicated by the Finance Minister.