Lakshmi Kumaran & Sridharan AttorneysAn ISO 9001 / 27001 certified law firm

Service Tax – New rules for compounding & settlement notified

2nd June, 2012

New set of rules for compounding of offences and settlement of cases in respect of Service Tax have been notified. Introduction of such facilities for Service Tax cases along with issuance of rules similar to the Central Excise (Compounding of Offences) Rules, 2005 and the Central Excise (Settlement of cases) Rules, 2007, brings integration of Central Excise and Service Tax laws nearer. Such integration under Common Tax Code (CTC) for Central Excise and Service Tax is seen as a precursor to the proposed GST regime.

The Service Tax (Compounding of offences) Rules, 2012 prescribe specified compounding amounts in case of offences specified under Section 89 of the Finance Act, 1994. Immunity from prosecution can be obtained on payment of such amount as per the procedures laid down. The said section itself was introduced last year as part of Budget 2011 amendments when prosecution was introduced in Service Tax.

As per the provisions, compounding amount ranging from 10% to 50% of the amount of Service Tax evaded or Cenvat credit taken or utilized has to be paid when service is provided without issuing invoice or credit is taken and utilized without receipt of taxable service. In case of non-maintenance of records or refusal to supply required information, compounding amount of Rs. 50,000 will be payable for the first offence. For each such subsequent offence, the amount has to be increased by 100%. If Service Tax is collected but not paid to government account within specified period, compounding amount payable would range from 2% for each month of such non-deposit and up to 25% of such amount not deposited in time.

The provisions providing for settlement of Service Tax cases before the Settlement Commission were introduced this year in the Budget and have come into effect from 28th of May, 2012. New Service Tax (Settlement of Cases) Rules, 2012, as in Central Excise, provide for filing application accompanied by a fee of Rs. 1000.
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