Service tax penal provisions to be used sparingly: FinMin

Allaying fears of the industry over introduction of harsh provisions in the service tax rules, a senior Finance Ministry official has said they will be used sparingly against willful defaulters.

"Prosecution is not something that is necessarily going to be lodged in service tax issues. It will be resorted to only in very limited matters and that too in very rarely defined aspects of willful defaulters," Revenue Secretary Sunil Mitra said while replying to the concerns raised by the industry here.

Finance Minister Pranab Mukherjee in the Budget proposed provisions for prosecution of service tax defaulters and raised the penalty for delay in filing of return from Rs 2,000 to Rs 20,000.

The philosophy behind the new provisions, Mitra said, is to give incentives for voluntary compliance and punish "willful defaulters".

Mukherjee, while introducing the new service tax provisions had said, "deliberate evaders with unrecorded business transactions will be dealt with more severely."

The government proposes to prosecute those who provide service without invoice and file false information. Non-payment of collected amount of service tax for a period of more than six months and misuse of CENVAT credit would also attract prosecution.

The sanction of prosecution will be granted at the level of chief commissioner of service tax.

The government also proposes to double the maximum penalty in case of evasion to Rs 10,000 and giving powers to issue search warrant at the level of joint commissioners.

A new section is also being inserted into the Service Tax Act to create first charge on the property of the defaulters for recovery of service tax due from them.

In his speech, Mukherjee had said the thrust of government is to encourage voluntary compliance of service tax regulations.

"A key component of this strategy would be to treat less harshly those who have maintained truthful records but have fallen short of discharging their tax liability," he said.