The Service Tax provisions are considered as softer in comparison to other indirect tax laws. However, when the demand raised against the assessee is more than Rs. 50,00,000/- (ruppees fifty lakhs) there are certain provisions which enable the government to prosecute such an assessee. Prosecution mainly takes place under section 89 and 90, whereas Section 91 of the Finance Act, 1994 deals with the provisions regarding arrest of a person.
Power to arrest under the provision of the Finance Act was removed in the year 1998 and was reintroduced in the year 2013. The Commissioner through an officer of the Central Excise, not below the rank of Superintendent, can launch an arrest only when he has reasons to believe that an offence has been committed under section 89(1)(i) or (ii) of the Finance Act, 1994. Any person arrested under Section 91 can be released on bail by any Assistant Commissioner or a Deputy Commissioner in a similar manner that a person is released on bail from a Police Station by a Police Officer.
Section 89 of the Finance Act 1994, provides with the basic reasons for initiating a prosecution against an assessee and the same was mainly introduced to develop a holistic compliance culture among the tax payers. Encouraging voluntary compliance and introduction of penalties based on the gravity of offences are some important principles which guide the changes made in the year 2013-2014, in the penal provisions governing service tax. While minor technical omission or commission has been made punishable with simple penal measures, prosecution is meant to contain and tackle certain specified serious violations.
Offences such as knowingly evasion of payment of service tax, availing and utilizing credit without actual receipt of taxable services either fully or partially in violation of the rules prevailing under the provisions of service tax, maintaining false books of account or failing to supply information, where the amount due is more than Rs.50,00,000/- (rupees fifty lakhs), are non-cognizable or bailable offences. Such offences would be punishable with a period of imprisonment of not less than 6 months and not exceeding 3 years. Secondly if an assessee collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due then the same would be considered as a cognizable or a non-bailable. Suh offences are punishable with a period of imprisonment for not less than 6 months and not exceeding 7 years where the amount due to be paid exceeds Rs.50,00,000/-.
Though the provision of service tax is considered to be assessee friendly in nature, the assesse shall be vigilant and shall avoid the harshness shown by the law at times. It is well said that prevention is better than cure and the same should be followed dealing with the Service Tax department.