Monetary Limits of Arrest in Service Tax

Power tends to corrupt, and absolute power corrupts absolutely. Prior to 2013 there was no power to arrest vested in Service Tax officers, later on they were provided powers to arrest and prosecute Service Tax evaders. Any unchecked power is likely to be abused. The Finance Act 1994, as amended in 2013, has specified categories of offences in respect of which only, powers of arrest may be exercised and these offences are covered under clause (i) or clause (ii) of sub-section (1) of section 89. Further, the Finance Act 1994 had also prescribed value limits of evasion of service tax exceeding Rs. 50 lakh, for exercising the powers of arrest.

However, it was noticed that with power to recover Service Tax upto five years and continuous inflation during last few years, many assessee were covered within the above limit of Rs.50 Lakhs. Thus many a times it was observed that relatively small assessee were coerced into making payments because of fear of arrest. The CBEC has noticed such irregularities and thus, The Central Board of Excise and Customs has instructed all their officers that since, arrest impinges on the personal liberty of an individual, this power must be exercised carefully.

Notwithstanding the above limit, prosecution can be launched in the case of assessee habitually evading tax/duty or misusing Cenvat Credit facility. An assessee would be treated as habitually evading tax/duty or misusing Cenvat Credit facility, if he has been involved in three or more cases of confirmed demand (at the first appellate level or above) of Central Excise duty or Service Tax or misuse of Cenvat credit involving fraud, suppression of facts etc. in past five years from the date of the decision such that the total duty or tax evaded or total credit misused is equal to or more than Rs.1 Crore.

CBEC vide its another Circular No. 1009/16/2015-CX dated 23.10.2015 has prescribed that Sanction of prosecution has serious repercussions for the assessee and therefore along with the above monetary limits, the nature of evidence collected during the investigation should be carefully assessed. The evidences collected should be adequate to establish beyond reasonable doubt that the person, company or individual had guilty mind, knowledge of the offence, or had fraudulent intention or in any manner possessed mens-rea (guilty mind) for committing the offence.

Now, with such clear guidelines, CBEC has made sure that habitual offenders are not let off easily and at the same time only in cases involving duty or tax of Rs.1 Crore the arrest provisions will be applicable. These Circulars will definitely help the medium sized assessee from the threat of arrest.

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