Deemed conclusion under section 78a

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Deemed conclusion under section 78a
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• The budget, 2016-17 has fulfilled the wishes of
  the assessees to a great extent and one of the
  provision that is being welcomed by the assessees
  is the deemed conclusion of proceedings under
  section 78A of the Finance Act. This article is
  an attempt to discuss the amendment made in
  section 78A of the Finance Act.
• This section pertains to penalty on any director,
  manager, secretary or officer who is engaged in
  the day to day operations and conduct of business
  and was knowingly party to the contravention made
  by the organisation. The penalty provisions
  contained in the section 78A are produced for the
  sake of convenient reference as follows-

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• SECTION 78A. Where a company has committed any of
  the following contraventions, namely
• (a) evasion of service tax or
• (b) issuance of invoice, bill or, as the case may
  be, a challan without provision of taxable
  service in violation of the rules made under the
  provisions of this Chapter or
• (c) availment and utilisation of credit of taxes
  or duty without actual receipt of taxable service
  or excisable goods either fully or partially in
  violation of the rules made under the provisions
  of this Chapter or
• (d) failure to pay any amount collected as
  service tax to the credit of the Central
  Government beyond a period of six months from the
  date on which such payment becomes due, then any
  director, manager, secretary or other officer of
  such company, who at the time of such
  contravention was in charge of, and was
  responsible to, the company for the conduct of
  business of such company and was knowingly
  concerned with such contravention, shall be
  liable to a penalty which may extend to one lakh
  rupees.".
• The Finance Bill, 2016, proposes to insert an
  explanation in this section which reads as
  follows-
• "Explanation. For the removal of doubts, it is
  hereby clarified that where any service tax has
  not been levied or paid or has been short-levied
  or short-paid or erroneously refunded, and the
  proceedings with respect to a notice issued under
  sub-section (1) of section 73 or the proviso to
  sub-section (1) of section 73 is concluded in
  accordance with the provisions of clause (i) of
  the first proviso to section 76 or clause (i) of
  the second proviso to section 78, as the case may
  be, the proceedings pending against any person
  under this section shall also be deemed to have
  been concluded.".

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It is pertinent to explain the various provisions
referred in the explanation as follows- Clause
(i) of First Proviso to section 76- According to
this provision, if service tax along with
interest is paid within a period of 30 days from
the date of service of notice under section
73(1), no penalty shall be payable. Clause (i) of
the second proviso to section 78- According to
this provision, if service tax along with
interest and 15 penalty is paid within a period
of 30 days from the date of service of notice
under section 73(1), the penalty under section 78
will be restricted to 15 instead of 100. It is
submitted that it is very practical and common
that along with invoking provisions of section 76
or 78 of the Finance Act, personal penalties are
also proposed against the officers of the
organisation under section 78A of the Finance
Act. However, it would sound absurd if the
assessee being company or firm has concluded the
proceedings under section 76 or 78 whereas the
penalty proceedings are not settled with respect
to the concerned persons. Consequently, amendment
is being introduced by way of explanation wherein
it is clarified that if the proceedings have been
concluded according to the provisions of clause
(i) of the first proviso to section 76 or clause
(i) of the second proviso to section 78, then the
penal proceedings initiated against the officers
of the organisation will be deemed to have been
concluded as well. Similar provisions have been
incorporated in Central Excise Laws also under
Rule 26 of the Central Excise Rules, 2002. The
above provisions are highly appreciated by the
assessees as they seek to settle disputes and
reduce unwarranted litigation. Furthermore, the
incorporation of such provisions will re-build
the trust of the taxpayers in the revenue
administration and will definitely increase tax
compliance. The introduction of 'deeming
conclusion proceedings' are step towards the
objective of the government to rationalize tax
reforms so as to reduce litigation and develop a
stable and predictable tax environment.
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