SERVICE TAX (COMPOUNDING OF OFFENCES) RULES, 2012 – AN OVERVIEW.

[Mr. M. GOVINDARAJAN]

                        Section 94 (2)(i) of the Finance Act, 1994 gives power to the Central Government to make rules to provide for the amount to be paid for compounding and the manner of compounding of offences.  Section 9(2) of the Central Excise Act, 1944, which is also applicable to the service tax matters vide Section 83 of the Finance Act, provides that any offence under this Chapter, either before or after the institution of the prosecution, be compounded by the Chief Commissioner of Central Excise on payment, by the person accused of such compounding amount as may be prescribed.

                        Section 89 of the Finance Act, 1994 deals with offences and penalties.  Sec. 89 reads as follows:

89. Offences and penalties.—

(1) Whoever commits any of the following offences, namely,—

      (a) knowingly evades the payment of service tax under this Chapter; or

      (b) avails and utilizes 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

      (c) maintains false books of account or fails to supply any information which he is required to supply under this Chapter or the rules made there under or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or

      (d) 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, shall be punishable,—

           (i)  in the case of an offence where the amount exceeds fifty lakh rupees, with imprisonment for a term which may extend to three years :

          Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for a term of less than six months;

           (ii) in any other case, with imprisonment for a term, which may extend to one year.

(2) If any person convicted of an offence under this section is again convicted of an offence under this section, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to three years:

     Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for a term less than six months.

(3) For the purposes of sub-sections (1) and (2), the following shall not be considered as special and adequate reasons for awarding a sentence of imprisonment for a term of less than six months, namely :—

      (i) the fact that the accused has been convicted for the first time for an offence under this Chapter;

      (ii) the fact that in any proceeding under this Act, other than prosecution, the accused has been ordered to pay a penalty or any other action has been taken against him for the same act which constitutes the offence;

      (iii) the fact that the accused was not the principal offender and was acting merely as a secondary party in the commission of offence;

      (iv) the age of the accused.

(4) A person shall not be prosecuted for any offence under this section except with the previous sanction of the Chief Commissioner of Central Excise.”;

                      In exercise of the powers conferred by Section 94(2)(i) of the Finance Act, 1994 read with Section 9A(2) of the Central Excise Act, 1944 made applicable to service tax vide Section 83 of the Act, the Central Government made the ‘Service Tax (Compounding of Offences) Rules, 2012 (‘Rules’ for short) published by Notification No.17/2012-Service Tax, dated 29.05.2012.  The said rule came into effect from 29.05.2012 i.e., the date of publication.

                      According to this Rules the ‘compounding authority’ is the Chief Commissioner of Central Excise, having jurisdiction over the place where the offence under the Act, have been or alleged to have been committed.   Rule 2(f) defines the term’ reporting authority’ as the Commissioner of Central Excise or Commissioner of Service tax, having jurisdiction over the place where the offences under the Act have been or are alleged to have been committed or any other officer as may be authorized in this regard by the Chief Commissioner of Central Excise having jurisdiction over the place where such offences under the Act, have been or are alleged to have been committed.  Rule 2(b) defines the term ‘applicant’ as any assessee or any other person, but shall not include officers of Central Excise appointed for exercising the powers under the Act under Rule 3 of the Service Tax Rules, 1994.

                      An applicant may, either before or after the institution of prosecution, make an application under Section 9A(2) of the Central Excise Act in the form appended to these Rules to the compounding authority to compound the offence.  Where an offence under the Act has been committed at more than one place falling under the jurisdiction of more than one compounding authority, then the Chief Commissioner of Central Excise having jurisdiction over such place where the amount of service tax is more than the others, shall be the competent authority.

                      In the prescribed form the application is to furnish the following particulars:

• Details of adjudication order in relation to the case for compounding;
• Brief facts of the case and particulars of the offence(s) charged;
• Details of the show cause notice issued;
• Details of service tax demanded;
• Whether the show cause notice has been adjudicated;
• If yes, adjudication details;
• Amount of service tax confirmed;
• Amount of CENVAT credit to be recovered/denied;
• Penalty imposed;
• Whether this is the first offence under this Act;
• Whether any proceedings for the same offences contemplated under any other law, if so, then such details.

The application is to give declaration to pay the compounding amount as may be fixed by the compounding authority and he shall not claim as of right that the offence committed by him under this Act be compounded.

                      On receipt of the application the following procedure is adopted:

• The compounding authority shall call for a report from the reporting authority with reference to the particulars furnished in the application, or any other information, which may be considered relevant for examination of such application;
• The above said report shall be furnished by the Reporting authority within a period of one month or within such extended period as may be allowed by the Compounding Authority, from the date of receipt of the communication from the compounding authority;
• The Compounding Authority, after taking into the application and the report of the Reporting Authority, may, by order, either allow the application indicating the compounding amount payable and grant him immunity from prosecution or reject such application;
• The application shall not be rejected unless an opportunity has been given to the applicant of being heard and the ground of such rejections are mentioned in such order;
• The application shall not be allowed unless the service tax, penalty and interest liable to be paid have been paid for the case for which application has been made;
• The order copy shall be sent to the applicant;
• The applicant shall, within a period of 30 days from the date of receipt of order allowing the compounding offences, pay the compounding amount, as ordered by the Compounding Authority and shall furnish the proof of such payment to compounding Authority.

The compounding amount shall be as detailed below:

• Offence specified under Section 89(1)(a) – upto 50% of the amount of service tax evasion subject to minimum of 10% of the amount of tax evaded;
• Offence specified under Section 89(1)(b) – up to 50% of the amount of CENVAT credit wrongly taken or utilized, subject to minimum 10% of the said amount;
• Offence specified under Section 89(1)© - Rs;50,000/- for the first offence and to be increased by 100% of the amount for each subsequent offence;
• Offence specified under Section 89(1)(d) – Up to 25% of the amount of service tax not deposit subject to a minimum of 2% for each month for which the amount has not been so deposited.

If a person has committed offences falling under more than one category and where the amount of service tax or amount of CENVAT credit wrongly taken or utilized is the same for all such offences, the compounding amount, in such cases, shall be the amount as determined for the offence for which a higher compounding amount has been prescribed.

                      The Compounding Authority, if he is satisfied that any person who has made the application for compounding the offence has co-operated in the proceedings before him and has made full and true disclosure of facts relating to the case, grant such person, subject to such conditions as he may think fit to impose, immunity from prosecution for any offence under the Act, with respect to the case covered by the compounding of offence.

                      An immunity granted to a person shall stand withdrawn if such person fails to pay any sum specified in the order of compounding passed by the compounding authority within the time specified in the order or fails to comply with any other condition subject to which the immunity was granted and there upon the provisions of the Act, shall apply as if no such immunity had been granted.

                      An immunity granted to a person may, at any time, be withdrawn by the Compounding Authority, if he is satisfied that such person had, in course of the compounding proceedings, concealed any material particulars, or had given false evidence, and there upon the person may be tried for the offence with respect to which immunity was granted or for any other offence that appears to have been committed by him in connection with the compounding proceedings etc., and thereupon the provisions of the Act shall apply as if no such immunity had been granted.