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Budget 2013: Govt seeks to get tougher on service tax, customs violations
March, 04th 2013

Finance minister P Chidambaram has inserted at least half-a-dozen provisions in the Finance Bill to make certain offences related to customs and excise duty non-bailable, while providing for arrest for violation of service tax, raising fresh concerns over powers being vested with revenue authorities.

For instance, for offences related to service tax evasion - especially for non-payment of collected service tax - a commissioner rank officer can order arrest. So, if an airline or a restaurant collects service tax from customers but doesn't deposit it with the tax department, the service provider can be arrested in future.

Similarly, in case of customs duty there are at least four cases where the government has proposed to make offences non-bailable under section 135 of the Customs Act.

Duty evasion or even "attempted evasion" of over Rs 50 lakh has now been made non-bailable. Similarly, failure to properly disclose import or export of goods worth over Rs 1 crore will face the same treatment as will fraudulently claiming drawback or exemptions.

Duty evasion over Rs 50 lakh? No bail

In case of the Central Excise Act, the Finance Bill has proposed to amend the law to make duty evasion or improper availment of Cenvat credit of over Rs 50 lakh cognizable offence and also non-bailable. Cenvat credit refers to taking credits or seeking refunds for excise paid by a vendor of product.

"Section 91 (for service tax) is a retrograde step. The government is trying to squeeze service tax payers to increase collections by 45% to Rs 1.8 lakh crore," said Bishwajit Bhattacharya, a former additional solicitor general. He said the powers for prosecution had been removed from the statue several years ago and were now being brought back.

For the industry, the bigger fear is misuse of the provisions by junior officers. "The government will have to ensure that the powers are not used to harass taxpayers. But in general, it goes against the intent of ushering in a non-adversarial tax regime," added Pratik Jain, partner at consulting firm KPMG.

Over the years, when it came to economic offences the government had started shifting to a simpler regime but over the last two years the trend seems to be changing.

Even last year, Pranab Mukherjee's move to increase the powers with customs and excise officials had come in for criticism. As a result, the government dropped its plans to make certain violations of the customs and excise laws cognizable and non-bailable.

Highlights

Service tax: New provision to arrest for non-payment of service tax

Excise duty

* Extend imprisonment term to 7 years, with fine, if leviable duty is over Rs 30 lakh

* If duty liability crosses Rs 50 lakh, govt plans to make the offence cognizable and non-bailable

Customs duty

* Evasion, attempted evasion of specified type made non-bailable if duty exceeds Rs 50 lakh

* Availing drawback or other exemptions of over Rs 50 fraudulent made non-bailable offence

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