Power of arrest
Power of arrest in case of non payment of service tax
    Power of arrest in case of non payment of service tax

    In the case of Om Prakash 2011-TIOL-95-SC-CX held that all the offences under the customs and central excise are bailable. To overcome the said decision, Finance Act 2013 Recently in Budget 2013-14, arrest provisions have been introduced in service tax. So post the honeymoon period thanks to the Voluntary Compliance Encouragement Scheme, there have been a flurry of arrests for non payment of service taxes. Power to arrest is given in Section 91 of the Finance Act and is divided into cognizable and non cognizable offence.
    Non Cognizable and Bailable Offences
    o Amount of liability exceeds Rs. 50Lakhs
    o Knowingly evades the payment of tax
    o 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
    the Finance Act.
    o Maintains false books of accounts or fails to supply an information which he is required to
    supply or supplies false information.
    The term for punishment may extend to upto 3 years
    Cognizable and Non Bailable Offences
    o Amount of liability exceeds Rs. 50Lakhs
    o Collects any amount as service tax but fails to pay the amount to the credit of central
    government beyond a period of 6 months from the date on which the payment becomes due.
    The officer in charge of the service provider may face arrest in both these situations. Sec 73 of the Finance Act, 1994 allows the department to recover amounts for 5 years in case of non payment or short payment or incorrect refund on account of (a) fraud; or (b) collusion; or (c) wilful mis- statement; or (d) suppression of facts; or (e) contravention of any of the legal provisions with intent to evade payment of Service Tax. So the superintendent of service tax, anti evasion may combine the taxes for 5 years while calculating the default. So in case a service provider collects service tax but not pays it to the Central Government and the amount of service tax exceeds Rs. 50 Lakhs, the offence is Cognizable and non bailable i.e. the bail can only be granted by the Magistrate and not by any official of the Service Tax Department.
    Now the question arises that if the magistrate may grant him bail and if so, the situations under
    which he may do so??
    The stand of the department normally in this case (based on the cases so far) is that, since the service provider has collected the service tax but defaulted to the government, there is a possibility of further default and to allow investigation to proceed smoothly and so the officer in charge of the company should not be granted bail. However this is a fallacious argument. No value addition can be provided to the investigation by keeping the key management personnel behind bars. In fact the officer in charge would be in a better situation to submit all the documents necessary to complete the investigation.
    The Prosecution provisions have been introduced in Finance Act 2013. So can it be made applicable for non payment of service tax from the period April 2008 to March 2013? The answer is NO, since there is no mention that the prosecution provisions are retrospectively applicable. The Department has been wrongly applying arrest provisions U/S 91 retrospectively from the financial year 2008.
    Also recourse could be had to the fact that right to liberty enshrined in the constitution is violated due to abrupt arrest or to the fact that the arrested official does not have any criminal history or background and there is no scope of tampering with the evidence of the investigating authorities.
    However the service provider may have to pay 50% of the amount of service tax and/or furnish an affidavit stating that the assets of the service provider could be used to discharge the service tax liability in case of non payment subsequently. Fortunately, most of the magistrates have been granting bails to the arrested officials in such cases.
    Finally to avoid unnecessary invoking of these arrest provisions, the assessee is required to comply with the service tax provisions promptly. Further all details of the transactions should be intimated to the department at regular intervals to avoid the suppression or limitation points from the department side. In case of demand, approaching the settlement commission could also be an