Penalty provisions under the Finance Act, 1994 (Service Tax) and Central Excise Act, 1944 have been rationalised vide the Finance Act, 2015. Such provisions have been effective from May 14, 2015.

Cases not involving where fraud or collusion or wilful mis-statement or suppression of facts or contravention of the provisions with the intent to evade payment of Service Tax
Before May 14,2015	Onwards May 14,2015
No penalty provided that the amount of Service Tax and interest is paid before the SCN under Section 73(1). Further, in case Service Tax is paid immediately after issuance of SCN, however, before adjudication thereof, though there is no direct benefit, however, it can be prayed that the benefit of second proviso to Section 78 (25 per cent of the Service Tax amount) should also be given.	No penalty is to be paid even if Service Tax and interest is paid within 30 days from the date of service of notice under Section 73(1)
Penalty upto 25 per cent where during the audit/ investigation/ verification it is found that any service tax has not been paid [such amount along with interest shall be paid before issuance of SCN under Section 73(1)]	Omitted
As per Section 76- One hundred rupees for every day during which such failure continues or at the rate of one per cent of such tax per month whichever is higher	Not exceeding 10 per cent of the amount of such Service Tax. However, penalty payable shall be twenty five per cent of the penalty imposed in the order issued under Section 73(2) if the reduced penalty along with Service Tax and interest thereon is paid within 30 days of receipt of order (same provisions will be applicable on modified penalty where the Service Tax demand gets reduced by the Appellate Authority)
Cases involving where fraud or collusion or wilful mis-statement or suppression of facts or contravention of the provisions with the intent to evade payment of Service Tax
Penalty upto 25 per cent where during the audit/ investigation/ verification it is found that any Service Tax has not been paid [such amount along with interest shall be paid before issuance of SCN under Section 73(1)]	Omitted
Further, in case Service Tax is paid immediately after issuance of SCN, however, before adjudication thereof, though there is no direct benefit, however, it can be prayed that the benefit of second proviso to Section 78 (25 per cent of the Service Tax amount) should also be given.	Penalty shall be 100 per cent of the Service Tax demand, however, penalty shall be reduced to 15 per cent, if service tax and interest is paid within 30 days from the date of service of notice under Section 73(1) provided that the reduced penalty is also paid within 30 days
As per Section 78- Penalty shall be 100 per cent of the Service Tax demand, however it shall be reduced to fifty per cent of the Service Tax if true and complete details of the transactions are available. Further penalty shall be reduced to 25 per cent, if the Service Tax, interest and reduced penalty is paid within 30 days from the date of receipt of order	Reduced penalty equal to 25 per cent of penalty imposed by order, if the Service Tax, interest and reduced penalty is paid within 30 days from the date of receipt of order (same provisions will be applicable on modified penalty where the Service Tax demand gets reduced by the Appellate Authority)

Consequent to the amendments made to Section 73, 76 and 78 of the Finance Act, 1994 and Section 11AC of the Central Excise Act, 1944 vide Finance Act, 2015, field formations have sought certain clarifications with regard to detections made during audit, investigation or scrutiny. Keeping in mind the need to reduce litigation as well as paperwork and compliance formalities, the Central Board of Excise and Customs vide Instruction F. No. 137/46/2015-ST dated August 18, 2015 has issued following clarifications:

Doubt: Does a SCN have to be issued in a case involving the extended period of limitation, where the assessee pays the tax/duty, interest and 15% penalty as prescribed?

In a case involving the extended period of limitation, if an assessee pays the service tax/central excise duty, interest and penalty equal to 15% of the tax/duty and makes a request in writing that a written SCN may not be issued to them, then in such cases the SCN can be oral and the representation (if he desires) against it also oral. In other words, an assessee can request for an informed waiver of a written SCN.

The Supreme Court in the case of Commissioner of Customs, Mumbai versus Virgo Steels reported in 2002(141) E.L.T 598 (S. C.) = has held that from the ratio laid down by the Privy Council and followed by this Court in the above cited judgments, it is clear that even though a provision of law is mandatory in its operation if such provision is one which deals with the individual rights of person concerned and is for his benefit, the said person can always waive such a right.

Although this decision is in relation to Section 28 of the Customs Act, 1962. The principles laid down are equally applicable to SCNs issued under other statutes. Hence, an assessee can waive the requirement of a written SCN.

Further, Section 124 of the Customs Act, 1962 provides, inter alia, that no order confiscating any goods or imposing any penalty on any person shall be made unless the owner of the goods or such person is given a notice in writing, an opportunity of making a representation in writing and a reasonable opportunity of being heard. The section also provides that the notice and the representation may, at the request of the person concerned, be oral. This provision has been made applicable to the Central Excise Act, 1944 vide notification number 68/63-Central Excise dated 04.05.1963 issued under Section 12 of the Central Excise Act. 1944. The said section of the Central Excise Act is also applicable to Service Tax vide Section 83 of the Finance Act, 1994.

If the grounds on which the department feels that there has been short/non-payment of tax/duty are intimated to the assessee orally with its quantification and the assessee indicates in writing that he has been informed about such grounds and he accepts the grounds and the quantification and is waiving the requirement of a written SCN, then a written SCN need not be issued.

Further, Section 78 of the Finance Act, 1994 and Section 11AC of the Central Excise Act 1944 refer to a thirty day period, from the date of service of the notice, within which the assessee may make the payment of tax/duty, interest and reduced penalty of 15%. In case the assessee makes a written request for waiver of a written SCN, the thirty day period can be computed from the date of receipt of such a letter by the department.

There is no bar on an assessee making the payment of tax/duty, interest and reduced penalty of 15% even before the date of receipt of such a letter by the department. Such an assessee cannot be placed on a worse footing than one who pays tax/duty, interest and reduced penalty of 15% within 30 days of the receipt of the SCN/receipt of letter by the department.

Doubt: Who is competent to order conclusion of proceedings if the conditions meriting conclusion of proceedings are fulfilled?

Conclusion of proceedings may be approved by –

• An officer equal in rank to the officer who is competent to adjudicate such cases.
• Officers of DGCEI/Executive Commissionerate/Audit Commissionerate, as the case may be.

If multiple issues involving different monetary values arise from the same proceedings, then the sum total involved in all the issues arising from the same proceedings should be considered for conclusion of proceedings. The conclusion of proceedings should invariably be intimated to the assessee in writing. There is no need to issue an adjudication order. Further, there is no need to undertake review of such conclusion of proceedings.

It is further clarified that as per section 73(3) of the Finance Act, 1994, in cases not involving fraud, suppression of facts, etc, if the assessee pays the tax and interest thereon, on the basis of his own ascertainment or that ascertained by the department, no penalty is payable and no show cause notice shall be served under sub-section (1) of section 73 in respect of the amount so paid. Further, as per provisions of clause (i) of proviso to Section 76, in such cases not involving fraud, suppression of facts, etc, if the tax and interest thereon is paid within 30 days of the issuance of SCN, no penalty shall be payable and the proceedings shall be deemed to be concluded. These two provisions have to be read harmoniously to conclude that in cases not involving fraud, suppression of facts, etc, if the assessee pays the tax along with interest, either within 30 days of issuance of SCN or before the issuance of SCN, then in such cases proceedings shall be deemed to be concluded. Legal provisions for similar closure in Central Excise are present in clause (a) of sub-section (1) of section 11 AC of the Central Excise Act, 1944.

http://www.servicetax.gov.in/st-circulars-home.htm