The budget proposal of the Union Finance Minister to provide imprisonment to people who shall be in default of paying service tax exceeding Rs. 50 lakhs is very vague, discriminatory and will prove to be a major deterent to the economic growth. The criminal prosecution of future service tax defaulters is against the principle of natural justice and is also encroached the fundamental right of carrying smooth business activities.Such provision in the Union Budget has caused grave concern among the trade and commerce fraternity of the Country.In the recent yeara, the conversion of civil law into criminal law under the guise of protection of revenue is a unhealthy practice which will empower the administration with unqualified discritionary powers which will result into lead to de-growth of trade and commerce in the Country-said Mr. B. C. Bhartia, National President and Mr. Praveen Khandelwal, National Secretary General of the Confederation of All India Traders (CAIT), an apex body of the trading community of the Country said here in ajoint statement released today. In place of simplification and rationalisation of tax structure, the Government is emabrking upon more use of penal provisions which will prove to be much deterent in self compliance of the taxation system which is much more needed to widen the tax base, a priority listed by the Finance Minister in his budget speech. Contradictions between the priotity and provisions spelled out in budget will crush the spirit.Both direct and indirect taxation system needs total overhaul in order to make it more revenue and trade friendly, leading to self compliance resulting in to widen of tax base-said Mr. Bhartia and Mr. Khandelwal. The CAIT will support any such move of the Government.
Under the budget proposals, the Finance Minister has proposed that Section 89 is to be amended to prescribe imprisonment from 6 months, to 7 years. A new section 90 categorises such offences as cognizable and non-bailable. A new section 91 gives officers of the rank of Superintendent of central excise or higher, the power to arrest defaulters, in-line with the code of criminal procedure. The scope of criminal prosecution has been extended from defaulters of excise and customs duty, to those who default on service tax as well which has caused grave concern.
Both Mr. Bhartia and Mr. Khandelwal said that it is an admitted fact that the economy of the Country is in a very bad shape and therefore the payments of the goods sold are being received by the sellers in a peiod of not less than 4 to 6 months whereas as per the provisions, the seller is under obligation to deposit service tax within one month’s time. Complying of this provision means the seller has to deposit the service tax from his own kitty though the service tax has been charged in the invoice but it has not been received by the seller in actual terms and therefore how can the seller be construed as defaulter. Merely charging service tax in the invoice is in no way makes the seller a defaulter. The word defaulter in revenue terms implies where the revenue is actually received but not deposited in the Government treasurery. The Finance Minister has overlooked a fact that it is the buyer who is under obligation to pay the tax timely for the services enjoyed by him so that seller can deposit the same in time. But it is irony that buyer has been lined scot free to enjoy the capital of the seller, and claiming the input tax credit for the service tax allegedly paid by him though not actually paid. If at all the Finance Minister is serious, the onus should be lied on the buyer who is under obligation to pay the service tax charged in time.Both the trade leaders observed that in the recent past many new acts have been introduced or amendments in the existing acts have been made in utter disregard of the ground realties of the Indian trading system. The Food Safety & Standards Act, amendment in Money Laundering Act, proposed Goods & Services Tax and Direct Tax Code, New Drug Policy etc are some of the Acts which are based on business fundamentals of foreign countries and that is why they are irrational and cause of concern for the trading community. No consultation with traders on the Laws, Acts, Rules and Regulations concerning trade yet another factor which encourages dis-satisfaction amongst the business community. Further, punishment irrational to tax evasion is not the right policy. "The law and its implementation both are dubious leading to unqualified and vast powers at the hands of the officials which may lead to great harassment. The biggest concern is of the misuse of the law thus shaking the confidence of the law abiders. The CAIT has called for corective steps from the Government in consultation with stakeholders.