Wednesday, July 2, 2008

Attachment of property under service tax

Introduction:
The soft culture of service tax law is now being demolished and a new harsher face of the taxmen is coming forward.

Notification 30/2008 issued on 1.07.2008 has activated the section 73C of the Finance Act, 1994 whereby attachment of movable as well as immovable property can be undertaken by the authorities. I agree that penal sections are needed in any taxation law but such sections need to be and feel democratic and follow the path of natural justice and must not only smack of being democratic.

The history:
Section 73 C of the Finance Act, 1994 which was introduced by Mr. Chidambram (who else) in 2006 budget whereby he had empowered the tax authorities to attach the properties if required but rules of procedure for the same were not prescribed till now, which he has done - should we suspect that to meet the revenue targets and thereby contain the deficit he is becoming desperate.

The scheme
In the newly introduced notification the power of attachment is eventually given to the highest administrative authority - the Chief Commissioner of central excise who will be sent a proposal by the AC or DC alongwith all details. The CCE will give a hearing to the concerned assessee and if the assessee does not respond within 15 days or if the response does not satisfy the CCE his property is due to be attached.

Shockingly the timing of the beginning the attachment proceedings is what is mind boggling - the attachment procedure can begin as soon as a Show cause notice (SCN) u/s. 73 or 73A are issued. Section 73 in short stands for Wilful suppression, fraud etc and thereby not paying service tax and section 73A deals with unjust enrichment. So even if hearings after the SCN are pending (which hilariously in some cases are pending since 2005) still the authorities can go ahead and attache the properties.

What can be Attached
Many assessee's in such situations ask WHAT CANNOT BE ATTACHED - i will answer that in a moment.
  • The attachment can be of Movable as well as immovable property of the assessee in default.
  • The authorities can attache only that much property which covers the Service tax demanded. It does not call for attachment covering the interest, Penalty etc.
  • First the movable property like Cars, Investment etc will be liable to be attached and if that is not sufficient to cover the service tax portion that ONLY the immovable property will be attached.
  • The personal property of the PROPRIETORS, PARTNERS AND DIRECTORS shall NOT be attached. (How on earth is personal property of proprietor different from his proprietary concern is hard to understand - the writers of law are people from mars it seems)

Period of Attachment

The Attachment will be enforceable only upto 6 months from the date of the service of the initial order of attachment. The CCE may for reasons to be recorded in writing extend the attachment further but the total period of extension shall not exceed 2 years. Hence the total attachment period cannot in any circumstances exceed 2 years and 6 months.

Conclusion:

Since the days of the introduction of service tax till 10.09.2004 (the date when the first budget of Mr. Chidambram came in to effect) - we consultants found it hard to find clients as they said that Service tax is very easy and can be handled by our internal staff - Sir those days are now gone.......sadly the earning hand of government is unfortunately being given teeth where they are not required. I sincerely hope it dawns on them that such rules must be left unissued.

Nitesh Jain

www.niteshjain.co.in