Chapter V of Finance Act, 1994

6[Penalty for failure to pay service tax

76. (1) Where service tax has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded, for any reason, other than the reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made thereunder with the intent to evade payment of service tax, the person who has been served notice under sub-section (1) of section 73 shall, in addition to the service tax and interest specified in the notice, be also liable to pay a penalty not exceeding ten per cent. of the amount of such service tax:

Provided that where service tax and interest is paid within a period of thirty days of–

(i) the date of service of notice under sub-section (1) of section 73, no penalty shall be payable and proceedings in respect of such service tax and interest shall be deemed to have been concluded;

(ii) the date of receipt of the order of the Central Excise Officer determining the amount of service tax under sub-section (2) of section 73, the penalty payable shall be twenty-five per cent. of the penalty imposed in that order, only if such reduced penalty is also paid within such period.

(2) Where the amount of penalty is increased by the Commissioner (Appeals), the Appellate Tribunal or the court, as the case may be, over the above the amount as determined under sub-section (2) of section 73, the time within which the reduced penalty is payable under clause (ii) of the proviso to sub-section (1) in relation to such increased amount of penalty shall be counted from the date of the order of the Commissioner (Appeals), the Appellate Tribunal or the court, as the case may be.]

 

 

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Notes :

1. Substituted by the Finance Act, 2006, w.e.f. 18-4-2006. Prior to its substitution, section 76, as amended by the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004, read as under :

        “76. Penalty for failure to pay service tax.-Any person, liable to pay service tax in accordance with the provisions of section 68 or the rules made thereunder, who fails to pay such tax shall pay in addition to paying such tax, and interest on that tax in accordance with the provisions of section 75, a penalty which shall not be less than one hundred rupees for every day during which such failure continues but which may extend to two hundred rupees for every day during which such failure continues, so, however, that the penalty under this clause shall not exceed the amount of service tax that he failed to pay.”

2. Substituted vide Finance Act, 2011, w.e.f. 8-4-2011, before it was read as, “two hundred rupees”

3. Substituted vide Finance Act, 2011, w.e.f. 8-4-2011, before it was read as, “two per cent”

4. Inserted vide Finance Act, 2011, w.e.f. 8-4-2011

5. Substituted vide Finance Act, 2011, w.e.f. 8-4-2011, before it was read as,

“Illustration

X, an assessee, fails to pay service tax of ₹ 10 lakhs payable by 5th March. X pays the amount on 15th March.  The default has continued for 10 days.  The penalty payable by X is computed as follows:-

2% of the amount of default for 10 days = 2 x 10, 00, 000 x 10/31= ₹ 6,451.61

Penalty calculated @ ₹ 200 per day for 10 days =Rs. 2,000

Penalty liable to be paid is ₹ 6,452.00.”

6. Substituted vide THE FINANCE ACT, 2015 w.e.f. 14th May 2015, before it was read as,

76. 1Penalty for failure to or pay service tax

Any person, liable to pay service tax in accordance with the provisions of section 68 or the rules made under this Chapter, who fails to pay such tax, shall pay, in addition to such tax and the interest on that tax amount in accordance with the provisions of section 75, a penalty which shall not be less than 2[one hundred rupees] for every day during which such failure continues or at the rate of 3[one per cent] of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax:       

Provided that the total amount of the penalty payable in terms of this section shall not exceed 4[fifty per cent of] the service tax payable.

 

Illustration

X, an assessee, fails to pay service tax of ten lakh rupees payable by the 5th March. X pays the amount on the 15th March. The default has continued for ten days. The penalty payable by X is computed as follows:-

1 per cent of the amount of default for 10 days

     1                                   10

———-  × 10,00,000  × ———  =  Rs. 3,225.80

   100                                  31

Penalty calculated @ ₹ 100 per day for 10 days = ₹ 1,000

Penalty liable to be paid is ₹ 3226.00.”