Thursday, May 19, 2011

Trouble for Chief Executives of firms not raising invoice within 14 days of service

NEW DELHI: Chief executives of companies in the services sector can face prosecution if their firms fail to raise invoices on time. The government has issued detailed norms for prosecution of service tax offenders, which overhauls the supervision system in the sector.

"Prosecution provisions have been brought in only after service tax has stabilised and as a precursor to goods and services tax," said a tax department official. As per service tax laws, a service provider must issue an invoice within 14 days of the completion of the taxable service. The prosecution procedures are modeled on those for goods taxation.

"Absence of clear directions on prosecution was an area of concern. The circular is welcome, as it clears the air on how the law will be implemented," said Anita Rastogi, associate director, PwC.


Other offences liable for action are availing and utilisation of the credit of taxes paid without actual receipt of taxable service or excisable goods, and non-payment of service tax after collecting it. However, officials will have to prove direct involvement of the top management of a company in the offence to launch prosecution against them.

The Central Board of Excise and Customs, the country's apex indirect taxes body, has given directions to its field officials through a circular. The government had introduced the concept of prosecution under service tax laws nearly 17 years after the tax was introduced.

"These provisions mean that businesses would need to have a robust system and processes in place for these compliances," said Pratik Jain, executive director, KPMG India. However, the intent is not to harass taxpayers. "Provisions relating to prosecution are to be exercised with due diligence, caution and responsibility after carefully weighing all the facts on record. Prosecution should not be launched merely on matters of technicalities," the circular says.

There could be issues of interpretation involved in determining what constitutes 'completion of service', as sometimes service providers have to delay an invoice on a customer's request or other commercial reasons. A limit of Rs 10 lakh has been set for launch of prosecution, which will not apply in the case of repeat offenders.

"Businesses will have to ensure that internal systems take care of these requirements and are aligned with regard to compliance provisions ," Rastogi said. Risk weightage assigned to service tax in businesses would also need to be reviewed and increased significantly. "Given the service tax laws are still evolving and the risk of non-compliance is relatively higher, this surely deserves the CXO's attention in any company," said Jain.

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