CBIC Asks officers to be Attentive Before Issuing Show Cause Notice

The Central Board of Indirect Taxes and Customs (CBIC) states that its offices so as not to give show-cause notices (SCNs) for service tax defaults upon the grounds of inconsistency amid income tax returns and service tax amount.

Different tax concerns have accused the Union finance ministry that SCNs have sent wrongly towards the FY 2015-16. GST council has indeed provided the notice to various entities who get privileged from the services such as tax, like doctors, they had accused off.

GST council could provide SCNs till December 31 towards service tax evasion in 2015-16. The council can reopen the last 5 years’ cases.

“Show cause notices for inquiry up to 5 years can only be issued in cases where service tax has not been paid due to fraud, collusion, wilful misstatement, or suppression of facts, which was admittedly not the case in the SCNs being issued. The latest decision also provides a respite to the concerned parties from facing lengthy proceedings before the department. commented Angad Sandhu, Partner, PSL Advocates & Solicitors.”

What is Written in the Letter of CBIC?

CBIC justified in the letter to all principal chief commissioners and commissioners, that the notices must not be given due to ITR-TDS and service tax amounts are distinct.

“A reconciliation statement has to be sought from the taxpayer on the difference and whether the service income earned by them for the corresponding period is attributable to any negative list services specified in Section 66D of the Finance Act,” he added.”

“All chief commissioners and commissioners may sensitize the field formations to issue demand notices after due diligence and verification,” the letter stated.

“There can be multiple reasons for the differences between the taxable value of income tax and service tax. It is not necessary that every difference/anomaly in data between income tax and service tax is a case of tax evasion. commented Saloni Roy, Senior Director, Deloitte India.”

“For example, certain activities may be exempt from service tax but income may be liable to tax. Hence, this could throw up a difference in comparison. Show-cause notices should not be automatically issued on the basis of such a difference.”

The council must validate through the assessee the cause for the variations and urge for the reconciliation statement. The show-cause notice shall only be issued when the statement mentioned the gaps. Details sharing and the information amid the income tax and GST council can assist in determining the cases in which tax theft has happened or to happen.

Doctors & Lawyers Excused

“Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co stated that Issuing SCNs if there is a difference between income tax and service tax, is completely illogical as there are many businesses from which TDS is deducted but are not subject to service tax or GST. Doctors and lawyers are prime examples.”

“Many advocates have moved the high courts and the courts have quashed such notices. The Odisha High Court went a step further and directed the principal commissioner to issue appropriate instructions to field formations to not issue SCNs blindly to advocates, he replied.”

“It is major relief for entities which are exempted from service tax. The GST department has issued a large number of notices without verification of data, industry sources stated.”