Section 68(2) of the Finance Act, 1994

Understanding Section 68(2) of the Finance Act, 1994

Section 68 of the Finance Act, 1994 deals with the collection and recovery of service tax. Subsection (2) specifically addresses the power granted to the Central Excise Officer to recover service tax when it hasn’t been paid, or has been short-paid, or erroneously refunded.

In essence, Section 68(2) empowers the Central Excise Officer to take necessary steps to recover service tax from the person liable to pay it under Section 66 or Section 67 of the Act. This includes cases where:

Service tax hasn’t been paid at all when it was due.
Service tax has been paid, but the amount paid was less than what was actually owed. (short-paid)
Service tax has been erroneously refunded to a person, even though they weren’t entitled to it.

The process outlined by the law isn’t arbitrary. Before initiating recovery proceedings, the officer must follow certain procedures aimed at ensuring fairness and providing an opportunity to the assessee to be heard. Generally, this involves issuing a show cause notice detailing the reasons for the demand, the amount due, and the basis for calculating that amount.

The show cause notice allows the assessee to present their case, submit evidence, and contest the demand. The Central Excise Officer is obligated to consider the assessee’s representation before passing a final order determining the amount of service tax to be recovered. This principle of natural justice is crucial, ensuring that the assessee isn’t unfairly subjected to recovery action.

Once the officer has determined the amount due after considering the assessee’s reply to the show cause notice, he can proceed with recovery. The Finance Act, 1994 and the Central Excise Act, 1944 (which is often invoked for service tax recovery) provide various methods for recovering the outstanding tax. These methods might include:

Attaching and selling the assessee’s movable or immovable property.
Arresting the assessee and detaining them in civil prison (under certain circumstances).
Recovering the amount from any person from whom money is due or may become due to the assessee.
Distraint and sale of goods.

The availability of these recovery methods underscores the seriousness with which the law treats service tax evasion or non-compliance. However, it’s vital to remember that the officer must adhere to the prescribed legal procedures and ensure that the recovery action is proportionate to the amount due.

Section 68(2) serves as a critical enforcement mechanism, ensuring the collection of service tax and maintaining the integrity of the indirect tax system. It provides the Central Excise Officer with the necessary authority to recover unpaid, short-paid, or erroneously refunded service tax, while also incorporating safeguards to protect the interests of the assessee.