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Service Tax Voluntary Compliance Encouragement

Scheme, 2013Presented By

J.K. MITTAL (Advocate)Chairman, Indirect Taxes Committee, PHDCCI

Co-Chairman, National Council (Indirect Taxes), ASSOCHAM

LL.B.,F.C.A., F.C.S.

NEW DELHI Ph: 011- 22056635Fax: 011- 22447420

Email: jkmittalservicetax@gmail.com jkmittal@airtel.blackberry.com

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• By the Finance Act, 2013 has introduced Chapter VI and again the Government has come out with an Amnesty Scheme for service tax defaulters—‘Service Tax Voluntary Compliance Encouragement Scheme, 2013’. The Government by Notification No. 10/2013-ST dated 13th May, 2013 has introduced Service Tax Voluntary Compliance Encouragement Rules, 2013.

• In the past in the year 2004 also the government has came out with amnesty scheme to provide waiver of penalties to increase better compliance.

• It appears that the said scheme has been announced with a view to tap those assessees who took the registration but have not filed their returns. However, from the plain reading of the provisions of the scheme it does not appears to be the objective

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• There are many occasions when the persons are not file the return not necessarily easy tax evader. It has also been noticed that in number of cases those assessee surrender their registration certificate still carries in the records of the Department as an assessee.

• It is surprising that the scheme is being regarded as an amnesty scheme but the manner in which it has been drafted it appears that it will not be beneficial for most of the persons. As such the scheme is not appear to be applicable to anyone those were facing an inquiry, investigation or against whom show cause notice issued or order has been passed by the Department

• it appears that it will be applicable to only those persons who have been completely stranger to the Department

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• It is surprising that the scheme also contain a clause where the Central excise commissioner can issue a show cause notice, if he feel the declaration is substantially false. As such whenever the amnesty scheme is being launched in any fiscal law, the basic principle behind it to give assurance to the declarant that no question will be asked and the declaration will be accepted as such then only person can come forward for making the declaration

• Whereas in under the present scheme it has been stated that the declaration is liable to be rejected by the designated officers when inquiry or investigation is pending against the declarant. In view of the author, the manner in which the scheme has been drafted, it may not be very successful.

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Announcement by Finance Minister: The honourable finance Minister in his budget speech for the year 2013 – 2014 has stated as under:“183. While there are nearly 17,00,000 registered assessees under service tax, only about 7,00,000 file returns. Many have simply stopped filing returns. We cannot go after each of them. I have to motivate them to file returns and pay the tax dues. Hence, I propose to introduce a one-time scheme called ‘Voluntary Compliance Encouragement Scheme’. A defaulter may avail of the scheme on condition that he files a truthful declaration of service tax dues since 1.10.2007 and makes the payment in one or two instalments before prescribed dates. In such a case, interest, penalty and other consequences will be waived. I hope to entice a large number of assessees to return to the tax fold. I also hope to collect a reasonable sum of money.”

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Objective of the scheme explain in budgetary memorandum:

• In the memorandum explaining the provision in finance bill, 2013 has been stated as under:

“V. AMNESTY SCHEME FOR NON FILERS AND STOP FILERS : To encourage voluntary compliance and broaden the tax base, it is proposed to provide one time amnesty by way of (i) waiver of interest and penalty; and (ii) immunity from prosecution, to the stop filers, non-filers or non-registrants or service providers (who have not disclosed true liability in the returns filed by them during the period from October 2007 to December 2012) who pay the "tax dues". Details of the scheme are available in Chapter VI of the Finance Bill, 2013. The scheme will be operational from the date on which the Finance Bill, 2013 receives the assent of the President.”

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Applicability of scheme – Period

• This scheme is applicable in respect of the service tax (incuding cess) due/payable (i.e. “tax dues”) between 01.07.2007 to 31.12.2012.

• “tax dues” means the service tax due or payable under the Chapter or any other amount due or payable under section 73A thereof, for the period beginning from the 1st day of October, 2007 and ending on the 31st day of December, 2012 including a cess leviable thereon under any other Act for the time being in force, but not paid as on the 1st day of March, 2013.

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2. A person who has filed the service tax returns showing his true disclosure but without making the payment of service tax in respect of such return, will not be eligible to make declaration under this scheme for the period covered under the service tax return.

3. A person who has been issued a notice or an order in respect of any issue, he shall also not be eligible to make declaration under the scheme on the same issue for subsequent period.

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Registration [rule 3]

Any person, who wishes to make a declaration under the Scheme, shall, if not already registered, take registration under rule 4 of the Service Tax Rules, 1994. In other words those who wish to avail the scheme but not registered under the Service Tax, have to get first registered under service tax.

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Rejection of declaration [section 106(2)]

  Where a declaration has been made by a person against whom an enquiry or investigation or audit is pending as on 01.03.2013, either by way of search, summon or notice for production of records or on account of initiation of audit, then designated authority shall reject such declaration, by recording the reason in writing and by passing an order.

Issuance of discharge acknowledgement on prescribed form

Designated authority shall issue an acknowledgement of discharge of tax dues to the declarant in prescribed manner on the prescribed form, on furnishing the details of full payment of declared tax dues and the interest, if any, payable by the declarant.

The Designated Authority shall issue an acknowledgement of discharge in Form VCES – 3 within a period of 7 days from the date of furnishing of details of payment of tax dues in full along with interest. [Rule 7]

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Procedure for making declaration and payment of tax dues [section 107] 1. The declaration is required to be made before the designated authority latest by 31 December 2013 in the prescribed form.2. The designated authority shall acknowledge the declaration in prescribed manner.

3. The declaration under the scheme is required to be made in form VCES-1 [Rule 4] which shall be acknowledged by the Designated Authority within a period of 7 working days from the date of receipt of the declaration in form VCES-2 [Rule 5]4. Declarant is required to pay the tax dues at least 50% by 31 December 2013 and submit the proof of such payment to the designated authority.5. The remaining part of tax dues is required to be paid by the declarant latest by 30th of June 2014, however such balance payment can be paid after 30 June 2014 along with interest (starting from 1st July 2013) but it shall be required to be paid latest by 31 December 2014.6. The payment of tax dues under this scheme is required to be made in the manner prescribed for the payment of service tax under the Service Tax Rules, 1994 [Rule 6(1)]. However, for the payment of tax dues, CENVAT Credit cannot be utilized. [Rule 6(2)]

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Immunity from penalty, interest and other proceeding [section 108].

 • The declarant shall get immunity from penalty, interest or

any other proceeding under the Chapter.

• Acknowledgement of discharge issued by the designated officer shall be conclusive and thereafter for the period covered under such declaration no matter shall be reopened.

No refund of amount paid under the Scheme [section 109].

• Any amount paid in pursuance of a declaration made under sub-section (1) of section 97 shall not be refundable under any circumstances.

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Tax dues declared but not paid [section 100].

• Where the declarant fails to pay the tax dues, either fully or in part, as declared by him, such dues alongwith interest thereon shall be recovered under the provisions of section 87 of the Chapter.

Failure to make true declaration [section 111].

• The Commissioner of Central excise, if he has reason to believe that the declaration made a substantially false, he may issue a show cause notice regarding tax dues but not paid or short paid. Such show cause shall be decided in accordance with the provisions of the finance act 1994

• No action shall be taken under sub-section (1) after the expiry of one year from the date of declaration.

Board ClarificationThe Board through Circular No. 169/4/2013-ST dated 13-05-2013 (appended as Annexure I) regarding the clarification of Service Tax Voluntary Compliance Encouragement Scheme and following issues has been clarified:

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S. NO. Issues Clarification

1. Whether a person who

has not obtained service

tax registration so far can

make a declaration under

VCES?

Any person who has tax dues to declare can

make a declaration in terms of the provisions of

VCES. If such person does not already have a

service tax registration he will be required to take

registration before making such declaration.

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2. Whether a declarant shall get immunity from payment of late fee/ penalty for having not taken registration earlier or not filed the return or for delay in filing of return.

Yes. It has been provided in VCES that, beside interest and penalty, immunity would also be available from any other proceeding under the Finance Act, 1994 and Rules made thereunder.

3. Whether an assessee to whom show cause notice or order of determination has been issued can file declaration in respect of tax dues which are not covered by such SCN or order of determination?

In terms of section 106 (1) of the Finance Act, 2013 and second proviso thereto, the tax dues in respect of which any show cause notice or order of determination under section 72, section 73 or section 73A has been issued or which pertains to the same issue for the subsequent period are excluded from the ambit of the Scheme. Any other tax dues could be declared under the Scheme subject to the other provisions of the Scheme.

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4. What is the scope of

section 106 (2)(a)(iii)?

Whether a

communication from

department seeking

general information

from the declarant

would lead to invoking

of section 106 (2) (a)(iii)

for rejection of

declaration under the

said section?

Section 106 (2) (a)(iii) of the Finance Act, 2013

provides for rejection of declaration if such

declaration is made by a person against whom

an inquiry or investigation in respect of service

tax not levied or not paid or short-levied or

short paid, has been initiated by way of

requiring production of accounts, documents or

other evidence under the chapter or the rules

made thereunder, and such inquiry or

investigation is pending as on the 1st day of

March, 2013.

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4. The relevant provisions, beside section 14 of the Central Excise Act as made applicable to service tax vide section 83 of the Finance Act,1994, under which accounts, documents or other evidences can be requisitioned by the Central Excise Officer for the purposes of inquiry or investigation, are as follows,—

(i) Section 72 of the Act envisages requisition of documents and evidences by the Central Excise Officer if any person liable to pay service tax fails to furnish the return or having made a return fails to assess the tax in accordance with the provision of the Chapter or rules made thereunder.

(ii) Rule 5A of the Service Tax Rules, 1994 prescribes for requisition of specified documents by an officer authorised by the Commissioner for the purposes specified therein.

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The provision of section 106 (2)(a)(iii) shall be

attracted only in such cases where accounts,

documents or other evidences are requisitioned

by the authorised officer from the declarant

under the authority of any of the above stated

statutory provisions and the inquiry so initiated

against the declarant is pending as on the 1st

day of March, 2013.

No other communication from the department

would attract the provisions of section 106 (2)(a)

(iii) and thus would not lead to rejection of the

declaration.

………Thank you………..

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