• May
  • 21
  • 2013

Gist of Service Tax Voluntary Compliance Encouragement Scheme, 2013

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CA Pralhad Mandhane

Pralhad MandhaneService tax was introduced for the first time in 1994 budget. It has completed 19 years of implementation. Over the period of time, almost all services (except specified negative list) are brought under Service Tax net. Though the applicability has now spread over most of the services, due to various ambiguities, interpretation issues and other reasons, various persons have not either complied with the registration requirements and /or have not paid the tax.

To bring all of them under the tax net and collect the tax dues, Hon’ble Union Minister of Finance has proposed a Service Tax Voluntary Compliance Encouragement Scheme, 2013 in Finance Budget 2013. The Scheme is applicable for the tax dues not paid for the period 1st October 2007 to 31st December 2012.

While announcing the scheme, Finance Minister has said that, out of 17,00,000 registered assessee only 7,00,000 assessee file service tax returns. In order to motivate assessee to pay service tax and file pending returns, the Hon’ble Minister has announced this scheme. As the name suggests, the scheme is prepared to encourage assessee to come forward voluntarily and pay the taxes to get immunity from imposition of interest and penalty. The Proposed scheme shall be made applicable after getting assent of the President of India to the Finance Bill 2013-14.

Who are Eligible to apply under the Scheme

If we go through the list of the persons who are eligible to apply under the scheme and who are not eligible, we can summarize that the scheme is applicable to those assessees who have not paid the tax to the government and government was not able to bring them under the scanner. All other assessees, who have either informed their liabilities or have already been undergoing departmental enquiry are not benefited from the scheme. The Applicability of scheme can be understood better from the following list by analyzing various clauses of the scheme;

1.     Any assessee registered  / un-registered, who has not paid tax dues for the period between October 2007 to December 2012 as on 1st March 2013 and

2. Who has not filed Service tax returns or

3. Who has not filed returns as per Service Tax provisions or

4. Who has not received Notice / Assessment order as on 1st April 2013 for point No. 2 and 3 under Section 72 of Finance Act, 1994 or

5. Who has not received notice / order as on 1st April 2013 under Section 73 of Finance Act, for not levy or paid or short levy or short payment or erroneously refund of Service Tax or

6. Who has not received notice / order as on 1st April 2013 under Section 73A of the Finance Act, for non-payment of Service tax which is collected from the customer but not paid to the government.

Who are specifically not eligible to apply under the Scheme

  1. Any Assessee who has furnished Service Tax return under section 70 of the Finance Act and disclosed true liability, but not paid the disclosed liability or part thereof
  2. Who has received a notice / order for any period or any issue, he cannot apply for the tax dues on the same issue for subsequent period
  3. Against whom an enquiry or investigation in respect of a service tax not levied or not paid or short levied or short paid has been initiated by way of Search of the premises, Issuance of summons, requiring production of accounts, documents or other evidence, initiation of an Audit and same is pending as on 1st March 2013.

Procedure

The person desiring to opt for the scheme needs to follow a specific procedure enumerated below;

  1. Desired person should make an application on or before 31st December 2013 in Form No. VCES – 1 as prescribed vide Notification No. 10/2013 dated 13th May 2013.
  2. The designated authority shall acknowledge receipt of the application in Form No. VCES – 2 as prescribed vide Notification No. 10/2013 dated 13th May 2013, within 7 working days from the date of receipt of the declaration.
  3. The Declarant should pay at least 50% of the tax dues on or before 31st December 2013 and submit proof of payment to designated authority.
  4. Remaining taxes are required to be paid on or before 30th June 2014. If he could not make entire payment, same shall be payable on or before 31st December 2014 along with interest to be calculated w.e.f.1st July 2014
  5. On submission of details of full payment of declared service tax and interest if applicable, designated authority shall issue an acknowledgement of discharge of the liability in Form No. VCES – 3 as prescribed vide Notification No. 10/2013 dated 13th May 2013, within 7 working days from the date of receipt of the tax payment details.

Benefits of the Scheme

The assessee opting for the scheme shall be benefitted in two ways;

  1. He shall be eligible for immunity from penalty, interest and any other proceedings under the provisions of Finance Act, 1994.
  2. If all the declarations made are true and if commissioner has not initiated any proceedings within one year from the date of declaration, on receipt of the acknowledgement of discharge of liability, declaration made by the declarant shall not be re-opened.

Other Points

While applying for immunity under the scheme, one needs to keep in mind that;

  1. Any amount paid as per declaration made by him, shall not be refunded under any circumstances.
  2.  If declarant fails to pay amount declared, same shall be recovered from him as per the provisions of the Finance Act, 1994.
  3. If Declarant has made a substantial false declaration, commissioner may initiate proceedings against him according to the Finance Act, 1994.

Conclusion

The Scheme is a good effort by the Finance Minister to recover taxes from the tax defaulters and to bring them under tax net. However, the scheme should be extended to taxpayers who have declared the liability but could not pay the dues or cases are pending at various levels. If not, then it might result in violation of the Article 14 of the Constitution of India which gives every person the right of equality before law. It is necessary to pass right message about the intention behind this scheme to public at large. Else one may think that it is better to be dishonest than paying taxes on time.  

(Author is a Chartered Accountant in Practice from Pune, Maharashtra & can be reached at pralhad.mandhane@kirtanepandit.com)


14 Responses to “Gist of Service Tax Voluntary Compliance Encouragement Scheme, 2013”

  1. Ashiq Mohammad says:

    Dear Sir,

    If I am opting for this scheme which includes service tax due till 31st December 2012. But for filling the return from October 2012 to March 2013 what I have to do for October 2012 to December 2012 in the return.?

  2. CA Vivek Deshmukh says:

    Nice Article Pralhad!

    Simple and informative language. Keep it up.

    Please enlight us on the other issues in Indirect taxes in the same manner E.g. Reverse charge mechanism, CENVAT Credit disallowability / technical issues in allowability etc.

  3. CA Rajesh says:

    Nice for nice Article Sir…..

    This will be a value addition to all of us…

  4. unnikrishnan v says:

    Whether an assessee had filed the returns but omitted to include certain amount in the taxable income,a service was omitted to be included and thus the value/tax thereon can also avail the VCES?
    2. what will be the eligibility in a case where certain details like balance sheet of the year was called for in respect of the returns filed since the scheme debars only —
    Against whom an enquiry or investigation in respect of a service tax not levied or not paid or short levied or short paid has been initiated by way of Search of the premises, Issuance of summons, requiring production of accounts, documents or other evidence, initiation of an Audit and same is pending as on 1st March 2013.”
    Thus where details were called for by a letter-other than thro’ summons-,the ineligibility can not be imposed.Is it correct?

  5. Vinay Singhal says:

    Dear Sir,

    It is value addition to me.

    Sir, we have two Service Tax registration No. (Service Wise) in one no. we have no billing and we are filing nil return. To surrender this No. can we chose the GIST scheme.

    Please suggest.
    Thanks & Regards
    Vinay Singhal

  6. Rajdeep Singh says:

    Great write up Sir… Looking forward to many more of such articles from you..

  7. E.P.Patnaik says:

    Dear Prahladji, Yes, I do agree with your views. The benefit of the scheme should have also been extended to assessees who furnished ST.3 returns with true liability and not paid the disclosed tax liability.

  8. Ketan Chaudhari says:

    Nice Article Sir…..
    This will be a value addition to all of us…

  9. Pralhad Mandhane says:

    Thanks for your feedback.

    In case notice is received by particular assessee for non-payment of service tax on renting, he cannot opt the scheme. If available, it is advisable to opt the scheme and get the immunity.

  10. CA. Subhash Chandra Podder, says:

    Good write up . Keep it up.
    CA. Subhash Chandra Podder, FCA
    Kolkata
    22/5/2013

  11. Venkataratnam says:

    Very nice and informative. Thanks a lot

  12. p venkateswara rao says:

    Thank you for giving the valuable information

    this is use full to all

  13. PNV GIRI says:

    Dear Mr.Prahlad,

    Thanks for your write up on VCE which is more or less like VDS our FM’s soft fishnet like to catch the defaulters. In some cases I have come across people who are not able to collect the Service tax on rent from their tenants whose cases are pending with the SC. What is the treatment ? Should the assessee use this scheme for paying the ST which is not collected for a long time or leave it till the court finalises ?

    Looking forward to your valuable advise.

  14. Prafull says:

    Very brief and well written….
    thanks

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