Gist of Service Tax Voluntary Compliance Encouragement Scheme, 2013

CA Pralhad Mandhane

Service 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 1^st October 2007 to 31^st 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 1^st 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 1^st 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 1^st 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 1^st 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 1^st 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 31^st December 2013 in Form No. VCES – 1 as prescribed vide Notification No. 10/2013 dated 13^th 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 13^th 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 31^st December 2013 and submit proof of payment to designated authority.

4. Remaining taxes are required to be paid on or before 30^th June 2014. If he could not make entire payment, same shall be payable on or before 31^st December 2014 along with interest to be calculated w.e.f.1^st 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 13^th 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)