CA. Pradeep Jain, CA. Preeti Parihar, Manish Vyas
The Hon’ble Finance Minister has announced the Union Budget 2013-14 on 28/02/2013. Only few amendments are made in service law for maintaining stability in Negative List Concept. However, a new scheme has been introduced for defaulter – service tax assessees named as “Service Tax Voluntary Compliance Encouragement Scheme”. While announcing this scheme, it was said by hon’ble Finance Minister that there are nearly 17,00,000 registered assessees under service tax, only about 7,00,000 file service tax returns. In order to self motivate the defaulters to pay the service tax, the above scheme is announced. This article is about the provisions contained in this scheme alongwith our views thereupon.
Object, Applicability & Benefits of Scheme:-
This object of this scheme is to encourage the defaulters of service tax (including Cess) due for the period from 01.10.2007 to 31.12.2012 which has not been paid upto 1st March 2013. The eligible assessee may voluntary declare the service tax due under this scheme and he will be refrained from imposition of interest and penalty. Once the service tax liability is paid off under this scheme, the case cannot be reopened by the department.
Any person can opt for this scheme, other than the following cases:-
2.The person should not have furnished return and disclosed his true liability, but have not paid the service tax so disclosed whether in total or in part;3. If any show cause notice or order has been issued to a person on a particular issue, declaration cannot be made in respect of same issue for the subsequent period;Where any declaration has been made by any person against whom -An inquiry or investigation in respect of non/short levy or non/short- payment service tax has been initiated against a person by way of search of premises or summons or requiring production of accounts, documents or other evidences; or an audit has been initiated against that person and such audit or inquiry/investigation is pending as on 1.3.2013. In such a case, the declaration filed by such a person will not be accepted by recording the reasons in writing.
Last Date For availing Scheme:-
The assessee can file the declaration under this scheme only upto 31st December 2013.
Manner of payment of declared dues:-
The assessee availing the scheme will have to pay minimum 50% tax dues upto 31st December 2013. The remaining amount shall be paid upto 30th June, 2014. If the declarant fails to pay said tax upto 30th June, 2014, he can pay the same upto 31st December 2014 along with interest from 1st July 2014 to the date of payment. Proof of payment is also required to be submitted to the concerned officer.
What if the declarant fails to pay declared dues?
As per proposed section 100, if the assessee fails to pay the tax dues, then such dues along with interest will be recovered as per provisions of Section 87. Section 87 prescribes the modes of recovery of any amount due to government. This section is harshest section of service tax law which says that the sum due to government will be treated as if it were an arrear of land revenue. Thus, the defaulted amount can be recovered by attaching the movable and immovable properties of the declarant. Simultaneously, fresh proceedings for recovery of interest and penalty can be initiated by issuing a show cause notice. This is because the proposed section 98 says that where the benefit of this scheme will be extended only after the entire payment has been made and the designated authority has issued an acknowledgement of discharge of dues.
Where the assessee files the substantially incorrect declaration:-
This scheme prescribes that the declarant has to file the declaration with the designated authority. Designated authority is defined as an officer not below the rank of Assistant Commissioner of Central Excise as notified by the Commissioner of Central Excise. Further, proposed section 101 provides that where the declaration is found substantially incorrect by the Commissioner, show cause notice is to be served for recovery of tax dues not paid or short paid. This section indicates that the designated authority (Assistant Commissioner) is not allowed to review the declaration and the same is to be reviewed by the Commissioner of Central Excise. Also, the show cause notice is to be issued for recovery of service tax dues, penalty and interest still not covered under the proposed provisions.
Whether the honest assessees are fool!
Yes it the answer, due to following reasons:-
–The scheme is applicable to full defaulters only. If an assessee who honestly files the returns and due any reason fails to pay service tax i.e. partly defaulter, then he will not be eligible for the scheme. But an assessee who has not filed the return and has also not paid the tax i.e. fully defaulters, will be eligible for scheme.
–Further this scheme also prescribes that where any person has filed the declaration under this scheme and he does not pay the dues till 30.6.2014; still has option to pay the same with interest for six months only from 1.7.2014 to 31.12.2014. Penalty still not imposable.
–Also, where the assessee makes substantially incorrect declaration, proposed section 101 provides that show cause notice is to be served for recovery of tax dues not paid or short paid. Further, this show cause notice cannot be issued after expiry of one year from the date of declaration. Also, the declaration cannot be reviewed by the designated officer, it will be reviewed by the Commissioner. Thus, even after making the incorrect declaration, there is chance of escaping and even after the declaration is substantially incorrect, the recovery can be made of service tax only as per section 101. This is another thing that the benefit of this scheme will be disallowed and another proceeding can be invoked for recovery of interest and penalty.
While proposing the scheme, the Finance Minister said that only 700000 assessees are filing the Service Return out of 1700000 registered assessees. In the view of authors of this article, this statics may not be correct. Recently, the letters for non filing of returns have been issued in all the four range offices of Central Excise in the area the authors are practicing. However, it was found that more than 95% of the letters, as issued to their clients, this contention was found to be incorrect. While discussing this fact with the other consultants operating in their area, the same fact came out. This seems to be a software error. Therefore if Hon’ble Finance Minister has proposed this scheme based on this wrong data, then, this scheme may not turn out so useful, rather it will discourage the honest assessees. After the 24 hours of announcement of this scheme when the authors are finalizing this article, the feedback coming from their clients may be the best closing line of this article “In view of Finance Minister, this scheme may be his Master Stroke but in view of Honest Assessees it is nothing but only a “Defaulter Friendly Scheme”.