Circular No. 170/5
/2013 - ST
Subject: The Service Tax Voluntary
Compliance Encouragement Scheme - clarifications regarding.
The
Service Tax Voluntary Compliance Encouragement Scheme (VCES) has come into
effect from 10.5.2013. Some of the issues raised with reference to the Scheme
have been clarified by the Board vide circular No. 169/4/2013-ST, dated
13.5.2013.
Subsequently, references have been received by the Board
seeking further clarifications as regards the scope and applicability of the
Scheme.
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S. No.
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Issues
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Clarification
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1
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Whether the
communications, wherein department has sought information of roving nature
from potential taxpayer regarding their business activities without seeking
any documents from such person or calling for his presence, while quoting the
authority of section 14 of the Central Excise Act, 1944, would attract the
provision of section 106 (2) (a)?
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2
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An assessee has two units at two different locations, say Mumbai and Ahmedabad.
Both are separately registered. The
Mumbai unit has received a Show Cause Notice for non-payment of tax on a
revenue stream but the Ahmedabad unit has not. Whether the Ahmedabad unit is eligible for
VCES?
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Two separate service
tax registrations are two distinct assessees for the purposes of service tax
levy. Therefore, eligibility for availing of the Scheme is to be determined
accordingly. The unit that has not been issued a show cause notice shall be
eligible to make a declaration under the Scheme.
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3
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Whether a
declaration can be made under the Scheme in respect of CENVAT credit wrongly
utilized for payment of service tax?
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Any service tax that
has been paid utilizing the irregular credit, amounts to
non-payment of service tax. Therefore such service tax amount is covered
under the definition of “tax dues”.
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4
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Whether a party,
against whom an inquiry, investigation or audit has been initiated after
1.3.2013 (the cutoff date) can make a declaration under the Scheme?
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Yes. There is no bar
from filing of declaration in such cases.
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5
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There was a default
and a Show Cause Notice was issued for the period prior to the period covered
by the Scheme, i.e. before Oct 2007. Whether declaration can be filed for
default on the same issue for the subsequent period?
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In the context of
the Scheme, the relevant period is from Oct 2007 to Dec 2012. Therefore, the
2nd proviso to section 106 (1) shall be attracted only in such
cases where a show cause notice or order of determination has been issued for
the period from Oct 2007 to Dec 2012. Accordingly, issuance of a show cause
notice or order of determination for any period prior to Oct 2007, on an
issue, would not make a person ineligible to make a declaration under the
Scheme on the same issue for the period covered by the Scheme. Therefore, declaration can be made under
VCES.
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6
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In a case where the assessee has been
audited and an audit para has been issued, whether the assessee can declare liability on an issue which is not a part of
the audit para, under the VCES 2013?
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Yes,
declarant can declare the “tax dues” concerning an issue which is not a part
of the audit para.
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7
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Whether a person,
who has paid service tax for a particular period but failed to file return,
can take the benefit of VCES Scheme so as to avoid payment of penalty for
non- filing of return?
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Under VCES a
declaration can be made only in respect of “tax dues”. A case where no tax is
pending, but return has not been filed, does not come under the ambit of the
Scheme. However, rule 7C of the Service Tax Rules provides for waiver of penalty
in deserving cases where return has not been filed and, in such cases, the assessee may seek relief under rule 7C.
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8
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A person has made part payment of his ‘tax dues’ on any
issue before the scheme was notified and makes the declaration under VCES for
the remaining part of the tax dues. Will he be entitled to the benefit of
non-payment of interest/penalty on the tax dues paid by him outside the VCES,
i.e., (amount paid prior to VCES)?
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No. The immunity from
interest and penalty is only for “tax dues” declared under VCES.
If any “tax dues”
have been paid prior to the enactment of the scheme, any liability of
interest or penalty thereon shall be adjudicated as per the provisions of
Chapter V of the Finance Act, 1994 and paid accordingly.
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9
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Whether an assessee, who, during a part of the period covered by the Scheme, is in dispute
on an issue with the department under an erstwhile provision of law, can
declare his liability under the amended provisions, while continuing to
litigate the outstanding liability under the erstwhile provision on the
issue?
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In terms of the
second proviso to section 106 (1), where a notice or order of determination
has been issued to a person in respect of any issue, no declaration shall be
made by such person in respect of “tax
dues” on the same issue for subsequent period. Therefore, if an issue is
being litigated for a part of the period covered by the Scheme, i.e., Oct,
2007 to Dec 2012, no declaration can be filed under VCES in terms of the said
proviso on the same issue for the subsequent period.
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10
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Whether upon filing
a declaration a declarant realizes that the declaration filed by him was
incorrect by mistake? Can he file an amended declaration?
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The declarant is
expected to declare his tax dues correctly. In case the mistake is discovered
suo-moto by the declarant himself, he may
approach the designated authority, who, after taking into account the overall
facts of the case may allow amendments to be made in the declaration,
provided that the amended declaration is furnished by declarant before the cut off date for filing of declaration, i.e., 31.12.2013.
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11
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What is the
consequence if the designated authority does not issue an acknowledgement
within seven working days of filing of declaration? Whether the declarant can
start making payment of the tax dues even if acknowledgement is not issued?
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Department would
ensure that the acknowledgement is issued in seven working days from the date
of filing of the declaration. It may
however be noted that payment of tax dues under the Scheme is not linked to
the issuance of an acknowledgement. The declarant can pay tax dues even
before the acknowledgement is issued by the department.
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12
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Whether declarant
will be given an opportunity to be heard and explain his cases before the
rejection of a declaration under section 106(2) by the designated authority?
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Yes. In terms
of section 106 (2) of the Finance Act,
2013, the designated authority shall, by an order, and for reasons to be
recorded in writing, reject a declaration if any inquiry/investigation or
audit was pending against the declarant as on the cutoff date, i.e.,
1.3.2013. An order
under this section shall be passed following the principles of natural
justice.
To allay any
apprehension of undue delays and uncertainty, it is clarified that the
designated authority, if he has reasons to believe that the declaration is
covered by section 106 (2), shall give a notice of intention to reject the
declaration within 30 days of the date of filing of the declaration stating
the reasons for the intention to reject the declaration. For declarations
already filed, the said period of 30 days would apply from the date of this
circular.
The declarant shall
be given an opportunity to be heard before any order is passed by the
designated authority.
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13
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What is the appeal
mechanism against the order of the designated authority whereby he rejects
the declaration under section 106 (2) of the Finance Act, 2013?
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The Scheme does not
have a statutory provision for filing of appeal against the order for
rejection of declaration under section 106 (2) by the designated authority.
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14
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A declarant pays a
certain amount under the Scheme and subsequently his declaration is rejected.
Would the amount so paid by him be adjusted against his liability that may be
determined by the department?
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The amount so paid
can be adjusted against the liability that is determined by the department.
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15
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Section 111
prescribes that where the Commissioner of Central Excise has reasons to
believe that the declaration made by the declarant was ‘substantially false’, he may serve a notice on the declarant in respect of such declaration.
However, what constitutes a ‘substantially false’ declaration has not been
specified.
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The Commissioner
would, in the overall facts of the case, taking into account the reasons he
has to believe, take a judicious view as to whether a declaration is
‘substantially false’. It is not feasible to define the term “substantially
false” in precise terms. The
proceeding under section 111 would be initiated in accordance with the principles
of natural justice.
To illustrate, a
declarant has declared his “tax dues” as Rs 25 lakh. However,
Commissioner has specific information that declaration has been made only for
part liability, and the actual “tax dues”
are Rs 50 lakh. This declaration would fall
in the category of “substantially false”.
This example is only
illustrative.
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16
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What is the consequence if a declarant fails to pay atleast 50% of declared amount of tax dues by the 31st
Dec 2013?
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One of the conditions of the Scheme
[section 107 (3)] is that the declarant shall pay atleast an amount equal to
50% of the declared tax dues under the Scheme, on or before the 31.12.2013.
Therefore, if the declarant fails to pay atleast 50% of the declared
tax dues by 31st Dec, 2013, he would not be eligible to avail of
the benefit of the scheme.
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17
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Whether the CENVAT
credit is admissible on the inputs/input services used for provision of
output service in respect of which declaration has been made under VCES for
payment of any tax liability outside the VCES?
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The VCES Rules 2013
prescribe that CENVAT credit cannot be utilized for payment of “tax dues”
under the Scheme. Accordingly the “tax dues” under the Scheme shall be paid
in cash.
The admissibility of
CENVAT credit on any inputs and input services used for provision of output
service in respect of which declaration has been made shall continue to be
governed by the provisions of the Cenvat Credit Rules, 2004.
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18
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(a) Whether the tax dues amount paid under VCES
would be eligible as CENVAT credit to the recipient of service under a
supplementary invoice?
(b) Whether cenvat credit would be admissible to the person who pays tax dues under VCES
as service recipient under reverse charge mechanism?
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Rule 6(2) of the
Service Tax Voluntary Compliance Encouragement Rules, 2013, prescribes that
CENVAT credit cannot be utilized for payment of “tax dues” under the Scheme.
Except this condition, all issues relating to admissibility of CENVAT credit
are to be determined in terms of the provisions of the Cenvat Credit Rules.
As regards
admissibility of CENVAT credit in situations covered under part (a) and (b),
attention is invited to rule 9(1)(bb) and 9(1)(e) respectively of the Cenvat Credit Rules.
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19
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In terms of section
106 (2)(b), if a declaration made by a person against whom an audit has
been initiated and where such audit is pending, then the
designated authority shall by an order and for reasons to be recorded in
writing, reject such declaration. As the audit process may involve several
stages, it may be indicated as to what event would constitute,-
(i) initiation of
audit; and
(ii) culmination of audit.
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Initiation of audit: For the purposes
of VCES, the date of the visit of auditors to the unit of the taxpayer would
be taken as the date of initiation of audit. A register is maintained of all
visits for audit purposes.
Culmination of
audit: The audit process may culminate in any of the following manner.-
(i) Closure of audit file if
no discrepancy is found in audit;
(ii) Closure of audit para by the Monitoring Committee Meeting
(MCM);
(iii) Approval of audit para by MCM and payment of amount involved therein by the party in terms of
the provisions of the Finance Act, 1994;
(iv) Approval of audit para by MCM, and issuance of SCN, if party does not agree to the para so raised.
The audit culminates at a point when the audit paras raised are settled in any manner as stated above.
The pendency of audit as on 1.3.2013 means an audit that has been
initiated before 1.3.2013 but has not culminated as on 1.3.2013.
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3. Trade Notice/Public Notice
may be issued to the field formations and tax payers.
Please acknowledge receipt of
this Circular.
Hindi version follows.
Yours sincerely,
(S. Jayaprahasam)
Technical
Officer, TRU
Tel: 011-2309 2037
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