Nagpur News: A delegation of VIA Taxation Forum members led by President Prafull Doshi interacted with Sumit Bose, Hon’ble Secretary {Revenue] Ministry of Finance this afternoon and submitted a memorandum listing various issues on Voluntary Compliance Encouragement Scheme [VCES].
The meeting was called by the Chief Commissioner Customs Central Excise & Service Tax Nagpur in its Conference hall.
Appreciating the practical approach of the Government by launching Service Tax VCES scheme, the delegation said that this effort was laudable. However, it was felt that certain practical issues were addressed, which would have made the scheme more effective.
Listing out the issues he delegation presented a detailed memorandum with certain suggestions which would make the scheme more effective.
i. The VCES has been introduced to grant waiver of interest and penalties in cases where tax has been unpaid as on 1-3-2013. As per the VCES the “Tax Dues” means the service tax due or payable for the period 1-10-2007 to 31-12-2012 but not paid as on 1-3-2013. In view of the aforesaid condition, only those assessees would get the benefit who have totally failed to pay the tax dues. This particular Clause does not take care of those assessees who have regularly paid only a part of their liability before 1st March, 2013 and have defaulted in making payment of the balance amount of Tax. To illustrate :-
An assessee having a service tax liability of Rs. 50 lakhs for the period 2008-09, has on or before the due date of payment, has paid service tax of Rs. 30 lakhs from time to time, upto 1-3-2013 and has committed a default vis-à-vis balance amount of Service Tax of Rs. 20 lakhs due to genuine financial hardships. Such assessee in our view would not be able to take the benefit of the scheme.
The above illustration brings out an apparent anomaly in as much as an assessee who neither registers himself nor pays any amount of Service Tax at all, gets the benefit,whereas a genuine law abiding assessee, who registers himself with the Deptt and pays part of his Service Tax, is meted out with consequences of not only interest but penalties under both Sections 76 and 78 of the Finance Act, 1994.
Considering the object of the scheme of revenue collection, it is suggested that the definition of the “Tax Dues” be amended so as to allow the immunity also to those who have defaulted in making payments of part of their Service Tax liability in respect of the period 1-7-2010 to 31-12-2013. This will increase the response to the scheme and also achieve higher tax collection.
ii. Benefit of the scheme be given to stop filers and non filers, to regularise the compliance of service tax procedures. . As per the circular issued by the Government, under VCES a declaration can be made only in respect of “tax dues”. A case where either there is no Service Tax liability on account of non-provision of any taxable service or no tax is pending, but the assessee has not filed the ST3 return is not cover under the ambit of the Scheme. To illustrate, an assessee registers himself in the year 2005-06 as a provider of taxable service and pays Service Tax by due date of payment, from time to time. He stops providing service from 1-4-2008 but fails to de-register / surrender his Service Tax registration and does not file ST3 returns after 1-4-2008. After amendment of Section 70 of Finance Act, 1994, the maximum amount of Late Fee payable for delayed filing of return is Rs. 20,000/- per return. In the year 2013, the Deptt initiates proceedings against such assesses and imposes late fee of Rs. 20,000/- per return. Although discretion has been provided to the jurisdictional Assistant / Deputy Commissioner under Rule 7(c) of Service Tax Rules, 1994, the officers are reluctant to exercise such discretion in favour of an assessee. Consequently, a person who, either has not defaulted in making payment of the Service Tax liability or who after registration, stops providing any taxable service, but does not file requisite ST3 returns, is imposed with penalty / late fee of Rs. 20,000/- per return. The delegation also quoted the contents of Budget speech by the Hon’ble Finance Minister on Tax proposals:
“While there are nearly 17,00,000 registered assesses 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 installments before prescribed dates. In such a case, interest, penalty and other consequences will be waived. I hope to entice a large number of assesses to return to the tax fold. I also hope to collect a reasonable sum of money. “
In view of the above background of the scheme, it will be in consonance with the object of the scheme that it also covers assesses who have not filed the ST3 returns. Such an amendment will motivate the non-filers of ST3 returns to come forward. This will achieve regularization of the Department’s records of each and every assesses as well as the records of the assesses themselves. This initiative if taken, will also create an atmosphere where large number of assesses will return to the tax fold and will also contribute to the revenue in future.
Iii There have been several instances in past where the service providers who had defaulted in making payment of their regular Service Tax liability but pay the tax along with interest after being pointed out, are saddled with the penalties under Sections 76, 77 & 78 of the Finance Act, 1994 and late fee under Rule 7 of Service Tax Rules. By way of an illustration, the non-payment of Service Tax by an assessee is noticed by the Deptt either during the course of audit of records of the assessee himself or the audit of the records of the client to whom he had provided taxable services. Accordingly, such an assessee is called upon to make payment of Service Tax and interest on delayed payment thereof. An honest assessee complies and makes the payment of Service Tax alongwith interest. He also files a letter under section 73(3) of Finance Act, 1994 with the Commissioner, that on being pointed out, he has made payment of Service Tax and interest and therefore no Show cause notice be issued to him for imposition of penalty.
Despite a specific provision in Section 73(3), the Deptt after a lapse of a considerable period, issues a Show cause notice invoking proviso to Section 73(1) of Finance Act by alleging the assessee of non-payment of Service Tax on account of fraud, collusion, willful misstatement, suppression of facts, etc. and proposes to appropriate the amount of Service Tax and interest already paid and invokes the provisions of Sections 76, 77 & 78 of the Act and Late Fee under Rule 7 of Service Tax Rules. Invariably the benefit of Section 73(3) of the Act is denied to the assessee by making his case a case covered by Section 73(4) of the Act. Such an assessee challenges the orders before the Appellate Authorities and obtains stay to the recovery of penalties.
In our respectful submission, the scheme should also cover the situations in which the assesses not challenging the levy of Service Tax and liability to pay interest and making payment of both Service Tax and interest, may be given immunity from payment of penalties and late fee under Rule 7 of Service Tax Rules, 1994 read with Section 70 of the Finance Act, 1994.
The delegation also requested that VCES may be made at par with the erstwhile Kar Vivad Samadhan Scheme, 1998 with necessary changes deemed fit. In our view, the coverage of the following situations by the VCES will achieve greater tax compliance and revenue generation viz.
(i) Where a letter of enquiry under Rule 5A of the Rules or Show cause notice under Section 73 of the Act has already been issued;
(ii) Cases where the tax has not been paid but is disputed either at the adjudication level or appellate level, if the assessee agrees to pay the tax and withdraw the appeal, the interest and penalties should be waived. This will help in reducing huge pending litigations.
Sumit Bose gave a patient hearing to the issues put forth by VIA delegation and assured to take necessary steps to make scheme more effective. He also complimented the representatives of VIA for their positive response and valued suggestions. The delegation comprised of Prafull Doshi, President -VIA, Ashok Chandak, Naresh Jakotia ,Lalith Loya,Shailendra Manawat,O S Bagdia,Anand Dhoka & Atul Sarda.
