Overview of Service Tax Voluntary Compliance Encouragement Scheme, 2013 – Series 1
The Service Tax Voluntary Compliance Encouragement Scheme (“VCES”) has been implemented with effect from May 10, 2013 with the enactment of the Finance Bill 2013. We have prepared and summarized overview of the Scheme for ease of your understanding:
1. What is VCES?
VCES is a new amnesty scheme introduced vide Chapter VI of the Finance Act, 2013 (“the Finance Act, 2013”), to encourage voluntary compliance by defaulter of Service Tax under Chapter V of the Finance Act, 1994 (“the Finance Act, 1994”). The Hon’ble Finance Minister in his budget speech mentioned that there are nearly 17,00,000 registered assessees under the service tax but only about 7,00,000 assessees file their service tax returns.
Thus, the VCES is announced in order to self-motivate the defaulters to pay the service tax, not paid in the past.
2. What is the effective date for implementation of the VCES?
The Scheme has come into force with the enactment of the Finance Bill, 2013 i.e. May 10, 2013.
3. Who are eligible to apply under VCES?
Tax payers/ assessees who have not filled return or stopped filling return or who have not made a truthful declaration in their return are eligible to apply under VCES. Further, any person may declare his tax dues, in respect of which no notice or an order of determination under section 72 or section 73 or section 73A of the Finance Act, 1994 has been issued or made before the 1st day of March, 2013.
4. Who are ineligible to apply under VCES?
The following assessees are not eligible to opt for VCES in terms of Section 106 of the Finance Act, 2013:
1 The person who has furnished return under Section 70 of the Finance Act, 1994 and disclosed true liability, but has not paid the service tax so disclosed whether in total or in part, in such scenario declaration under VCES cannot be made for the period covered under the return.
2 The person against whom,—
(a) an inquiry 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 —
(i) Search of premises under Section 82 of the Finance Act, 1994; or
(ii) Issuance of summons under Section 14 of the Central Excise Act, 1944, as made applicable to the Finance Act under Section 83 thereof; or
(iii) Requiring production of accounts, documents or other evidence under the Finance Act or the rules made thereunder; or
(b) An audit has been initiated,
And such inquiry, investigation or audit is pending as on the 1st day of March, 2013.
5. What is the scope of Section 106 (2)(a)(iii) of the Finance Act, 2013?
In this respect, the Central Board of Excise and Custom (“the CBEC”) vide Circular No. 169/4/2013-ST dated May 13, 2013 (“the VCES Circular”) has clarified that the provision of section 106 (2)(a)(iii) of the Finance Act, 2013 shall be attracted only in cases where accounts, documents or other evidences are requisitioned by the authorised officer from the declarant under the authority of any of the below stated statutory provisions and the inquiry so initiated against the declarant is pending as on the 1st day of March, 2013:
(i) Section 72 of Finance Act, 1994 the Act envisages requisition of documents and evidences by the Central Excise Officer if any person liable to pay service tax fails to furnish the return or having made a return fails to assess the tax in accordance with the provision of the Chapter or rules made thereunder.
(ii) Rule 5A of the Service Tax Rules, 1994 prescribes for requisition of specified documents by an officer authorised by the Commissioner for the purposes specified therein.
No other communication from the department would attract the provisions of Section 106 (2)(a)(iii) of the Finance Act, 2013 and thus would not lead to rejection of the declaration.
6. Whether a service provider who is not registered can apply under the VCES?
Yes. In terms of the Rule 3 of the Service Tax Voluntary Compliance Encouragement Rules, 2013 (“the VCES Rules”), if any person who wishes to apply under the VCES is not already registered, then he is required to take a registration under Rule 4 of the Service Tax Rules, 1994 as per the normal procedure of the Service Tax law.
7. What do you mean by “Tax Dues”?
Tax dues means the service tax due or payable under the Finance Act, 1994 or any other amount due or payable under Section 73A thereof, for the period beginning from the October 1, 2007 and ending on the December 31, 2012 including a cess leviable thereon under any other Act for the time being in force, but not paid as on March 1, 2013.
8. How to avail benefit of the Scheme?
An assesse can avail benefit under the Scheme by making truthful declaration regarding tax dues to Designated Authority in Form No. VCES-1. Thereafter, an acknowledgement in Form No. VCES-2 shall be issued to him with 7 working days of his declaration.
9. What do mean by “Designated Authority”?
According to VCES “designated authority” means an officer not below the rank of Assistant Commissioner of Central Excise as notified by the Commissioner of Central Excise for the purposes of this Scheme.
10. What is period for which assesses can avail relief under VCES?
The Assessees can avail benefit under VCES for all service tax including cess, not paid from October 1, 2007 to December 31, 2012.
11. What are the benefits under VCES?
Assessee who is making truthful declaration would be granted immunity from interest, penalty and other proceeding
12. Whether a declarant shall get immunity from payment of late fee/ penalty for having not taken registration earlier?
In this respect, the VCES Circular has clarified that it has been provided in the VCES that, beside interest and penalty, immunity would also be available from any other proceeding under the Finance Act, 1994 and Rules made thereunder. Accordingly immunity from payment of late fee/ penalty for having not taken registration earlier will be granted under the Scheme.
13. What are the conditions to be fulfilled to avail benefit under VCES?
The assessees has to deposit at least 50% of the declared dues by December 31, 2013 and the remaining portion of tax dues has to be paid by June 30, 2014 without any interest.
Where the declarant fails to pay said tax dues or part thereof on or before the said date, he shall pay the same on or before the December, 31, 2014 along with interest thereon, to be calculated from July 1, 2014.
14. Whether the amount lying in Cenvat Credit Account be uilised for payment of tax dues?
No. As per Rule 6(2) of the VCES Rules, Cenvat Credit shall not be utilized for payment of tax dues under the Scheme.
15. Whether tax paid under VCES is refundable?
Tax paid under VCES is not refundable.
16. When the declaration made under VCES will be deemed as conclusive?
Declaration will attain finality/ become conclusive upon issuance of acknowledgment of discharge of total tax dues from designated authority in Form No. VCES – 3.
The acknowledgement of discharge shall be issued within a period of seven working days from the date of furnishing of details of payment in full alongwith interest, if any, by the declarant.
17. Whether the tax dues after December 31, 2012 will be eligible for benefit under VCES?
No. Service tax liability effective from January 1, 2013 to be paid as normal service tax liability.
18. What is the last date for availing the scheme?
The assessee can file the declaration under this scheme only upto December 31, 2013.
19. What if the declarant fails to pay declared tax dues?
Where the assessee fails to pay the tax dues, either fully or in part, then said amount along with interest will be recovered as arrear of land revenue, which can be recovered by attaching the movable and immovable properties of the declarant.
Also the immunity in terms of the VCES would be withdrawn.
20. What are the consequences if the declaration made under VCES is substantially incorrect?
As per VCES, if the declaration made under VCES is found substantially incorrect by the Commissioner of Central Excise, then show cause notice is to be served for recovery of tax dues not paid or short paid within a period of one year from the date of declaration.
21. Who can remove difficulties while implementing the Scheme?
In terms of Section 113 of the Finance Act, 2013, the Central Government may remove the difficulties and provide clarity in case of ambiguities while implementing the scheme.
Further the Central Government cannot make such order (i.e. to remove ambiguity) after expiry of two years from the date when VCES comes into force.
22. State the matters for which the Central Government is empowered to make rules regarding VCES?
In terms of Section 114 of the Finance Act, 2013 for successful implementation of VCES, the Central government is empowered to make rules by notification in official Gazette. Such rules may provide for all or any of the following matters, namely:—
(a) the form and the manner in which a declaration may be made under sub- section (1) of Section 107;
(b) the form and the manner of acknowledging the declaration under sub- section (2) of Section 107
(c) the form and the manner of issuing the acknowledgement of discharge of tax dues under sub-section (7) of Section 107;
(d) any other matter which is to be, or may be, prescribed, or in respect of which provision is to be made, by rules.
In this context, the Central Government vide Notification No. 10/2013 dated May 13, 2013 has notified Service Tax Voluntary Compliance Encouragement Rules, 2013.
23. What are the open grey areas under VCES?
1. VCES scheme is criticized being discriminative as helping only to dishonest assessee.
2. Also, the Scheme does not contain any secrecy clause as to confidentiality of information furnished under VCES. Thus there is a risk that the information disclosed under VCES may be used by other tax authorities.
3. Declared tax dues is subject to approval by designated authority, may requires neutral and simplified mode of adjudication.
4. A portion of Cut off period for which declaration can be made before December 31, 2013 for the period from October 1, 2007 to December 31, 2012 is beyond period of limitation i.e. 5 Years from the relevant date of declaration. Legal sanctity of this provision may be looked into.