1. A PRESENTATION BY C.A. PULAK SAHA AT ACAE CA STUDY CIRCLE ON 04.12.2013 Service Tax Voluntary Compliance Encouragement Scheme, 2013 [ Chapter VI of the Finance Act, 2013 ]

2. FINANCE ACT, 2013 :- CHAPTER VI: Service Tax Voluntary Compliance Encouragement Scheme, 2013 RULES :- Service Tax Voluntary Compliance Encouragement Rules, 2013 BOARD’S CIRCULAR NOs. :- 169/4/2013-ST dated 13.05.13 & 170/5/2013-ST dated 08.08.13 & 174/9/2013-ST dated 25.11.13

3. SALIENT FEATURES OF THE SCHEME One time amnesty to be provided by way of: (i) waiver of interest and penalty; and (ii) immunity from prosecution, to the stop filers, non-filers or non-registrants or service providers (who have not disclosed true liability in the returns filed by them during the period from October 2007 to December 2012).

4. I.WHO CAN MAKE DECLARATION OF TAX DUES UNDER THE SERVICE TAX VCES, 2013?

5. DECLARATION OF TAX DUES 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 has been issued or made before the 1st day of March, 2013.727373A

6. Clarifications The Ahmedabad unit that has not been issued a show cause notice shall be eligible to make a declaration. 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?

7. Clarifications Issuance of a show cause notice for any period prior to Oct 2007, on an issue, would not make a person ineligible. Declaration can be made under VCES. 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?

8. Clarifications 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 even if there has been change in the provision of law. 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?

9. TAX DUES: MEANING Service tax due or payable under the Finance Act or any other amount due or payable under Section 73A thereof. Including the Cess payable under any other Act for the time in force. Payable for the period beginning from the 1 st October, 2007 to December 31, 2012 But not paid as on 1 st March, 2013

10. Clarifications 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”. 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.

11. PERSONS NOT ELIGIBLE TO MAKE DECLARATION OF TAX DUES Where a notice or order of determination issued to a person in respect of any period on any issue – no declaration possible on the same issue for any subsequent period. Filed return and disclosed his true liability but has not paid the disclosed amount of Service Tax.

12. Illustration  Return filed for the period 01.10.2007 to 31.03.2008 but not paid service tax for the period. Thereafter neither filed their returns nor paid the service tax liability? Are they eligible to opt for the scheme? If so, to what extent?  They cannot opt for the scheme for the period 01.10.2007 to 31.03.2008.  They can opt for the scheme for the period from 01.04.2008 to 31.12.2012.

13. WHICH DECLARATIONS ARE LIABLE FOR REJECTION BY THE DESIGNATED AUTHORITY?

14. Declaration made by Person: Against whom an inquiry or investigation has been initiated SEARCH OF PREMISES ISSUANCE OF SUMMONS REQUIRING PRODUCTION OF ACCOUNTS, DOCUMENTS OR OTHER EVIDENCE Audit has been initiated

15. REJECTION contd… and such inquiry, investigation or audit is pending as on the 1st day of March, 2013, then,  the designated authority shall- by an order, and for reasons to be recorded in writing, reject such declaration.

16. Clarifications Initiation of audit: The date of the visit of auditors to the unit of the taxpayer. Culmination of audit: The audit culminates at a point when the audit paras raised are settled by closure of audit file if no discrepancy is found in audit; closure of audit para by the Monitoring Committee Meeting (MCM); approval of audit para by MCM and payment of amount involved therein or approval of audit para by MCM, and issuance of SCN, if party does not agree to the para so raised.

17. Clarifications There is no bar from filing of declaration to a party, against whom an inquiry, investigation or audit has been initiated after 1.3.2013 (the cutoff date). Where the assessee has been audited and an audit para has been issued, the assessee can declare “tax dues” concerning an issue which is not a part of the audit para, under the VCES 2013.

18. PROCEDURE FOR MAKING DECLARATION AND PAYMENT OF TAX DUES

19. Step -1 : Registration Any person, who wishes to make a declaration under the Scheme, shall, if not already registered, take registration. Website: www.aces.gov.in

20. Step – 2 :Submission of Declaration Submit a declaration to the designated authority. on or before the 31st day of December, 2013 in Form VCES-1.VCES-1

21. Step – 3 : Acknowledgment of Declaration The designated authority shall acknowledge the declaration In form VCES -2.VCES -2 Within seven working days from the date of receipt of declaration.

22. Step -4 :Payment The declarant shall- on or before the 31st day of December, 2013,  pay not less than 50%, of the tax dues so declared and  submit proof of such payment to the designated authority.

23. Step - 4 :Contd.. Remaining tax dues - on or before the 30th day of June, 2014. If not paid then… along with interest thereon by 31.12.2014 for the period of delay starting from 1 st day of July, 2014.

24. Note… Any service tax which becomes due or payable by the declarant for the month of January, 2013 and subsequent months shall be paid by him in accordance with the provisions of the Chapter along with interest, if any, for delay.

25. Step: 4 contd.. furnish details of payment made from time to time along with a copy of acknowledgement issued to him.  Utilization of CENVAT Credit not allowed for payment of dues!!!

26. Step: 5 Acknowledgement of Discharge On furnishing the details of full payment of declared tax dues and the interest, if any- the designated authority shall issue an acknowledgement of discharge of such dues to the declarant in Form VCES-3.VCES-3

27. BENEFITS OF THE SCHEME

28. 1.IMMUNITY FROM PENALTY, INTEREST AND OTHER PROCEEDING The declarant, upon payment of the tax dues and the interest, if any, shall get immunity from penalty, interest or any other proceeding under the Chapter.

29. 2. Declaration to be Conclusive (2) Subject to the provisions of section 111, a declaration shall become conclusive upon issuance of acknowledgement of discharge and no matter shall be reopened thereafter in any proceedings under the Chapter before any authority or court relating to the period covered by such declaration.

30. FAILURE TO MAKE TRUE DECLARATION Where the Commissioner has reasons to believe that the declaration under this Scheme was substantially false, he may, serve notice on the declarant requiring him to show cause why he should not pay the tax dues not paid or short-paid. No action shall be taken after the expiry of one year from the date of declaration. 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.

31. WHETHER THE AMOUNT PAID UNDER THE SCHEME CAN BE REFUNDED? Any amount paid in pursuance of a declaration made under the scheme shall not be refundable under any circumstances.

32. WHAT IF THE TAX DUES ARE DECLARED BUT NOT PAID? Where the declarant fails to pay the tax dues, either fully or in part, as declared by him- such dues along with interest thereon shall be recovered.

33. 1. Declaration in respect of tax dues to be made in Form VCES -1 2. The Designated Authority to issue acknowledgement in Form VCES-2 3. Payment of dues and submission of proof of Payment by the Declarant. 4. The designated authority to issue an acknowledgement of discharge in Form VCES - 3 STEPS FOR MAKING DECLARATION

34. CLARIFICATIONS The designated authority, after taking into account the overall facts of the case may allow amendments to be made in the declaration. The declarant can pay tax dues even before the acknowledgement is issued by the department. The designated authority, if the 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.

35. CLARIFICATIONS 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. Where, a declarant pays a certain amount under the Scheme and subsequently his declaration is rejected, the amount so paid by him will be adjusted against his liability that may be determined by the department. if the declarant fails to pay at least 50% of the declared tax dues by 31 st Dec, 2013, he would not be eligible to avail of the benefit of the scheme.

36. CBEC’s clarifications on certain apprehensions of the Trade and public at large vide Circular No. 169/4/2013-ST dated 13.05.2013. Circulars and FAQs available in the website: www.cbec.gov.in

37. Clarification Whether a person who has not obtained service tax registration so far can make a declaration under VCES? Yes. He will be required to take registration before making such declaration.

38. Clarification Whether a declarant shall get immunity from payment of late fee/penalty for having not taken registration earlier or not filed the return or for delay in filing of return. Yes. Immunity would also be available from any other proceeding under the Finance Act, 1994 and Rules made there under.

39. Clarification Whether an assessee to whom show cause notice or order of determination has been issued can file declaration in respect of tax dues which are not covered by such SCN or order of determination? The tax dues in respect of which any SCN has been issued or which pertains to the same issue for the subsequent period are excluded from the ambit of the Scheme. Any other tax dues can be declared.

40. Whether a communication from department seeking general information from the declarant would lead to invoking of section 106 (2) (a)(iii) for rejection of declaration under the said section? The provision of section 106 (2)(a)(iii) shall be attracted only in such cases where accounts/documents/evidences are requisitioned from the declarant under statutory provisions (SECTION 14, SECTION 72,RULE 5A) and the inquiry so initiated is pending as on the 1 st day of March, 2013. No other communication from the department would not lead to rejection of the declaration. Clarification

41. 1. The declaration should be promptly received and duly acknowledged. Request for clarification should be dealt with promptly. Defects in the application, if any, should be explained to the declarant and possible assistance be provided in rectifying these defects. The effort must be to accept a declaration, as far as possible, and recover the arrears of tax. 2. The concerned Commissioner may ensure that no declaration is rejected on frivolous grounds or by taking a wider interpretation of the conditions enumerated in section 106(2). If the issue or the period of inquiry, investigation or audit is identifiable from summons or any other document, the declaration in respect of such period or issue alone will be liable for rejection under the said provision. 3. in cases where documents like balance sheet, profit and loss account etc. are called for by department in the inquiries of roving nature, while quoting authority of section 14 of the Central Excise Act in a routine manner.The designated authority/ Commissioner concerned may take a view on merit, taking into account the facts and circumstances of each case Clarifications vide Circular No. 174/9/2013- ST dated 25.11.2013

42. 4. B enefit of the Scheme would be available in respect of any amount of tax- dues if paid by an assessee after the date of the Scheme coming into effect, (i.e., 10.5.2013), but before a declaration is filed, provided that Cenvat credit has not been utilized for payment of such amount. 5. No declaration can be made in a case where service tax pertaining to the period covered by the Scheme along with interest has already been paid by the parties, before the Scheme came into effect, so as to get waiver from penalty and other proceedings. However, there may be a case for taking a lenient view on the issue of penalties under the provision of the Finance Act, 1994. In this regard attention is invited to section 73 (3) and section 80 of the Finance Act, 1994. Clarifications vide Circular No. 174/9/2013- ST dated 25.11.2013

43. COMPARATIVE SNAPSHOT ::- NORMAL CASESVCES CASES Service Tax AmountPayable Fully after utilisation of CENVAT Credit Payable Fully before utilisation of CENVAT Credit Possibility of Refund in case of favourable verdict Subject to limitation and unjust enrichment Not Possible InterestPayable @ 18% p.a.Not Payable till 30.06.2014 PenaltiesPayable up to the tax Amount Not Payable Late Filing FeesPayable up to ` 20,000/- per return Not Payable ProsecutionCan be initiatedImmunity Granted Recovery ProceedingsCan be initiatedNot till conclusion of Scheme

44.  The Scheme is silent about the confidentiality of the declaration made.  There is no appeal provision if the declaration is rejected.  The scheme is iniquitous in the sense that the benefit of adjustment of Cenvat Credit has been denied while paying the tax due.  This scheme will discourage the honest tax payers. LIMITATIONS OF VCES ::-

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