Service Tax Amnesty Scheme
FAQs Service tax Amnesty Scheme – 2013 as notifed on 13-5-2013
V S Datey
What is the Amnesty Scheme about?
Service tax Amnesty Scheme (known as ‘Service Tax Voluntary Compliance Encouragement Scheme, 2013’) [VCES for short] has been introduced in Finance Act, 2013. The scheme is effective from 10th May 2013.
Many assessees do not register and/or pay service tax – either due to ignorance or carelessness or ‘chalta hai’ ‘manage kar lenge’ attitude.
The scheme can be availed by non-filers or stop-filers or persons who have not made a truthful declaration in their return. However, it will not be applicable to persons against whom any inquiry or investigation is pending by issue of search warrant or by way of audit.
Such person should file declaration in prescribed form VCES-1 with designated Assistant/Deputy Commissioner of his ‘tax dues’. He shall issue acknowledgment within seven working days in form VCES-2. The assessee should pay at least 50% of tax admitted by him (for the period 1-7-2007 to 31-12-2012) before 31-12-2013 and balance 50% before 30-6-2014. He can pay service tax even by 31-12-2014, but in that case, interest will be payable. Interest rate is 18%. However, if value of taxable services were less than Rs.Rs60 lakhs, interest will be 15%.
Once such declaration is made and tax dues are paid, no interest or penalty will be payable under any of the provisions under Finance Act, 1994 relating to service tax.
Who can take benefit of the Amnesty Scheme?
In many cases, assessee obtains service tax registration not because he had any service tax liability but because of some other reasons – e.g. (a) In many Government tenders, service tax registration is one of the requirements (b) Many big companies have ‘Vendor Registration’ procedure, and these big companies insist on the service provider to have service tax registration.(howsoever small and illiterate he may be). (c) Some obtain registration due to ignorance or wrong advice.
There are many assessees who obtain registration under service tax for one or other of the aforesaid reasons but later did not file any return as they had no service tax liability.
There are assessees who in fact filed return electronically, but the return was either not accepted by the system or not traceable on the system.
The Amnesty Scheme is for such assessees.
Who can submit application under the scheme?
As stated above, the VCES scheme is for 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)
Assessees who had registered but did not pay service tax and/or file returns can take advantage of the scheme.
Assessees who had not registered under service tax and did not pay service tax can also take benefit of the scheme
The scheme is open only to those to whom any show cause notice or notice of audit or summons have not been issued prior to 1-3-2013.
Who cannot make declaration under the scheme
Following cannot make such declaration under the Amnesty Scheme -
Who has received notice or order of assessment - A person who has received notice or an order of determination under section 72 or section 73 or section 73A of Finance Act, 1994 has been issued or made before 1-3-2013 cannot apply under the scheme.
[Note - The relevant sections of Finance Act, 1994 are as follows - section 72 - Best Judgment assessment by Central Excise Officer. Section 73 - Demand for service tax short paid or not paid. Section 73A - Amount collected from customer representing the amount as ‘service tax’]
Person who has filed truthful return but did not pay service tax – Any person who has furnished return under section 70 of Finance Act, 1994 and disclosed his true liability, but has not paid the disclosed amount of service tax or any part thereof [i.e. amount disclosed as payable in service tax return but still not paid cannot apply. - first proviso to section 106(1) of Finance Act, 2013.
It may be noted that the provision applies only when the assessee has disclosed all his liability but still did not pay service tax.
Thus, the VCES can be used by assessee who had not disclosed their true liability of service tax. Further, if some liability (even if some small amount) was not disclosed, the benefit of the scheme can be availed.
Hence, if assessee had filed returns but did not pay service tax, he can show some small amount as payable (may be under reverse charge or some calculation mistake) and ten he can file declaration under the Amnesty Scheme.
If notice was received earlier for same issue - If notice or order was received for earlier period, then no declaration can be made of tax dues on the same issue for any subsequent period - second proviso to section 106(1) of Finance Act, 2013.
Thus, the VCES scheme can be used to make declaration relating to some other issue for which no show cause notice or order of determination has not been issued - para 3 of CBE&C circular No. 169/4/2013-ST dated 13-5-2013.
If inquiry, investigation or audit is pending as on 1-3-2013 - Application under the scheme cannot be filed, if 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 Finance Act, 1994; or (ii) Summons has been issued under section 14 of the Central Excise Act, 1944 as made applicable to service tax (iii) Notice asking assessee to produce accounts, documents or other evidence under Finance Act, 1994 or rules has been issued; if the investigation or inquiry is pending on 1-3-2013. - section 106(2)(a) of Finance Act, 2013.
The provision of section 106(2)(a)(iii) of Finance Act, 2013 will apply only when accounts, documents or other evidence are requisitioned by the authorised officer under authority of section 14 of Central Excise Act (which has been made applicable to service tax), section 72 of Finance Act or rule 5A of Service Tax Rules and the inquiry is pending as on 1-3-2013. Any other communication from department will not attract provisions of section 106(2)(a)(iii) of Finance Act, 2013 - para 4 of CBE&C circular No. 169/4/2013-ST dated 13-5-2013.
Thus, a mere letter from department asking him to register or pay service tax or to furnish some data/information will not attract disqualification as prescribed in section 106(2)(a)(iii) of Finance Act, 2013.
Further, if the accounts, documents or other evidence was requisitioned only for a particular service, in my view, declaration can be filed in respect of other taxable services.
Notice for audit was issued - If notice for audit has been initiated and the audit is pending on 1-3-2013, application under the scheme cannot be filed. - section 106(2)(b) of Finance Act, 2013.
What if only notice to file return was issued
If notice was issued for not filing of return, it cannot be said that there was any inquiry or investigation in respect of service tax. Hence, in my view, declaration can be filed.
Can declaration of Nil liability be filed if no returns were filed earlier even though registration was obtained?
In my view those who had not paid any service tax and did not file returns as there was no liability (though they were registered under service tax), can also file the declaration and seek immunity from penalty from late filing or non-filing of service tax returns.
The reason for my view is that ‘Nil’ tax is also a tax.
This can also be justified from the fact that the Amnesty Scheme is to encourage ‘non filers’.
However, to avoid controversy, wherever possible, it is advisable to show some minor amount as payable (say under reverse charge) and then file declaration under Amnesty Scheme.
Can an assessee who was not registered under service tax file declaration under the scheme?
If assessee was not registered under service tax, he should first obtain registration and then file declaration and then pay service tax - para 1 CBE&C Circular No. 169/4/2013-ST dated 13-5-2013 and rule 3 of Service Tax Voluntary Compliance Encouragement Rules, 2013.
An assessee had filed return but it was not accepted by the system. Can he file declaration under the scheme?
If system had not accepted the return, it means return was not filed. In such case, in my view, he can file declaration under the scheme, as Nil tax is also a ‘tax due’.
What is meaning of ‘tax dues’?
“Tax dues” means the service tax due or payable under Finance Act, 1994 or any other amount due or payable under section 73A thereof, for the period beginning from 1-10-2007 to 31-12-2012 including a cess leviable thereon under any other Act, but not paid as on the 1-3-2013 - section 105(1)(e) of Finance Act, 2013.
Thus, ‘tax dues’ does not include interest or penalty or late fee.
What is the procedure for submitting declaration?
A person can make declaration to designated authority (AC/DC as specified by Commissioner) in prescribed form, before 31-12-2013.
The declaration shall be in form VCES-1.
The acknowledgment by designated authority shall be in form VCES-2. The acknowledgment shall be issued within seven working days - rule 4 of Service Tax Voluntary Compliance Encouragement Rules, 2013.
What are the details to be submitted with the declaration?
Along with the declaration in form VCES-1, a calculation sheet of tax dues is to be attached. The calculations should be in form as per Sr No. 3F(I) of old ST-3 for the period 1-10-2007 to 30-6-2012. and in form as per Part B of new ST-3 for the period 1-7-2012 to 31-12-2012.
Though the VCES-1 form requires only details of service tax, in my view, details of Cenvat credit should also be given, in my view, assessee can avail (if not utilise) available Cenvat credit and only pay balance amount by cash.
The details are to be submitted service wise.
Can assessee avail and utilise Cenvat credit for the past period?
Rule 6(2) of Service Tax Voluntary Compliance Encouragement Rules, 2013 states that Cenvat credit shall not be utilised for payment of tax dues under the Scheme.
It can be argued that restriction is not on ‘availment’ but ‘utilisation’. Thus, Cenvat credit cab be availed but not utilised for payment of service tax under this VCES Scheme. The Cenvat credit can be availed for payment of service tax subsequent period. However, the issue becomes prone to different interpretations and hence litigation prone.
Really, in my view, validity of the rule 6(2) is highly doubtful. Section 114(1) of Finance Act, 2013 merely empowers Central Government to make rules for carrying out the provisions of this scheme. The rules cannot limit or restrict the scope of the scheme.
The definition of ‘tax dues’ is service tax payable under Finance Act, 1994. Such payment can be only after adjusting available Cenvat credit.
In my view, rule 6(2) is ultra vires the provisions of Finance Act, 1994 and Finance Act, 2003 and is not binding on assessee. It can be challenged before Tribunal.
In my view, assessee can avail eligible Cenvat credit for the past period, though he may utilise it for payment of subsequent period. If assessee intends to do so, it is advisable to make full declaration to department, to avoid charge of suppression of facts.
Of course, assessee should utilise Cenvat credit only if amount involved is high and he is willing to fight it out.
Let us hope that the rule 6(2) is omitted by Central Government to make the scheme attractive and litigation free.
What are provisions relating to payment of accepted tax dues?
At least 50% of admitted tax dues should be paid before 31-12-2013 and balance before 30-6-2014. On such payment, the proof of payment by way of challan should be submitted to AC/DC to whom declaration was submitted. If he cannot make payment before due dates he can even pay before 31-12-2014, but interest will be payable in addition to tax dues - Interest rate is 18%. However, if value of taxable services were less than Rs 60 lakhs, interest will be 15%- sections 107(3) and 107(4) of Finance Act, 2013.
What is the procedure after submission of declarations and payment of tax dues?
The declarant shall furnish to the designated authority details of payment made from time to time under this Scheme with a copy of acknowledgement issued to him under section 97(2). On furnishing the details of full payment of declared tax dues and the interest, if any, the designated authority (AC/DC as applicable) shall issue an acknowledgement of discharge of such dues in prescribed form - section 107(7) of Finance Act, 2013. The acknowledgment will be in form VCES-3. It should be issued within seven days after payment of all tax dues.
Interestingly, the benefit of the scheme i.e. immunity is available even if such acknowledgment of discharge is not issued by Assistant/Deputy Commissioner.
Hence, assessee need not follow up to get the discharge letter [since if he follows up, he will have to pay ‘facilitation charges’ or ‘processing fees’ which can be quite heavy].
Can appeal be filed if the application is rejected and certificate of discharge is not given?
There is no specific provision for filing appeal if the application under Amnesty Scheme is rejected and discharge is not given by designated authority.
However, in my view, appeal can be filed as any person aggrieved by any decision or order passed by an adjudicating authority subordinate to Commissioner of Central Excise may appeal to the Commissioner of Central Excise (Appeals) – section 85(1) of Finance Act, 1994 (which contains provisions relating to service tax)
Thus appeal against any decision or order of Assistant Commissioner or Dy. Commissioner lies with Commissioner (Appeals).
What is effect of submitting declaration and paying taxes due?
On payment of tax dues and interest (interest applicable only if service tax is paid after 1-7-2014) and after submitting necessary declarations, the declarant shall get immunity from penalty, interest or any other proceeding under Finance Act, 1994 – section 108(1) of Finance Act, 2013.
Thus, any penalty or late fee for non-filing or late filing of return or penalty for not taking registration will also not be payable – confirmed in para 2 of CBE&C Circular No. 169/4/2013-ST dated 13-5-2013.
Interestingly, such immunity is not subject to getting discharge certificate from AC/DC. Thus, such immunity should be available even if certificate of discharge is not issued by AC/DC. Hence, assessee need not follow up to get such certificate as it will ‘cost’ heavily.
No other benefit or immunity – There would be no other benefit, concession or immunity (except as specified in section 108(1) of Finance Act, 2013 – section 112 of Finance Act, 2013.
What this section means is that assessee cannot claim benefit, concession or immunity from other legal provision like Income Tax, Sales Tax, Excise Act or under some Criminal Law.
Can the matter be reopened?
The declaration shall become conclusive upon issuance of acknowledgement of discharge by AC/DC under section 107(7). No matter shall be reopened thereafter in any proceedings under Finance Act, 1994 before any authority or court relating to the period covered by such declaration – section 98(2) of Finance Act, 2013.
However, Commissioner can reopen the matter under section 111(1) of Finance Act, 2013.
Commissioner can initiate action for failure to make true declaration – Where the Commissioner of Central Excise has reasons to believe that the declaration made by a declarant under this Scheme was substantially false, he may, for reasons to be recorded in writing, serve notice on the declarant in respect of such declaration requiring him to show cause why he should not pay the tax dues not paid or short-paid – section 111(1) of Finance Act, 2013. No action shall be taken under section 111(1) after the expiry of one year from the date of declaration - section 111(2) of Finance Act, 2013.
The one year period is from date of declaration and not date when the discharge letter has been issued by AC/DC (very good provision indeed)
If such show cause notice is issued by Commissioner, then normal provisions of personal hearing, demand, appeal etc. sill apply – section 111(3) of Finance Act, 2013.
What would happen if assessee submits declaration but does not pay tax dues?
If the declarant fails to pay the tax dues, either fully or in part, as declared by him, such dues alongwith interest thereon shall be recovered under the provisions of section 87 of Finance Act, 1994 – section 110 of Finance Act, 2013.