Service tax has always been regarded as a tax of the future and is emerging as one of the major source of revenue for the Government. At the same time, the service tax law has been regarded as most complicated law and generated huge litigation. Due to its complexity, there had been lots of confusions which lead to non-payment of taxes as the service provider, most of the times having no clarity about the applicability of service tax on their activities. There was always an ambiguity over several matters and the tax payers used to find themselves incompetent to decide whether they fall under the ambit of service tax or not and hence, most of them did not deposit the tax on a bona fide belief that they are out of the ambit of service tax due to exemptions or otherwise as the case may be. There have been instances where the government has came out with retrospective exemptions due to such confusions where the taxes where not being paid but the Government felt that service tax was applicable on such activities. Therefore, for recovery of such taxes, Government in the year 2004 come out for the first time with Amnesty Scheme which provides waiver of penalties to increase better compliance.
The Hon’ble Finance minister of India Mr. P. Chidambaram, has one again announced under Finance Bill 2013, a new scheme known as Voluntary Compliance Encouragement Scheme under Section 94, in order to encourage voluntary compliance and broaden the tax base .Under such scheme, It is proposed to provide one time amnesty by way of waiver of interest, penalty and Immunity from prosecution as well, provided provisions contained therein are duly complied.
Wordings of Hon’ble Finance Minister in his budget speech for the year 2013-14
“While there are nearly 17,00,000 registered assessees under the 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 1st October 2007 and makes the payment in one or more installments before prescribe dates. In Such a case, interest, penalty and other consequences will be waived. I hope to entice a large number of assessees to return to the tax fold. I also hope to collect a reasonable sum of money.”
Desideratum of the Amnesty Scheme
The main intent of the scheme is to provide one time relief from penalty, interest or any other prosecutions, which are otherwise leviable on failure of payment of service tax due or payable under the provisions of the Finance Act, 1994. It is pertinent to note that, such scheme is only applicable when the service tax due or payable for the period beginning from the 1st Day of Octuber, 2007 and ending on the 31st day of December, 2012 but was not paid as on the 1st day of March, 2013. The Government by introducing such scheme, has tried to ask and push the defaulters of the service tax, to come forward and pay their tax liability for the aforementioned period. The Government has come up in positive way as the scheme provide safeguard to interest and penal consequences, hence giving a smooth way of escaping from the consequences on non compliance regarding service tax payments.
Who Cannot Apply For the Amnesty Scheme
1. As per Section 96, Any person may declare his tax dues in respect of which no notice or an order of determination under section 72 or 73 or section 73A of the chapter has been issued or made before the 1st day of March 2013.
The same can be understood as, such scheme is not available to the following cases: -
· Where a show cause notice under section 73 of the Act has been issued in respect of tax dues.
· Where an order has been passed under section 73 of the Act in respect of tax dues
· Where a person against whom an order has been passed by making best judgment assessment under section 72 of the Act in respect of tax dues.
· Where a show cause notice has been issued demanding service tax under section 73A of the Act in respect of tax dues.
2. A person who has filed the service tax returns showing his true disclosure but without making the payment of service tax in respect of such return, will not be eligible to make declaration under the scheme for the period covered under the service tax return.
3. A person who has been issued a notice or an order in respect of any issue, he shall also not be eligible to make declaration under the scheme on the same issue for subsequent period.
How to Apply For The Amnesty Scheme and Provisions regarding payment of tax dues
As per Section 97, A person interested for applying in such scheme shall make a declaration before the designated authority latest by 31st December 2013 in the prescribed form and Such designated authority should acknowledge the declaration in prescribed manner. The declarant is required to pay the tax dues at least 50% by 31st December 2013 and submit the proof of such payment to the designated authority. The remaining part of tax dues is required to be paid by the declarant latest by 30th June 2014, however such balance payment can be paid after 30th June 2014 along with interest( starting from 1st July 2013) but it shall be required to be paid by 31st December 2014. Further, as per section 99 , any amount paid in pursuance of a declaration made under sub-section(1) of section 97 shall not be refundable under any circumstances. And, 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 under the provisions of section 87 of the chapter.
Failure to make True Declaration
As per section 100, 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 under the provisions of section 87 of the chapter.
Author Opinion on the Amnesty Scheme
No doubt the Government has tried to develop a scheme which would help in increasing its revenue from service tax by giving benefit in a big way to the service tax defaulters. Such scheme would definitely attract the people for depositing the service tax but at the same time, scheme has certain flaws which would deny in attaining its main objective.
At the very outset, the scheme has missed out to answer that whether department can issue any Show Cause Notice to the non-compliers after 1-3-13 or shall wait and watch till 31-Dec-2013, how many assesses are opting for this scheme?
Further, this scheme needs to provide the answer to the question that in a situation where person is paying service tax under Voluntary Compliance Encouragement Scheme for a service, applicability of service tax on which is not clear, but somehow, after the declaration & payment of service tax any judicial pronouncement comes, wherein it is decided that service tax is not payable on such service, or any notification from Ministry comes having retrospective effect as to non taxability. Whether such an amount would be refunded to the declarant with or without interest? as under the proposed section 99, any amount paid in pursuance of a declaration, such amount shall not be refundable under any circumstances. Hence, In that case, since the service tax itself was not liable to be recovered, retraining such an amount by the department will be ultra vires to the constitution.
It appears that such scheme is not applicable to anyone facing an inquiry, investigation or audit has been conducted but no further communication has been received by the assessee. Are such assessees can opt for amnesty scheme.
It is bit surprising that the scheme also contains clause where the central excise commissioner has the power to issue show cause notice, if he feels the declaration is substantially false. As such whenever the Amnesty Scheme is being launched in any fiscal law, the basic principle behind is to give assurance to the declarant that no question will be asked and the declaration will be accepted as such then only a person can come forward for making the declaration. Where as under the present scheme it has been stated that declaration is liable to be rejected by the designated officers when inquiry or investigation is pending against the declarant.
Further the scheme needs to clarify that how the proceedings under the scheme will come to end? In other words, what is the procedure for putting an end to the proceedings of voluntary payment by the declarant?
In the overall view of the author, although the Government has tried to develop a scheme to help the tax evaders to come forward and deposit the tax without any penal actions, rather hiding behind the wall and worryingly waiting for the department to initiate their actions for not paying tax. But at the same time, the way the scheme has been drafted, there are still many confusions and questions which needs to be answered due to which, the tax evaders would remain in dilemma whether to opt for scheme or not and hence would ultimately defeat the main purpose of the scheme.
At present, the scheme is like a food hanging in the cage kept for the defaulters who were hidden somewhere, and as soon as the defaulters comes out and catch the food, immediately they find themselves trapped in the walls of the cage.
Service Tax Team
vishaljain.tax@gmail.com
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