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Why, Carrot to Service tax defaulters and sticks to followers?

Arjuna (fictional character): O Lord Krishna, Why Hon’ble Finance Minister is promoting the Voluntary Compliance Encouragement Scheme of Service Tax so much?

Lord Krishna (fictional character): Look Arjuna, Finance Minister wants that service tax nonpayers should take benefit of the scheme before 31.12.2013. Such schemes may not be again available in future. Long time back, in 1997, such scheme was announced for income tax. But it should be understood, there is a great difference in the scheme under income tax and under service tax. Arjuna, in today’s era, one needs to encourage others even for doing good work or apologizing for a mistake.

Arjuna: Who are liable to pay service tax?

Lord Krishna: There was lack of knowledge and many misunderstandings about service tax and hence this amnesty scheme has been brought. Service tax is applicable for those having gross receipt from services above `.10 lacs. For eg. Beauty parlour, labour and other contractors, commission agents, rent from commercial property, mandap decorators, repairing or servicing, catering, etc professionals like Engineers, Architects, etc. Further, on some specified expenses also service tax is payable such as transportation expenses, etc. There are many small taxpayers, who were out of the reach of Department and hence this scheme had to be brought.

Arjuna: What are the special provisions of this scheme and how their benefit should be taken by taxpayers?

Lord Krishna: Arjuna, very little time is left. Benefit of this scheme can be availed upto 31st December 2013 only. The taxpayers who have received any notice or been subject to any inquiry, investigation, etc. or in respect of whom any audit has been initiated and the same is pending as on 1st March 2013, will not be eligible for this scheme. Non-payers of service tax can take advantage of this scheme by paying at least 50% of service tax payable for the period October 2007 to December 2012 on or before 31.12.2013. Interest and Penalty @100% or any other proceeding will be dropped. For this purpose, service tax registration will have to be taken, if not previously registered. Also Form VCES-1 is to be filed for which acknowledgement should be obtained within 7 days in Form VCES-2 and tax is to be paid. Further, remaining 50% of the tax should be paid by 30.06.2014 otherwise interest will have to be paid on the amount paid thereafter up to 31.12.2014. Other provisions of the scheme should also be taken care of before availing the benefit of the scheme.

Arjuna: Great! It is a wonderful scheme but which important things should be taken care of?

Lord Krishna: The amount of tax should be accurately calculated as the amount paid under this scheme will not be refunded. An inquiry may also be made within  one year from the expiry of the scheme. Department will discharge the same in Form VCES-3. Benefit of the scheme should be taken after verification of all documents by officers.

Arjuna: What will be the effect of amount of service tax paid under this scheme in income tax?

Lord Krishna: Arjuna, very useful question asked. See, Income from Services would have already been disclosed in Income Tax Return. Service tax paid on such income can be claimed as deduction. But if excess income from services is shown than that which has been disclosed in income tax and service tax is paid on it, such excess income may be liable for income tax, interest, penalty, etc under income tax. For eg. For the year 2010-11, If receipts from services as per income tax return is `.60 lacs and under the service tax amnesty scheme, service tax not paid on receipts from services of `.70 lacs is now paid, Department will necessitate to pay income tax on difference of `.10 lacs. Therefore, only after considering implications of all tax laws, the benefit of this service tax scheme should be availed.

Arjuna: Krishna, on one hand the Government is providing amnesty to tax defaulters, while on the other hand the regular taxpayers face problems. Why is it so?

Lord Krishna: See Arjuna, everyone should be given at least one opportunity to rectify a mistake. After this scheme, taxpayers not paying service tax may face imprisonment. Recently, some of the film artists were imprisoned for default in payment of service tax above `.50 lacs. Due to computerization, various tax departments are easily getting information about the taxpayers. The Government is taking extreme efforts to reduce black money and tax evasion. At the same time, Government should also take care that wrong enforcement or misuse of rights should not create an impression of “One who pays tax, only suffers”. This is the last golden opportunity for the service tax defaulters to do law compliance, otherwise face serious consequences. Service tax defaulters beware, pay tax and be clear. Yes, it may be somewhat true that Carrot to Service tax defaulters and stick to followers in service tax department. But let’s hope for good, as chance needs to be given to everyone to clear his mistakes. And to forgive is sign of bravery. But please remember dear Arjuna, Chance to clear mistakes comes only once in life, if any one carries on committing mistakes deliberately, than he will be punished.

NOTE: Dear readers, thanks for your comments and response on this series of KARNITI. Please carry on and give your valuable comments.

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CA Umesh Sharma
Category Service Tax   Report

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