No Recovery if applied for payment of ST Under VCES, 2013

Bimal Jain , Last updated: 28 September 2013  

Dear Professional Colleague,

No Recovery proceedings if applied for payment of defaulted Service Tax under VCES, 2013  

The Service Tax Voluntary Compliance Encouragement Scheme, 2013 (“VCES, 2013” or “the Scheme”) is not able to get success on many accounts and prospective applicants are scared to opt for VCES as the declarants are being targeted by the Preventive Wing of the Department. It is very important that the department should extend helping hands to the defaulters to pay the service tax, not paid in the past and help the Scheme to flourish in collecting a reasonable sum of money as desired by the Hon’ble Finance Minister while launching the VCES, 2013.

Before the Scheme gets flourish, litigation has started and one of the important related judgement of the Hon’ble Allahabad High Court in the case of Anand Caterers (Petitioner) Vs. Union of India and 3 Others (Respondent) AIT-2013-162-HC, is summarized for your easy digests on following issue:


Whether Recovery can be made if Assessee has already applied for payment of defaulted Service tax amount under VCES, 2013?

Facts & Background:

The writ petition is filed against the summoning order dated 31.5.2013 issued by the Superintendent (AE), Central Excise and Service Tax, Noida and Notice dated 7.6.2013 issued by the Deputy Commissioner (AE) Central Excise and Service Tax, Noida and the proceedings under Section 87 of the Finance Act, 1994 (“the Finance Act”) by way of issuing garnishee order.{Relevant Portion of Section 87 is reproduced here in below}

Section 87: Recovery of any amount due to Central Government.

“Where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made there under is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned below:—

(a) ....................................;

(b) (i)  the Central Excise Officer may, by notice in writing, require any other person from whom money is due or may become due to such person, or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central Government either forthwith upon the money becoming due or being held or at or within the time specified in the notice, not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount;.................................”

The order dated 7th June, 2013 passed under the said Section required the petitioner to deposit an amount of Rs.60 lacs (Rupees Sixty Lacs) as service tax along with interest in respect of the taxable services provided. The notice has been addressed to the bankers of the petitioner to release the funds held by them on behalf of the petitioner.

The petitioner acknowledged that he is liable to pay service tax and is registered with the service tax authorities. On 31.5.2013 a search was conducted on its business premise in which it was detected that the petitioner is required to pay Rs.60 lacs as service dues. He has challenged the garnishee order on the ground that he has filed an application on 20th June, 2013 under Section 106 (VCES, 2013), which is operative for the period from 1st October, 2007 to 31st December, 2012 and covers all the liability, outstanding as on 1st March, 2013.


Since the petitioner has submitted an application under VCES, 2013 vide which it can deposit 50% of the admitted tax due by 31st December, 2013 and the remaining amount by 30th June, 2014, the garnishee order has been illegally and arbitrarily issued without deciding the application.


The Hon’ble Allahabad High Court has held that when the liability of service tax is admitted and application has been made under the VCES scheme on 20th June, 2013, then no recovery proceedings could be taken until the application is disposed of and which, under Section 107 permits the defaulter to deposit tax in two instalments i.e. to pay 50% by 31st December, 2013 and remaining 50% by 30th June, 2014.

Further, the petitioner has demonstrated that he fulfils the eligibility conditions of VCES, 2013 and that unless the application is considered and decided, no proceedings under Section 87 may be allowed to continue. The object of the Service Tax VCES, 2013 may be defeated, if the recovery is allowed to proceed.

Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)


Released a Book - "Guide to Service Tax Voluntary Compliance Encouragement Scheme, 2013", authored by Bimal Jain, FCA, FCS, LLB

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.

Readers are advised to consult the professional for understanding applicability of this newsletter in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.

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Bimal Jain
Category Service Tax   Report



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