Voluntary Compliance Encouragement Scheme –VCES – Suggestions to make it Successful
The VCES scheme purports to be for the 17 lakhs non filer and non payers. It is a variation of several amnesty scheme we have seen under Income Tax in the past 65 years. Now service providers as well as service receivers who are liable to pay under reverse and joint charge could choose to suppress and not pay and wait for the regular scheme to be announced to wash off all their sins without being penalized or interest charged. As in the past providing that being tax compliant and a proud tax payer may not be best in a country like India. As usual it is the compliant tax payer who pays for the follies of the tax evader.
Be that as maybe we the honest and law abiding feel hurt whenever such schemes are floated now and again.
To be fair however under service tax there are a few different situations and reasons why service tax was not paid in which this scheme was launched at the ground level as follows:
1. It is a fact today that there is hardly any TRU officer, Commissioner, Auditor [ IAP/ CAG] Consultant and even authors of several books who can with confidence opine on many activities. The tax officers view is clear that the option which collects the maximum tax at the earliest is the only right option!! The conservative professional would advise payment on all activities even if the same is liable for CST/ VAT/ Luxury tax or entertainment tax and many others as the declared services includes almost all activities liable for State levy. The negative list has been nomenclated strictly and many activities/ transactions lead to double taxation. Constitutional experts have questioned the “aspect theory” in Indian where we have a concurrent list also- stating that transaction which fall in the State list cannot be taxed by the Union. Many tax payers therefore are at sea whether they are really and clearly liable for payment of service tax. They are in a confounded state.
2. The new law, changes in the definitions yearly, amendments in the exemptions yearly have proved that the cost of badly drafted laws with hardly any professional of legal inputs to ensure its appropriateness is to be borne by the tax payer. Lip service of inviting suggestions in limited time without due advertisement have ensured this law is full of ambiguity which would be further enhanced with retrospective amendment to judicial decision which go against revenue augmentation view of this CASH COW OF TAXES. The concept of anteriority which our FMs see in all developed countries however is not made applicable in India due to the short sight – immediate results rather than a smooth visionary approach of fair taxation.
3. The ST law is applicable to 100,000’s of the uneducated [ at times maybe earning as less as Rs. 50,000/- after expenses] It has also been extended to the 10,000’s of unorganised service providers who are barely making ends meet. The biggest consumer of goods and services the Government of India and its arms, corporations, projects insist on bids where taxes are INCLUSIVE!!! Why should this not change? If Government is not willing to pay ST who else would be willing to pay? The threshold limit for services should not have been less than Rs. 50 lakhs to ensure that small service providers are not unnecessarily covered and also in comparison the Rs. 150 Lakhs applicable to manufacturers. Kautalaya in his Arthashastra laid down several golden principles which though quoted by several FMs are rarely followed in spirit. One golden rule is to tax those who can bear the burden.
Now that this scheme has been announced what is the response. At best luke warm. Once the risk of making the tax compliant look like fools has been announced at least it should be ensured that it meets the objective of:
A. Encouraging as many as possible to come clean and get into the tax paying stream.
B. Collecting at least Rs.50,000 Crores. [In its present structure it may not garner Rs.1000 crores]
C. In this tax law those who were not clear, unaware, evaders, those who interpreted the law to their advantage, those who are presently disputing- the whole jing bang lot should be covered- ie. Making the scheme comprehensive and meaningful.
Some Specific Action Point To Have Long term advantage and augment revenue this year:
i. The issues and suggestions which would go to make the scheme successful and end the paid on a large number of service providers given by the trade and professional bodies [Like ICAI etc] be swiftly resolved and notifications/ clarifications issued soon.
ii. Incorrect cenvat credit due to ineligibility, excess credit due to error or non applicability of restriction under Rule 6 of CCR 2004 would constitute a major segment. It may be examined whether that also should be included in this scheme. Many service providers would have opportunity of “gangasnan”. If this suggestion were to be taken then tax dues for those liable would have to computed after deduction of eligible credit.
iii. Many of the jurisdictional departmental officers and audit parties do not seem to be supporting this scheme maybe for personal reasons. It should be strictly instructed that they should encourage the scheme and penal action against erring officers be taken quickly to spread the message.
iv. The service providers are eligible for set off and under this scheme they are not eligible for the same. The clarity on carry forward and availability of credit to the service receiver on receipt of a supplementary invoice from such VCES declarer without restrictions be made clear. [Inapplicability of Rule 9 (b) and 9(bb) made clear]
v. Many issues became clear much after 2008. Therefore for construction from 2010 and renting from 2011, that date be fixed as the date from which the liability is to be paid. When the service provider can avoid the longer period he may not be encouraged to go under VCES.
vi. The main attraction of the scheme is waiver of action under the scheme. However many potential VCES filers are holding back as the action under Central Excise, VAT or Income Tax is not guaranteed. This maybe specifically clarified.
vii. Those who have declared their liability but have not been able to pay – obviously due to inadequate financial strength to also be eligible. Some heartburns less as these service providers are cursing themselves on their honesty.
viii. It is understood that revenue is losing 80+% of its cases. Maybe a good time to allow all those in dispute also to opt into this scheme. Maybe the tax collection would be substantially higher than if adjudication and appeal process complete. This one measure could lead to at least Rs. 20,000 Crores revenue. Added advantage would be the pendency at various stages within the department as well as the Tribunal would be eased substantially.
ix. In the past year we have seen 10,000’s of survey notices from certain classes of service providers [ sub contractors for infrastructure projects- service providers to large corproates etc] These should not be considered as notice specifically. Similarly 1000’s of unofficial enquiries have been made which are received in ordinary post which may not be in the dispatch records. These also should not be considered as enquiry initiated.
x. In case of rejection of the VCES-1 the opportunity to be heard be provided as we live in a democratic country and principles of natural justice need to be followed.
Now that the scheme has been announced, the FM & CBEC should see to it that it meets the objectives for which it was meant. Hope this communication reaches the powers that are or thru the readers reach them.
CA Madhukar N Hiregange
Tags cbec Service Tax