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Voluntary Compliance Encouragement Scheme 2013

Advocate Neerav Mainkar , Last updated: 12 December 2013  



The Budget of 2013-14 ushered in a new gift for a multitude of service tax payers; or rather non-payers by announcement of the Voluntary Compliance Encouragement Scheme, 2013 or the VCES, 2013 as is popularly known.

The Scheme is very simple in language and intent and promises a big relief to chronic non payers to get rid of the Damocles’ sword hanging overhead. The Scheme is targeted at all non-filers and stop filers who have either never filed any Returns or have stopped filing returns and consequently not paid service tax either, whether or not charged and/or collected. The Government has also put in place the suitable infrastructure to accept and expeditiously dispose of the Applications received. The person has to make a truthful disclosure of service tax dues since October, 2007 till December, 2012 and has to then make payment in 2 installments, subject to which interest, penalties and other consequences would stand waived.

The object of the Scheme, as stated by the Honourable Finance Minister himself was to ‘entice a large number of assesses to return to the tax fold and also collect a reasonable sum of money’.

Apparently, the VCES is a God-send for many service tax providers/ recipient, who may not have paid service tax, either deliberately or due to ignorance. However, this is where the good part ends. It is perceived that the VCES, announced in June, 2013 has so far not got the desired response. An attempt is being made in this article to understand as to why this patently beneficial scheme is yet to take off speedily even as we approach the close of the interest free period for first installment in December 2013.

As Tax Professionals, we are privy to many apprehensions voiced by the targeted audience. The main fears primarily are as under:

1. The Trade is apprehensive that the information provided in disclosures may be used as a data and they may be internally blacklisted/ targeted in future.

2. The very fear of approaching the Department as roving questions may be asked.

Although, it has been made amply clear in the Scheme itself that under Section 108 of the Finance Act, 2013, the Declarant would, upon payment of tax dues, get immunity from penalty, interest or any other proceedings under service tax law and no matter shall be re-opened thereafter in any proceedings under Service Tax law before any authority or Court of Law for the period covered by such declaration, there still lurks some fear in this regard.

The Government could do well for itself if it advertises this aspect in the coming days to dispel such fears from the minds of the prospective Declarants. Also, the field staff may be sensitized to treat the Declarants with respect and compassion so as to encourage them to come forward more openly and confidently.

Apart from the above factors, it is felt that the VCES Scheme could have been more effective if the following factors had also been considered:

1. The Scheme covers only those persons who are non-filer or stop-filers of Service Tax Returns. However, assessees who have disclosed their correct tax liability but not paid the same have been de-barred from the Scheme. Viewed from a different perspective, these persons have in fact disclosed their liability truthfully in their ST-3 Returns indicating strongly that although there is a desire to pay, the payment has not been made. To exclude this category while extending the benefit of VCES to those who might have never disclosed or paid their service tax, is prejudicial to the ones who have at least disclosed their liability. If the Scheme is extended to these persons, the revenues generated will rise substantially. The Government needs to give thought to this aspect.

2. The Scheme also excludes pending litigation. It is a recorded fact that millions of Rupees of the Government are locked up in tax litigation, which also includes Service Tax. Out of these pending litigations are largely such litigations, which the assessee may pursue only to delay the payment by buying time. Litigations are also forced as the assessee is averse to paying interest and/or penalty, being prohibitive. If the Government would have tapped these pending litigations at various levels by assuring similar immunity, a large amount of locked-up Revenue could have been generated as the litigants would have availed of the opportunity and withdrawn their cases/ appeals and besides the pendency of litigation in the Appellate/ Adjudicating bodies would have also substantially reduced, thereby serving dual purpose.

To conclude, the VCES Scheme is doubtlessly a positive move by the Government and a welcome gesture for the trade. However, consideration of above factors would have perhaps made this a stupendous success and a win-win situation for the Exchequer as well as the trade.


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