2025 (1) TMI 736 - HC - Service Tax

Entitlement for benefit of the Service Tax Voluntary Compliance Encouragement Scheme (VCES) - payment of the principal tax dues after the cut-off date of 1st March 2013 done - Rejection of assessee s declaration filed under the scheme on 23rd July 2013 by a communication dated 25th July 2014 on the ground that certain sums of money were deposited by the assessee prior to coming into force of the scheme - HELD THAT - The communication dated 25th July 2014 cannot be construed to be an order in the strict sense for an appeal to be preferred. That apart the CBEC by Circular dated 8th August 2013 issued certain clarifications with regard to the implementation of the scheme and it has been clarified that the scheme does not have a statutory provision for filing of an appeal against the order for rejection of declaration under Section 106 (2) by the designated authority. The cut-off date under the scheme which is sacrosanct and cannot be ignored by the department - the cut-off date fixed under the scheme is the very crucial factor and this aspect was noted in the case of Sadguru Construction 2014 (5) TMI 219 - GUJARAT HIGH COURT and it was held that if the intention of the legislature was to exclude any tax deposited before framing of the scheme the same could have been provided in plain language. On the contrary the legislature excluded from the purview of declaration only those taxes which were already paid by 1st March 2013 and therefore the period between the 1st March 2013 and 10th May 2013 would by necessary implication of the provision of the scheme be covered for declaration under the scheme itself. Conclusion - Payments made after the cut-off date but before the scheme s introduction are eligible under VCES. The assessee is entitled to the benefit under scheme and the declaration of the assessee should be accordingly processed. The rejection of the VCES declaration is not an appealable order. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the appellant is entitled to the benefit of the Service Tax Voluntary Compliance Encouragement Scheme (VCES) despite having made the payment of the principal tax dues after the cut-off date of 1st March, 2013.
• Whether the Tribunal erred in holding that the rejection of VCES is an appealable order, especially given the pending adjudication on this issue before the Supreme Court.
• Whether the Tribunal failed to appreciate the clarifications issued by the Central Board of Excise and Customs regarding the non-appealability of the rejection of VCES declarations.
• Whether the payments made by the assessee prior to the introduction of the scheme on 10th May, 2013, can be considered under the scheme.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to VCES Benefits

• Relevant Legal Framework and Precedents: The VCES was introduced to allow taxpayers to declare their tax dues and pay them without incurring penalties or interest. The cut-off date for eligibility was 1st March, 2013.
• Court's Interpretation and Reasoning: The court interpreted the scheme's provisions to mean that payments made after 1st March, 2013, but before the scheme's introduction on 10th May, 2013, should be considered under the scheme.
• Key Evidence and Findings: The assessee made payments on 19th March, 2013, and 12th April, 2013, which were after the cut-off date but before the scheme's introduction.
• Application of Law to Facts: The court applied the definition of "tax dues" under Section 105(1)(e) of the Finance Act, 2013, which includes amounts not paid as of 1st March, 2013.
• Treatment of Competing Arguments: The court rejected the department's argument that payments made before the scheme's introduction were ineligible, citing the statutory provisions and the Sadguru Construction precedent.
• Conclusions: The court concluded that the assessee is entitled to the scheme's benefits, and the declaration should be processed accordingly.

Issue 2: Appealability of VCES Rejection

• Relevant Legal Framework and Precedents: The CBEC Circular dated 8th August, 2013, clarified that rejection of VCES declarations is not appealable.
• Court's Interpretation and Reasoning: The court found that the communication rejecting the declaration was not an order in the strict sense and thus not appealable.
• Key Evidence and Findings: The circular and the pending Supreme Court case on the appealability of VCES rejections were crucial.
• Application of Law to Facts: The court held that the rejection communication merged with the adjudicating authority's order, which was appealable.
• Treatment of Competing Arguments: The court noted the department's inconsistent stance and held that the rejection was not independently appealable.
• Conclusions: The court concluded that the rejection of the VCES declaration was not an appealable order.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"The cut-off date under the scheme which is sacrosanct and cannot be ignored by the department."

"If the intention of the legislature was to exclude any tax deposited before framing of the scheme, the same could have been provided in plain language."

Core Principles Established:

• Payments made after the cut-off date but before the scheme's introduction are eligible under VCES.
• The rejection of VCES declarations is not an appealable order as per the CBEC's clarification.

Final Determinations on Each Issue:

• The assessee is entitled to the benefits of the VCES, and the declaration should be processed.
• The rejection of the VCES declaration is not an appealable order, and the Tribunal's decision on this point is set aside.

The judgment concludes by allowing the appeal, setting aside the Tribunal's and adjudicating authority's orders, and directing the designated authority to reconsider the application under the scheme.