Dispute Resolution In Service Tax

[Dr.Sanjiv Agarwal]

Introduction

Today service tax suffers from rampant litigation from both sides at all appellate forums. There are interpretational issues as well as overlapping services which create confusion leading to tax disputes. In order to settle disputes of a reasonable size, (Rs. 25000 of tax involved), Government of India had announced in Budget 2008-09 a novel Service Tax Dispute Resolution Scheme (STDRS) for a limited period of 92 days or three months commencing from Ist July, 2008 to 30th September, 2008. The scheme aims at settling disputes pending as on Ist March, 2008 for amounts of service tax involving upto a maximum of Rs. 25000. The scheme aims at bringing down substantially the service tax related disputes from all over the country. The introduction of scheme is a welcome move which will certainly come as a rescue for genuine tax payers and at the same time relieve revenue officers so as to focus on other revenue generating efforts.

The Rules for the Scheme has since been notified vide N. No 28/2008 - ST dated 4.6.2008.

Overview of Scheme

Government of India has introduced a novel scheme of dispute resolution know as the Service Tax Dispute Resolution Scheme, 2008 (Chapter VI of Finance Act). This scheme has been introduced in order to settle disputes which were pending as on 1st March, 2008 involving tax arrears not exceeding Rs. 25000 to be covered under the Scheme. There should be two conditions satisfied, one, tax arrears are existing or a show cause notice or demand notice has been served on or before 1.3.2008. Both the conditions are must.

                           Scheme at a Glance

Commences on                                     1 July 2008

Terminates on                                       30 September 2008

Cut off date for reckoning of disputes    1 March 2008

Threshold limit of eligible disputes          Rs. 25000

Scope of disputes service tax, interest, penalties and cess

Ineligible disputes  -   Disputes in excess of Rs 25000

                            -    Order or demand notice or show cause notice issued under section 73A

                            -    Disputes arising after 1st March 2008

Appeal against orders Under Scheme  - Not applicable

Refunds under scheme  - Not allowed

Salient Features of Scheme

The salient features of this scheme as contained in proposed Chapter VI of Finance Act, 2008) are as under - 

•   The scheme shall as valid for the period between 1 July, 2008 and 30 September, 2008.

•   Scheme is not applicable to any order, decision, demand notice or show cause notice -

      o      which is issued under Section 73A of Finance Act,1994

      o      which relates to tax arrear and includes service tax in excess of Rs. 25000

•   Eligible disputes will be for amounts outstanding as on 1.3.2008.It will not cover   disputes emerging after 1.3.2008.

•  Tax  arrears should not exceed Rs. 25000.

Tax arrears cover all payments relating to service tax and§       shall include service tax, interest and penalty. It will also include education cess.

Tax arrears will include due liabilities for which order has§       been passed or demand notice or show cause notice has been issued on or/before 1.3.2008. 

Tax orders, demands, notices issued on or after 2nd March,§       2008 shall not be covered.

•   There is a specific definition of tax arrear in section 97(e) which states as under -

"Tax arrear means service tax, cess, interest or penalty due or payable or leviable under the Chapter but not paid as on the 1st day of March, 2008, in respect of which-

An order has been passed under the Chapter; or §      

A demand notice or a show cause notice has been issues on or§      before the 1st day of March, 2008 under the Chapter;"

•   It will not cover cases where service tax involved is more than Rs 25000 or order /   notice has been issued under section 73A.

•   Service of order or demand notice or show cause notice is not contemplated.

•   Settlement of tax payment shall be as follows-

(a)  Where the tax arrear has arisen due to determination, assessment or, as the case may be, order of an adjudicating authority,— 

(i) such tax arrear includes the amount of service tax not exceeding twenty-five thousand rupees, at the rate of fifty per cent. of service tax amount;

(ii) such tax arrear consists of only interest payable, or penalty levied or both, under the Chapter, at the rate of twenty-five per cent. of such tax arrear: 

provided that, if the amount of penalty levied exceeds the service tax amount to which it relates, service tax amount shall be considered to be the amount of penalty; 

(b) Where the tax arrear has arisen due to show cause notice or demand notice, as the case may be, — 

(i) such tax arrear includes the amount of service tax not exceeding twenty-five thousand rupees, at the rate of fifty per cent. of service tax amount;

(ii) such tax arrear consists of only interest payable, or penalty leviable or both, under the Chapter, at the rate of twenty-five per cent.of the maximum penalty leviable and interest payable: 

provided that if the amount of penalty leviable exceeds the service tax amount to which it relates, service tax amount shall be considered to be the amount of penalty. 

• If there are more than one order, notice etc, each one shall be separately considered for calculating Rs. 25000 threshold limit.

• The limit of Rs. 25000 is for service tax. Thus amount including interest and penalty  may exceed Rs. 25000.

• Declaration to be submitted to designated authority and such authority to determine the amount payable within 15 days from receipt of declaration.

• False declaration would deem that no such declaration was made and all pending proceedings would revive and it will be treated as void.

• Amount shall be paid by declarant within 30 days of order by designated authority.

• The order would be conclusive and cannot be reopened in any other proceeding under the Act.

• No appeal would lie against such orders.

• Any appeal or reference filed before any Authority, Tribunal or Court or reply to show cause notice in relation to which declaration is filed, will be deemed as withdrawn.

• No refunds shall be permissible for amount paid under the scheme under any circumstances.

Statutory Provisions of Scheme

Service Tax Disputes Resolution Scheme has been legislated under Chapter VI of Finance Act, 2008 which comprises of sections 91 to 101

Section 91   -   Short title and commencement

Section 91 relates to short title and commencement of a Scheme for resolution of disputes in service tax to be called the Service Tax Disputes Resolution Scheme, 2008.

Section 92   -   Definitions

Section 92 contains definition of certain terms and expressions viz, person, prescribed and tax arrear used in the Scheme.

Section 93   -   Applicability of Scheme

Section 93 provides that Scheme would not be applicable in cases where tax arrears includes service tax amount of more than twenty-five thousand rupees and where notice or order has been issued under section 73A of the Finance Act, 1994.

Section 94   - Settlement of tax payment

Section 94 specifies the time frame for making the declaration by a person against whom tax arrear is pending, to the designated authority and rate of amount payable under the Scheme by the declarant.

Section 95   - Particulars to be furnished in declaration

Section 95 provides that a declaration under the Scheme will be made before the designated authority and further provides that the declaration will be in such form or manner as may be prescribed.

Section 96   - Time and manner of payment of tax arrear

Section 96 provides that designated authority shall determine the amount payable on the basis of declaration, with fifteen days of the receipt of the declaration and will pass order on the declaration received by him. The declarant shall pay the sum determined by the designated authority and furnish proof of such payment before him. The designated authority will also issue certificate to the person making the declaration stating therein the particulars of the sum payable by the declarant. The clause further provides that the matter once determined will not be opened for such dispute in the court of law or before any other forum. In case the declarant has filed a writ petition for appeal or reference before any High Court or Supreme Court against any order in respect of tax arrear, the declarant shall file application before the High Court or Supreme Court for withdrawing such writ petition or reference and shall provide proof of such withdrawal.

Section 97   -  Appellate authority not to proceed in certain cases

Section 97 provides that appellate authority shall not proceed to decide any issue relating to tax arrear specified in the declaration and in respect of which an order had been made by the designated authority.

Section 98   -  No refund of amount paid under the scheme

Section 98 provides that amount paid in pursuance of the declaration shall not be refundable under any circumstances.

Section 99   - Removal of doubts

Section 99 clarifies that, except as expressly provided therein the Scheme should not be construed as conferring any benefit, concessions or immunity on the declarant in any assessment or proceeding other than in respect of which the declaration pertains to.

Section 100   -  Power to remove difficulties

Section 100 empowers the Central Government to pass any order not inconsistent with the provisions of the Scheme for removing any difficulty which may arise in giving effect to its provisions. All such orders made by the Central Government shall be required to be laid before each House of Parliament.

Section 101   -  Power to make rules

Section 101 empowers the Central Government to make rules for carrying out the provisions of the Scheme. All rules made under the Scheme shall be laid before each House of Parliament.       

Threshold limit for Service Tax only

Section 93 of Finance Act, 2008 clearly provides for monetary limits of disputes which is only is respect of service tax and does not include any other sum, i.e., interest, penalty or any cess. It can therefore, be viewed that one can avail the service tax dispute resolution scheme for an amount exceeding Rs. 25000 also provided that total amount of service tax under dispute should not exceed Rs. 25000. For example, in a dispute of say Rs. one lakh, if Rs. 75000 could comprise of interest and various penalties, it can be settled under the said scheme. The mandatory condition is that dispute of service tax amount upto Rs. 25000 should be in existence as on the close of Ist March, 2008. Even when a show cause notice is issued on Ist March, 2008 but not served, such a dispute will be covered.

Declaration

The Scheme (section 95) requires assessee to make a declaration during the currency of the scheme to avail the scheme. The format for the declaration should be as per Form 1 of the rules.

The declaration shall be required to be made in the prescribed form and manner and will have to be properly verified. It should be filed before the designated authority - A declaration can also be made on the last  day of the scheme to be eligible for being considered.

While there is no specific penalty prescribed for furnishing of wrong information or there being material misstatement, or if at a later date such declaration is found to be false at any stage, it shall be deemed that such a declaration was never made and it shall revive all pending proceedings under the statutory provisions.

As a major consequence of resolution under the scheme, as per section 96(4), once a declaration is filed, any appeal or reference before any authority, tribunal or court or any reply to show cause notice shall be deemed to have been withdrawn, whether or not actually withdrawn. If due to false declaration, the pending proceedings are revived, it is not clear whether such pending tribunal/adjudication proceedings will also revive or not and whether replies submitted earlier shall continue to be valid? pending proceedings before high court or supreme court will not revive as declarant is required to withdraw the same while filing the declaration.

Action on Declaration

Once a declaration is made by the assessee, the designated authority is bound to determine the amount payable by the declarant as per the scheme by way of an order in writing within 15 days of such declaration. Once an order is made by the designated authority, declarant is required to pay the amount determined within a period of 30 days of the date of order and intimate the fact of payment to the designated authority with proof of such payment. On receipt of such intimation, designated authority will issue a certificate to the declarant to evidence the discharge of liability under the scheme. The order should be in Form No 2 of the rules.

Guidelines for availing the scheme

CBEC has now issued Circular No. 102 /5/2008-ST dated 4.6.2008 providing detailed guidelines for implementation of the scheme.

Time frame of STDR Scheme

Following time frame of STDR Scheme is relevant for service tax assessees-

Scheme opens                                                    1.7.2008

Declaration day                                                   D

Scheme closes (last day for declaration)               30.9.2008

Determination of amount payable in scheme          D + 15

Payment of amount determined                             D + 45

Intimation to designated authority                         D + 46 onwards

Issue of certificate                                               D + 46 onwards

In case declaration being made on 30th September, 2008, all other activities shall be carried out after that date and the fact that scheme has closed on 30th September, 2008 will not affect the proceedings.