AMNESTY SCHEME IN SERVICE TAX

[Dr. Sanjiv Agarwal]

With tax –GDP ratio still in a single digit and contribution of service sector to Indian GDP at over 60 percent, one needs to ponder as to what prevents the service providers to pay Service Tax and file Service Tax returns. The reasons are twofold – ignorance of law and confusions and complexities in law, of course, willful defaults are also not ruled out.

While there are over 17 lakh registered Service Tax assessees in India, only about 7 lakh people file their Service Tax returns. By all means, it is a very disappointing number. Thus, only 40 percent of the registered assessees file their returns (and pay tax). Many have simply stopped filing returns. This is a worrying situation as Service Tax is an indirect tax. It has to be collected and paid. There are all chances that Service Tax is being collected but not paid to the credit of Central Government. With heterogeneous group of services and service providers spread all over, department has also not been able to cope up with the pressure of Service Tax assessees, Service Tax targets and reach out to the assessees.

Since department does not have infrastructure to reach out to all of them and huge cost is involved, unlike excise duties, in this year's budget government has announced to motivate them to file return and pay Service Tax arrears by introducing a one-time scheme called 'Voluntary Compliance Encouragement Scheme' (VCES). Any Service Tax defaulter may avail of this scheme on the condition that he files a truthful declaration of Service Tax dues of last five years, i.e., since October, 2007 and makes the payment of Service Tax in one or two installments before the due prescribed dates. If this is done, government shall waive the payment of interest, penalty and other penal consequences.

VCES introduced as a amnesty measure to effect compliance, recovery and provide amnesty from interest and penalties (last date 31.12.2013). The scheme, inter alia, envisages the following -

• The scheme is applicable to only non filers or stop filers or who have not made truthful declaration in Service Tax returns.
• Declaration to be made by defaulter assessees for pending dues from 1^st October, 2007 and upto 31^st December, 2012.
• Scheme in not applicable to period before 1.10.2007 and beyond 31.12.2012
• Not applicable to cases involving search, audit, investigation and summon issued cases.

The scheme can be availed of by non-filers or stop-filers or persons who have not made a truthful declaration in their return. However it will not be applicable to persons against whom any inquiry or investigation is pending by the issue of search warrant or summon or by way of audit;

The defaulter will be required to make a truthful declaration of all his pending tax dues (from October1, 2007 to December 31, 2012) and pay at least half of that before December 31, 2013; remaining half to be paid by: (a) June 30, 2014 without interest; or

(b) By December 31, 2014 with interest from July 1, 2014 onwards. On compliance with all the requirements, the person will have immunity from interest (as specified), penalties and other proceedings;

The scheme will come into force when the Finance Bill is enacted. It is clarified that the tax-payers will need to settle their dues for the period after December 31, 2012 under the present law.

However, the scheme will not be applicable to those persons who have already been served notices of demand or searched or summoned or any investigation or audit is under-way. Also those who have filed returns but not paid tax are also not covered. There will be no amnesty for the period from 1^st January 2013, nor any refund can be claimed under the scheme.

Salient Features Voluntary Compliance Encouragement Scheme, 2013 (VCES)

- Introduced by Chapter VI (Clause 94-104 of Finance Bill, 2013)

- Applicable to Stop filers / non-filers

- Only a one time scheme

- Hope to collect reasonable money

- Action & consequences

- Truthful declaration of service tax dues service 1.10.2007 upto 31.12.2012 by defaulter as on 1.03.2013

- Payment of due tax in 1 or 2 installments

- Interest , penalties and other consequences waived

- Not applicable to period before 1.10.2007 or after 31.12.2012

-  Not applicable to cases involved search, audit, investigation, SCN or summon issued cases as on 1. 03. 2013

-  At least half of tax to be paid before, 31^st December, 2013

-  Balance to be paid by

-  30^th June, 2014 without interest

-  31^st December 2014 with interest w.e.f. 1.07.2014

-  Dues for period after 31^st December, 2012 to be settled as per present Law

-  No refund allowed for amount paid under VCES

-  Tax dues declared but not paid – to be recovered as per Law

-  False declaration to be rejected - reason to believe, notice to be served

-  No action after one year from date of declaration

-  Once acknowledgement is issued - no reopening permissible

 The scheme appears to garner lukewarm support as it is subject to many conditions. Still, assessees should avail of this scheme as it is a one-time offer which provides immunity from penalties which may be as high as double the tax amount.