VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013 (Part – I)

[Dr. Sanjiv Agarwal]

While there are over 17 lakh registered Service Tax assessees in India, it is reported that 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 may have been 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 chasing Service Tax assessees, Service Tax targets and reach out to the assessees be it for counseling, payment of tax or recovery of Service Tax.

Since Department does not appear to have adequate infrastructure to reach out to all of them and huge cost is involved, in this year's Budget, Government has announced to motivate such assessees to file return and pay Service Tax arrears by introducing a one-time scheme called 'Voluntary Compliance Encouragement Scheme' (VCES). There is no such scheme for Central Excise or Customs. Accordingly, 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 1^st October, 2007 to 31^st December, 2012 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 which can be considered to be a substantial relief to the defaulting tax payers.

VCES has been introduced as an 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.

Statutory Provisions of VCES-2013

The Finance Act, 2013 has inserted following provisions for Service Tax Voluntary Compliance Encouragement Scheme, 2013 w.e.f. 10.5.2013 -

Section                       Provisions

100                             Title of scheme

101                             Definition- declaration, designated authority, tax dues etc.

102                             Person who may make declaration of tax dues

103                             Procedure for making declaration and payment of tax

                                  dues

104                             Immunity from penalty, interest and other proceedings

105                             No refund of amount paid under the scheme

106                             Tax dues declared but not paid

107                             Failure to make correct declaration

108                             Removal of doubts

109                             Power to remove difficulties

110                             Power to make Rules

According to notes on clauses to Finance Bill 2013, it has been explained that-

"The Scheme is a one-time measure to encourage voluntary compliance by persons who may not have filed the returns or paid the service tax dues for the period commencing from 1st October, 2007 and ending on 31st December, 2012. It provides that such persons shall declare the tax dues and pay the same in accordance with the provisions of the Scheme. It further provides for certain immunities including penalty, interest or any other proceeding under the Chapter V of the Finance Act, 1994 to those persons who opt for the Scheme".           

The scheme

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 defaulters 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 shall come into force when the Finance Bill, 2013 is enacted i.e. w.e.f 10.05.2013. 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 assessees 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.

VCES only for Registered Assessees

VCES 2013 is applicable only to registered service tax assessees. Those who are already registered under service tax can avail of the benefit of VCES, 2013. However, any person who wants to avail VCES, 2013 and is not registered for service tax can do so by first taking registration under Rule 4 of Service Tax Rules, 1994 and then make a declaration under VCES, 2013. The only requirement is that the person who is making the declaration must be registered at the time of making the declaration irrespective of when the registration was taken.

Tax dues

‘Tax dues’ has been defined in clause (e) of section 101 as under -

“tax dues” means the service tax due or payable under the Chapter or any other amount due or payable under section 73A thereof, for the period beginning from the 1st day of October, 2007 and ending on the 31st day of December, 2012 including a cess leviable thereon under any other Act for the time being in force, but not paid as on the 1st day of March, 2013.

Thus,' tax dues' would cover the following –

(a)  Service tax due or payable under Finance Act, 1994

(b)  Any other amount due or payable u/s 73 A

(c)  Education cess and secondary & higher education cess

The aforementioned amounts should be for the period from 1^st October, 2007 to 31^st December, 2012 but not paid as on 1^st March, 2013. Tax dues will not include amount of interest or penalties.