Any Issue, same issue and notice Issued in the VCES,2013.

[Mr. Vasudevan Unnikrishnan]

The legislation should be simple and understandable by common man., especially on fiscal laws.But in practice,we find that the words are used so callously and casual manner, which would pave the way for prolonged litigations.

The short and simple legislation under chapter VI of the Finance Act,2013 on the VCES has also used so many words in a casual manner, leaving it  ambiguous and providing scope of litigation

Some of the strange examples  of  findings in the quasi judicial orders  pronounced  are discussed. Below:-

1.In section 106(1), it is stated –“Any person may declare his tax dues in respect of which no notice or an order of determination under section 72 or section 73 or section 73A of the Chapter has been issued or made before the 1^st day of March,2013.”

Eg.In a cse where an SCN for period upto dec 2011 wa issued before 1^st day of march 2013 (but actually not at all received by the assessee before 1/3/2013) The Designated Authority rejected the VCES1  on the ground that the SCN was issued before 1^st day of march ,2013.As per section 106(1),the notice was only to be issued and the actual service or  the  date of receipt by the assessee is not relevant.

Analysis—It may be seen that the section 106(1) of Finance Act,2013 restricts the eligibility  of VCES,2013  to ‘any person to whom  no notice under section 73 has been issued before the 1^st day of march,2013”..However, section 73 of Finance Act,1994 stipulates that ‘may serve notice on the person ’ and not  mere ‘issue notice’.

Though the wording ‘issued’ is mentioned in section 106(1),the wordings used in section 73 of Finance Act,1994 is ‘may serve notice  on the person’. This means that the department must serve the said notice under section 73 on the assessee. Thus the word ‘issued’ in section 106(1) has to be construed as ‘served’.In the  instant case the  show cause notice initiated under section 73 was not ‘served’ before 1/3/2013 and thus the disqualification as alleged is not applicable.

Admittedly, the notice can be received only on actual service, and thus  the intention of legislation seems to have been to fix a time limit for actual service and not merely for issue of the notice. That legislative intention could be effectuated if a wider meaning is given to the expression  ’issued’, whose dictionary meaning took into account “the entire process of sending the notice as well as the service thereof.’

 In as much as the wordings in section 73 is ‘may   serve notice’; the word used in section 106(1) as ‘issued’ for the said notice has also to be given meaning of ‘served’ only in a   contextual sense  The harmonious reading of the relevant sections would be essential to extend  the benefit of VCES,2013 to maximum number of assessees., which is the legislative intention as proclaimed by the Hon’ble Finance Minister.

2..The second proviso under section 106(1) reads—

“Provided further that where a notice or an order of determination has been issued to a person in respect any period on any issue, no declaration shall be mad of his tax dues on the same issue for any subsequent period”.

In the aforesaid example,this proviso was also held applicable since the notice was issued for  the non payment of tax on ---service  during period upto dec,2011.” Thus the VCES -1 for the period jan to dec ,2012 is liable for rejection the issue involved being identical –ie.Non payment of tax on ---services’.

Analysis  Here there are two aspects—

(i)This proviso would apply only in cases where the notice has been ‘issued’ before 1^st day of march,2013.Thus this proviso was not at all applicable in the instant case.

(ii) Another aspect is the scope of the meaning of  the words ‘any issue’ and ‘same issue’ used in the proviso  In the absence of any definition for ‘any issue’ in the VCES,2013,the general meaning as commonly understood will have to be adopted.  An ‘ issue’ as referred to in a SCN, would call for an adjudication .A straight case of non payment of tax would not be an ‘issue’ unless there is a dispute on the classification, valuation, eligibility of exemption etc.

In other words, an undisputed tax liability not paid  would qualify the assessee as a ‘defaulter to pay tax and thus as an eligible ‘declarant’ under the VCEs,2013.

The finding that --“non-payment of service tax under----- service for the period ---- to ----” was  an ‘issue’ involved in earlier notice . to attract the disqualification under this proviso.cannot be justified. The Designated Authority  held  that non-payment of tax for a period is ‘an issue’, and the ‘same  issue’ is involved in the current VCES -1 declaration and  concluded that the bar envisaged by the second proviso to section 106(1) of the Finance Act 2013 is attracted  and thus the declaration was rejected. .  The view holding that any ‘non payment of tax’ by itself is an ‘issue’ is against the common understanding of the provisions of law.  The adjudicating authority failed to distinguish the difference  between ‘tax dues on the same issue’  as per the scheme and  the notice issued  for ‘ non payment  of  service tax dues’.

3..Another contention taken is that the VCES,2013 is independent legislation and the general provisions of chapter iv of Finance Act,1994 is not applicable. Simple reading of definitions under section 105 of FA,2013 would prove the folly in such an argument.

The definition under 105(1) (a)reads—“Chapter “ means chapter V of the Finance Act,1994;

All three situations discussed above would establish as to how the hair splitting of the words used in the Chapter VI of Finance Act,2013 are being done to debar the eligibility of VCES,not withstanding the guide lines and  the re-iterated  clarifications issued by the Board on 25 Nov 2013  which stated “The effort must be to accept a declaration, as far as possible, and recover the arrears of tax.”

Tail piece: Many more litigations will follow on the scope of appeal against the rejection of VCES-1 etc.