Friday 16 August 2013

Clarification issued on various issues arising under the Service Tax Voluntary Compliance Encouragement Scheme

 


The Central Board of Excise and Customs (“CBEC”) has issued Circular No 170/5/2013 – ST dated August 8, 2013 (“Circular”) as well as a booklet containing “Frequently Asked Questions” titled 'Service Tax VCES, 2013- FAQ’ (“FAQ”) clarifying various aspects pertaining to the service tax Voluntary Compliance Encouragement Scheme (“VCES”).


To recapitulate, service tax VCES was announced as a part of Union Budget 2013 proposals as an amnesty offering that enables disclosure of service tax dues (pertaining to the period October 1, 2007 to December 31, 2012) without payment of interest and penalty. For BMR’s earlier alert on VCES, click here.


The present Circular and the FAQ seek to address various doubts that arose as regards the scope and intent of the scheme and inter alia provide the following clarifications:


Circumstances where a declarant shall be eligible to opt under the scheme


The eligibility of a declarant to opt under VCES has been affirmed under the following circumstances:


· Where the department has sought information under the provisions of law without requiring any accounts, documents or other evidence under specific statutory provisions. Further to the same, clear guidelines have been provided as to when an audit would be considered to have been initiated and culminated.


· Cases where inquiry, investigation or audit is initiated after March 1, 2013.


· Cases where service tax has been paid by utilizing incorrect or irregular credit as the same amounts to” non-payment” of service tax.


· In respect of issues not covered under audit paragraphs issued pursuant to a departmental audit.


· A declaration can be filed under VCES for the period October 2007 to December 2012 even if a show cause notice/ order has been passed on the issue for a period prior to October 2007.


Circumstances where a declarant shall be ineligible to opt under the scheme


According to the Circular and FAQ, a declaration cannot be filed/ shall not be entertained under the following cases:


· In cases where the issue is being litigated for the period covered by the scheme.


· Where any part of the “tax dues” for an issue has been paid prior to the date on which the scheme was enacted.


· A declaration under VCES can be filed only in respect of “tax dues”; hence, cases where service tax return has not been filed but tax has been paid shall not fall within the ambit of the scheme.


· In case 50 percent of the “tax dues” declared under the declaration has not been paid by December 31, 2013, as mandated under the legal provisions.


CENVAT eligibility


Addressing concerns on CENVAT eligibility, the following aspects have been clarified having regard to the provisions and conditions under the CENVAT Credit Rules, 2004 (“CENVAT Rules”):


· While CENVAT credit cannot be utilized for payment of “tax dues” under VCES, the admissibility of CENVAT credit on any “inputs” and “input services” used for provision of output services in respect of which declaration has been clarified to be eligible.


· Admissibility of CENVAT credit in respect of the tax paid under VCES, ie, at the hands of the service recipient of the declarant where declaration has been made in respect of an output service and at the hands of the declarant where the declaration has been made in respect of import of service/ domestic reverse charge, has been affirmed.


In providing affirmations as above, the Circular and FAQ state that CENVAT eligibility shall be subject to the satisfaction of the conditions/ restrictions as well as documentary requirements prescribed under the CENVAT Rules.


VCES process


According to the Circular and FAQ:


· Two separately registered premises of a taxpayer will be treated as separate taxpayers for the purpose of VCES whereby either of them can file separate declaration(s) in their individual capacity.


· While the department will strive to provide an acknowledgement for the declaration, the tax dues can be independently paid by the declarant as the scheme/ eligibility is not linked to the acknowledgement.


· A declarant can suo moto amend the declaration already filed for a mistake discovered in the declaration; however, the same shall be subject to the discretion of the designated officer.


· While the declarant will be provided with an opportunity of being heard by the service tax department before rejecting the declaration, there is no provision for filing an appeal against the order rejecting a declaration.


· In case where a declaration is rejected, the amount paid by the taxpayer shall be adjusted against any liability determined subsequently.

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