VCES - What happens even if first instalment is not paid?

By Vijay Kumar

SERVICE Tax Voluntary Compliance Encouragement Scheme, 2013 ("VCES"), which came into effect from 10th May, 2013, was introduced to encourage disclosure of service tax dues and compliance of Service Tax law by the persons who have not paid service tax dues for the period from October, 2007 to December, 2012. The VCES envisaged a complete waiver of interest, penalty and other consequences on payment of tax dues relating to the period under VCES.

As per section 107(1) of the VCES a person may make a declaration for payment of dues before the designated authority on or before the 31st day of December, 2013 in such form and in such manner as may be prescribed which, under section 107(2), the authority shall acknowledge in such form and in such manner as may be prescribed. Section 107(3) postulates that the declarant shall, on or before the 31st day of December, 2013 pay not less than fifty per cent of the tax dues so declared under section 107(1) and submit proof of such payment to the designated authority. Section 107(4) stipulates that the tax dues or part thereof remaining to be paid after payment made under subsection (3) shall be paid by the declarant on or before the 30th day of June, 2014 provided where the declarant fails to pay the said tax dues or part thereof on or before the said date, he shall pay the same on or before the 31st day of December 2014 along with interest.

In an interesting case, an assessee did not pay 50% of the service tax dues and sought for adjustment with its income tax refund. The Department issued a letter dated 26th December, 2013explaining the position of law and directing the writ petitioners to pay the tax dues under the VCES. The Department invoked the provisions of Sections 87 and 89 (Recovery and prosecution). The assessee went in a writ petition to the High Court.

A single judge of the High Court observed, 2014-TIOL-1094-HC-KOL-ST

On meaningful reading of the provisions contained therein it appears that the immunity as to any benefit, concession or immunity granted under Section 96 shall not be available to the defaulting declarant. The aforesaid provisions have to be read conjointly with section 110 of the said Act. If default is committed under the scheme the consequences provided in the scheme is to be adhered to and the authority cannot travel beyond the boundaries set therein. The benefit under the scheme is provided to a person against whom no enquiry or investigation or other proceeding are initiated. Section 106 of the said Act makes the position clear and, therefore, the person who voluntarily declare his liability to pay service tax, if commits defaults in complying the provisions contained under the said scheme, the authorities are bound to take action under the provisions which provides for the steps to be taken for non-compliance of any of the provisions of the said scheme.

The Revenue appealed to a Division Bench which set aside the order of the Single Judge. - 2016-TIOL-426-HC-KOL-ST. The Division Bench observed,

Under the VCES, payment of 50% of the tax due entitles a declarant to avail himself of the benefit of the VCES. Since 50% of the tax due was not paid, the writ petitioners did not come under the purview of the VCES. Consequently they are not entitled to the benefits under VCES.

Since admittedly 50% of the declared tax dues were not paid by 31st December, 2013, the writ petitioners were not entitled to the benefits under the VCES. Since VCES is a statutory scheme having a fixed time frame, we are of the view that Court by its observations cannot enlarge the time frame as has been done in the instant case. Rather non-payment of 50% of the declared tax dues or other dues under section 107(3) empowers the service tax authority to proceed under section 87 and also under section 89 of the Act, which in the instant case has been initiated.

Against this order, the assessee took the matter in appeal to the Supreme Court. The Supreme Court by its order dated 26.2.2016 dismissed the SLP.