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Budget 2013 : Service Tax Voluntary Compliance Encouragement Scheme

The honorable finance minister in his budget pronouncements for the year  has introduced a new tax revenue generation tool called the “Service Tax Voluntary Compliance Encouragement Scheme” 

The benefits under this scheme are available to those entities where no notice or order of determination of tax dues has been raised before 1st of March 2013, and where the assessee has not filed returns of service tax for the period for which he seeks to make such disclosure.

The scheme stipulates that in cases where

a)       An inquiry or investigation in respect of a service tax not levied or not paid or short-levied or short-paid has been initiated by way of

  • Search of premises
  • Issuance of summons under section 14 of the Central Excise Act, 1944,or
  • requiring production of accounts, documents or other evidence under the Chapter or the rules made there under; or

b)       Where an audit has been initiated,

and such inquiry, investigation or audit is pending as on the 1st day of March, 2013, then such declaration is subject to be rejected with reasons to be specified in writing.

Further, declaration will have to be made in such form and n such form and in such manner as may be prescribed in due course of time by the department and the concerned ministry.

Payment Of Tax

The declarant shall have to pay not less than 50% of tax dues so declared before 31st December 2013 and submit proof of such payment to the designated authority, the remaining dues have to be paid on or before 30th June 2014. In case of short payment or non payment of pending dues, interest shall be payable at rates to be specified for period starting 1st july 2014

The provisions of this scheme do not affect service tax liability occurring January 2013 onwards, which shall have to be discharged as per normal practice.   In an very encouraging move, a declaration made under this scheme shall become conclusive upon issuance of acknowledgement of discharge by the department no matter shall be reopened thereafter in any proceedings before any authority or court relating to the period covered by such declaration. This provides an element of finality and would no doubt be cheered by assessees looking to gain compliance with the regulations.

It is important to note that any amount paid in pursuance of such declaration shall not be refundable under any circumstances. Therefore one should check and double check the tax computations before depositing such amount with the department. It remains to be seen if any excess amount collected can be adjusted against future tax liability.

In cases where the declarant fails to pay the tax dues, either fully or in part, as declared by him, such dues along with interest shall be recovered from the assessee with interest and penalties as applicable.

Falsification

Where the Commissioner of Central Excise has reasons to believe that the declaration made by a declarant  was “substantially false” he may serve show cause notice on the assessee demanding why interest and penalties should not be levied.  As a safeguard No action shall be taken this section after the expiry of one year from the date of declaration.

Issues and analysis

This would not be the first voluntary compliance scheme brought under by the honorable finance minister. He had earlier brought in the very successful Voluntary Disclosure of Income Scheme (“VDIS”) for direct tax defaulters . This would however be one of the few such initiatives in the realm of indirect taxation.

The scheme as it stands is very attractive for defaulters to utilize  and comply with, given that interest on late payment of service tax is charged at 18% per annum for large tax payer units and where the taxable amounts exceed Rs 60 lakhs in a year, this would reflect a significant saving for all those assessees who have defaulted in the payment of taxes and the filing of returns.

That said, there are significant procedures that would need additional clarity, which  should will come in the form of departmental circulars and notification in the near future.

Status : Developing

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