2014 (12) TMI 326 - Commissioner - Service Tax

Rejection of declarations filed by the applicant under VCES - Section 106(2) - whether the declaration dated 17-7-2013, filed by the declarant, merits to be accepted under the VCES which has been rejected by the designated authority, in terms of legal provisions contained in section 106(2) of the Act - Held that - both the letters dated 12-2-2013 and 27-2-2013 issued by the jurisdictional Range Officer to the declarant do not attract the provisions of section 106(2)(a)(iii) of the Act, as the relevant provisions/rules covered under Section 106(2)(a)(iii) of the Act have not been incorporated in these letters whereas in the said circular dated 13-5-2013 it has specifically been clarified that No other communication from the department would attract the provisions of Section 106(2)(a)(iii) and thus would not lead to rejection of the declaration. The harmonious reading of subsequent clarification by the CBEC on 8-8-2013 and 25-11-2013 also leads to the conclusion that the declaration are not to be rejected in a routine manner where certain information/documents have been requisitioned from the declarant without specifically quoting the statutory authorities, such as Section 14 of the Central Excise Act, as made applicable to Service Tax vide Section 83 of the Finance Act, Section 72 of Finance Act, Rule 5A of the Service Tax Rules 1994. In view the objectives of the VCES, which is to encourage disclosure of tax dues and compliance of service tax law by the persons who have not paid service tax dues for the period from Oct. 2007 to Dec. 2012, either on account of ignorance of law or otherwise. I further observe that VCES is the opportunity for such person to pay the tax dues and come clean. Rejection of the declaration merely on the basis of roving enquiries as in the instant case would defeat the purpose of the VCES, hence the impugned order needs to be set-aside to restore the right of the declarant to come clean by paying the tax dues. Further, after going through the VCES, I find that only the officers notified as designated authority are authorised for the purposes of this scheme. In the case of declarant the Deputy Commissioner, Central Excise Division, Sadashiv Complex, Ambala-Chandigarh Highway, Derabassi has been notified as the designated authority for the purposes of this scheme - The designated authority would allow the declarant to avail the benefit of VCES subject to fulfilment/compliance of other conditions including deposit of 50% tax dues by 31-12-2013. - declarant can amend the declaration by only following the procedure contained in clarification at Sr. No. 10 of the CBEC Circular dated 8-8-2013. The designated authority would consider such amended declaration if any, filed by the declarant in compliance of the VCES - Decided in favour of applicant.

Summary

Issues Involved:

1. Validity of the rejection of the VCES declaration.
2. Applicability of the statutory provisions for filing an appeal against the rejection.
3. Limitation period for issuing a notice of intention to reject the declaration.
4. Nature of inquiries and investigations pending as of 1-3-2013.
5. Procedural aspects of correcting the VCES declaration.
6. Binding nature of CBEC circulars on the department.

Issue-wise Detailed Analysis:

1. Validity of the rejection of the VCES declaration:
The declarant filed a declaration under the VCES, which was rejected by the designated authority on the grounds that inquiries and investigations were pending against the declarant as of 1-3-2013. The designated authority cited letters dated 12-2-2013 and 27-2-2013 from the jurisdictional Range Officer, which required the declarant to file pending ST-3 returns and provide details of construction-linked payments. The declarant argued that these letters did not constitute an inquiry or investigation as specified under Section 106(2)(a)(iii) of the Finance Act. The judgment found that the letters did not mention specific statutory provisions required under Section 106(2)(a)(iii) and were considered of a roving nature, thus not justifying the rejection of the declaration.

2. Applicability of the statutory provisions for filing an appeal against the rejection:
The declarant initially filed a Civil Writ Petition before the High Court, which held that the impugned order was appealable under Section 86 of the Finance Act. The High Court's order superseded the CBEC Circular dated 8-8-2013, which stated that there were no statutory provisions for filing an appeal against the rejection of a VCES declaration. The judgment adhered to the High Court's directive, allowing the appeal to be considered.

3. Limitation period for issuing a notice of intention to reject the declaration:
The declarant argued that the show cause notice issued on 18-9-2013 was beyond the stipulated 30-day period from the date of filing the declaration on 17-7-2013, as clarified in CBEC Circulars dated 8-8-2013 and 25-11-2013. The judgment agreed, stating that the notice was time-barred and thus not maintainable, rendering any subsequent order based on this notice invalid.

4. Nature of inquiries and investigations pending as of 1-3-2013:
The judgment examined whether the inquiries and investigations cited by the designated authority were pending as of 1-3-2013. It was found that the letter dated 27-2-2013 was dispatched on 5-3-2013, and the visit by HQ Preventive staff occurred on 4-3-2013, both after the cutoff date. Additionally, the letters did not meet the criteria specified under Section 106(2)(a)(iii), as they did not mention the relevant statutory provisions, thus not constituting valid grounds for rejection.

5. Procedural aspects of correcting the VCES declaration:
The declarant requested to correct an arithmetical error in the tax rate declared. The judgment referenced CBEC Circular No. 170/5/2013-S.T., dated 8-8-2013, which allowed for amendments to declarations provided they were submitted before the cutoff date of 31-12-2013. The designated authority was instructed to permit such corrections if the declarant complied with the procedural requirements.

6. Binding nature of CBEC circulars on the department:
The judgment emphasized that CBEC circulars are binding on the department. The circulars clarified the scope of Section 106(2)(a)(iii) and the nature of inquiries that would lead to the rejection of a VCES declaration. The judgment found that the designated authority had erred in rejecting the declaration based on inquiries of a roving nature, which were not covered under the specified statutory provisions.

Conclusion:
The judgment set aside the impugned order on both limitation and merit, directing the designated authority to allow the declarant to avail the benefits of the VCES, subject to compliance with other conditions, including the deposit of 50% tax dues by 31-12-2013. The declarant was also allowed to amend the declaration following the prescribed procedure. The appeal and stay application were disposed of accordingly.