2015 (3) TMI 633 - HC - Service Tax

Entitlement for availing the scheme of Voluntary Compliance Encouragement Scheme (VCES) - rejection of declaration - petitioner pointed out that though ST 3 returns were filed earlier but they are eligible for the scheme as true liability was not disclosed at the time of filing of ST 3 returns. - Held that - the authority undertakes the task of bifurcating or computing the liability by showing some disparity or difference in the figures of the service tax returns, and the disclosures or the declarations filed in a prescribed form pursuant to this scheme. We have no provision therefore before us which would enable us to sustain the exercise and which is carried out by the respondent no.3 The declaration which has been made by a person against whom an inquiry or investigation in respect of service tax not levied or not paid or short levied or short paid and in terms of clause 106(2) is a situation which is not before us and equally not before the Designated Authority also. We do not see how therefore the clauses of the scheme would enable the authority to come to this conclusion. The further stipulation in the scheme and particularly the Service Tax Voluntary Compliance Encouragement Rules, 2013, indicate as to how the Designated Authority ought to have dealt with the declaration in terms of the scheme. It may be that the eventual order or direction would uphold the declaration or while upholding it issue such other orders and directions, as are permissible in the scheme. However, to reject the scheme outright by the exercise undertaken was not permissible. Writ petition allowed - The declaration now shall be dealt with and scrutinized in terms of the Service Tax Voluntary Compliance Encouragement Scheme, 2013 and the Service Tax Voluntary Compliance Encouragement Rules, 2013 - Decided in favor of assessee.

Summary

Issues:
Challenge to order implementing Voluntary Compliance Encouragement Scheme (VCES) - Rejection of declaration under the scheme - Jurisdiction of Designated Authority questioned - Eligibility criteria under the Finance Act, 1994 - Discrepancies in tax dues disclosure - Interpretation of scheme provisions - Scrutiny and analysis of application - Bifurcation of tax liability - Compliance with VCES and Finance Act - Judicial review of Designated Authority's decision.

Analysis:
The judgment by the Bombay High Court pertains to a Writ Petition challenging an order passed by the Designated Authority implementing the Voluntary Compliance Encouragement Scheme (VCES). The petitioner, a company engaged in various services, filed an application under the scheme disclosing tax dues not correctly declared earlier due to ongoing litigation. The Designated Authority rejected the application, leading to the writ petition.

The main contention raised by the petitioner was that the rejection of the declaration by the Designated Authority was without jurisdiction. The petitioner argued that the Authority did not have the power to partially reject the VCES declaration and must consider the application in its entirety as per the scheme and relevant law. The Authority's power was questioned based on the provisions of the Finance Act, 1994, specifically the first proviso to Section 106(1).

On the other hand, the respondent supported the Authority's decision, highlighting discrepancies in the declaration and the service tax returns filed by the petitioner. The respondent argued that the rejection was based on a comparative analysis of the figures disclosed, indicating that the petitioner was not eligible for the declaration under the scheme.

The High Court, after examining the petition and annexures, found that the Designated Authority based its rejection on the grounds that the tax dues claimed in the declaration were already disclosed in the past service tax returns. However, the Court noted that the Authority failed to provide a clear rationale for the rejection and did not properly bifurcate the tax liability as required under the scheme and the Finance Act.

The Court observed that the scheme allowed declarations for tax dues not covered by previous notices or orders, emphasizing that the Authority's decision to reject the declaration solely based on discrepancies in disclosed figures was not supported by the scheme's provisions. The Court concluded that the rejection was not permissible, quashed the order, and directed the Authority to reconsider the application in accordance with the VCES and related rules.

In the final analysis, the Court upheld the petitioner's challenge, emphasizing the need for proper scrutiny and compliance with the VCES and Finance Act provisions. The Court refrained from expressing an opinion on the merits of the declaration but ensured that all contentions from both sides were kept open for further consideration.