2015 (11) TMI 170 - HC - Service Tax

Denial of benefit of VCES - Denial on the groud that the amount paid towards interest and penalty cannot be adjusted towards liability of tax dues under the Scheme - Section 107(4) - whether in the facts and circumstances of the present case, the petitioner can be said to have paid the entire tax dues declared amounting to ₹ 20,63,597/- so as to be entitled to the benefit of the VCE Scheme as contended by the petitioner or whether the petitioner has failed to pay the said amount, inasmuch as, the amount of ₹ 6,36,103/- had initially been paid towards the interest and penalty and hence, cannot be considered as payment under the scheme, as contended by the revenue. Held that - It was after the introduction of the Scheme, that the petitioner in ignorance of the Scheme paid the amount payable towards service tax, penalty and interest in relation to four revenue paras. At that point of time, the respondent authorities did not draw the attention of the petitioner to the fact that it could avail of the benefit of the Scheme. However, well within the time limit prescribed under the Scheme, the petitioner in due compliance with the provisions of the section 107 of the Act, submitted a declaration under sub-section (1) thereof and paid more than fifty per cent of the tax dues before 31st December, 2013 as required under sub-section (3) thereof and in order to comply with the provisions of sub-section (4), viz. payment of the remaining amount, requested for adjustment of an amount of ₹ 6,36,103/- paid under the wrong accounting code of interest and penalty to the correct code of service tax, which request was duly acceded to by the respondent authorities and such correction was made before 30th May, 2014. When the entire amount as contemplated under the Scheme stood paid before the due date and the petitioner satisfied all other requirements under the Scheme, the respondents are not justified in denying the benefit of the Scheme to the petitioner only on the ground that the amount of ₹ 6,36,103/- had initially been paid towards the interest and penalty. The impugned communication/order which seeks to deny the benefit of the Scheme to the petitioner under such hyper technical plea, therefore, cannot be sustained. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility under the Service Tax Voluntary Compliance Encouragement Scheme (VCES).
2. Compliance with the provisions of Section 107 of the Finance Act, 2013.
3. Adjustment of payments made under the wrong accounting code.
4. Denial of benefits under VCES on technical grounds.

Detailed Analysis:

1. Eligibility under the Service Tax Voluntary Compliance Encouragement Scheme (VCES):
The petitioner challenged the legality of the communication dated 20.03.2015, which held that the petitioner was not eligible under VCES due to non-fulfillment of conditions under sub-section (4) of section 107 of the Finance Act, 2013. The petitioner argued that they had paid the required service tax, interest, and penalty for four revenue paras, but did not agree with the fifth revenue para and did not pay the service tax amounting to Rs. 12,97,785/-. The petitioner later filed a declaration under VCES for unpaid service tax amounting to Rs. 20,63,957/- for the period April 2008 to December 2012.

2. Compliance with the provisions of Section 107 of the Finance Act, 2013:
The petitioner contended that they had complied with the requirements of VCES by paying more than 50% of the declared tax dues before the stipulated date and requested the adjustment of amounts wrongly paid under interest and penalty codes to service tax. The respondents, however, argued that the petitioner failed to pay the full amount of Rs. 20,63,597/- within the stipulated time, as the amount of Rs. 6,36,103/- initially paid under interest and penalty could not be adjusted towards service tax dues.

3. Adjustment of payments made under the wrong accounting code:
The petitioner informed the authorities about the wrong accounting code and requested the adjustment of Rs. 6,84,203/- from interest and penalty to service tax. This adjustment was acknowledged and corrected by the e-Pay and Accounts Office, Service Tax, Mumbai, before 30.05.2014. The respondents, however, raised a technical objection, arguing that the amount initially paid under interest and penalty could not be considered as payment towards service tax.

4. Denial of benefits under VCES on technical grounds:
The court observed that the petitioner had paid the entire tax dues declared under VCES before the due date, including the corrected amount of Rs. 6,36,103/-. The respondents' argument that the initial payment under the wrong accounting code disqualified the petitioner from VCES benefits was deemed hyper-technical. The court emphasized that the authorities should inform assessees about such beneficial schemes and not deny benefits on technical grounds.

Conclusion:
The court held that the petitioner had duly paid the remaining amount of Rs. 6,36,103/- before 30th June 2014, in compliance with sub-section (4) of section 107 of the Finance Act, 2013. Consequently, the impugned communication dated 20.03.2015 was quashed, and the designated authority was directed to issue the acknowledgment of discharge of the declared tax dues by issuing Form VCES-3 in favor of the petitioner. The petition was allowed with no order as to costs.