2018 (6) TMI 1162 - HC - Service Tax

Voluntary Compliance Entitlement Scheme - Interpretation of Statute - Section 106 (2) of the Finance Act 2013 - denial of benefit of VCES on the ground that the audit was conducted in the premises of the appellant on 25.02.2013 and 28.02.2013 and the same was not completed as on 01.03.2013 namely the cut of date and the provision of renting of immovable property service was unearthed during the course of audit. Held that - Once it is shown that an audit has been initiated and it is pending there is no scope for restricting the sweep of Section 106(2)(b) to an audit in relation to a particular kind of service. If at an audit the department is able to unearth a service being rendered by the assessee which has neither been registered nor been assessed to it is definitely open to the department to require the assessee to pay the service tax and the penalty payable for providing such service. The rigour of such taxing statute cannot be whittled down by the appellant by seeking to invoke so called voluntary compliance that too after the fact that the service has not been registered or has not been taxed was discovered by the department. Benefit of VCES rightly rejected - appeal dismissed - decided against appellant.

Summary

Issues involved:
1. Challenge to the rejection of benefit of Voluntary Compliance of Excise and Service Tax Scheme.
2. Interpretation of Section 106(2) of the Finance Act, 2013 regarding eligibility for the VCES Scheme.

Detailed Analysis:
1. The appellant challenged the rejection of the benefit of Voluntary Compliance of Excise and Service Tax Scheme by the 4th respondent. The appellant registered as a service provider for service tax but was found providing renting of immovable property service during an audit. The rejection was based on Section 106(2) of the Finance Act, 2013, which disqualifies those with pending audits as of 01.03.2013 from the VCES Scheme.

2. The main issue revolved around the interpretation of Section 106(2) of the Finance Act, 2013. Section 106(2)(a) pertains to inquiries or investigations initiated by search of premises, issuance of summons, or requiring production of evidence. Section 106(2)(b) deals with audits initiated before 01.03.2013. The appellant argued that the audit conducted was not related to the renting of immovable property service, and hence, the rejection was unjustified. However, the Department contended that the audit discovered the unregistered service, making the appellant ineligible for the VCES Scheme.

3. The Court analyzed the interpretations presented by both parties. The appellant's counsel argued for a narrow interpretation of the audit scope, limited to registered services. However, the Court disagreed, citing a Division Bench observation emphasizing the legislative intent to encourage tax compliance. The Court upheld the rejection, stating that if an audit uncovers unregistered services, the taxpayer must pay the due taxes and penalties, even if discovered after the audit.

4. Ultimately, the Court dismissed the appeal, affirming the Single Judge's decision. The Court agreed that the audit findings of unregistered services made the appellant ineligible for the VCES Scheme under Section 106(2) of the Finance Act, 2013. No costs were awarded, and the miscellaneous petition was closed.