2018 (7) TMI 1795 - AT - Service Tax

Rejection of Voluntary Compliance Entitlement Scheme (VCES) - VCES claim rejected on the basis of inquiry/investigation pending against the appellant - Commercial Training and Coaching Services - case of appellant is that it was mandatory for the Department to observe the principles of natural justice in the manner as mentioned in the Circular dated 08.08.2013, prior rejecting the VCES claim of the appellant - whether the Department has rightly rejected the VCES claim of the appellant? - principles of natural justice. Held that - The very opening line of Section 106 of the Finance Act, 2013 is a clear mandate rather on the appellant that prior declaring his tax dues under VCES he has to ensure that no notice nor any order of determination as under Section 72 or Section 73 or Section 73A of this Chapter has been issued or made qua may before 01.03.2013 - Section 106 (2) (iii) clarifies that whenever any party has been required for producing certain accounts, documents or other evidence under the chapter or rules made thereunder, the designated authority shall, by an Order and for the reasons to be recorded in writing, reject such declaration. In the present case, appellant had received several letters from the Department qua scrutiny of ST-3 returns. The letters as old as 26.09.2012, 05.12.2012, 09.10.2012 and 18.04.2013. Four of these being prior the cut off date of Section 106 of the Act i.e. 01.03.2013 - Perusal of Show Cause Notice makes it abundantly clear that the same was issued due to the differences noticed from the scrutiny as was conducted under the aforesaid four letters - the Show Cause Notice despite being post dated 01.03.2013 but the inquiry in that respect had initiated much prior to the said cut off date, that too to the notice of the appellant - the Show Cause Notice despite being post dated 01.03.2013 but the inquiry in that respect had initiated much prior to the said cut off date, that too to the notice of the appellant. Principle of natural justice - Held that - No doubt the Circular dated 08.08.2013, clarified that whenever designated authority has a reason to believe the applicability of Section 106(2), a notice on intention should be given to the assesse within 30 days of the date of filing of the declaration stating reasons for the rejection - But the fact for the present case is that the rejection Order was passed after two years of filing of the declaration and meanwhile an inquiry in furtherance of Show Cause Notice dated 17.04.2013 was already in progress - the absence of any specific hearing in furtherance of Circular dated 08.08.2013 is not at all procedural lapse on the part of the Department as is alleged by the appellant - principles of natural justice has not been violated. Appeal dismissed - decided against appellant.

Summary

Issues:
Appeal against rejection of VCES claim by Department under Section 106 of Finance Act, 2013.

Analysis:
1. Factual Background: The appellants provide Commercial Training and Coaching Services, registered with Service Tax Department. Department noticed discrepancies, leading to a short levy and issuance of Show Cause Notice. Appellant sought to avail VCES facility, but claim was rejected by Assistant Commissioner and upheld in impugned order.

2. Appellant's Arguments: Two aspects - procedural and merits. Appellant argued that Department failed to observe natural justice principles as per Circular dated 08.08.2013. Mentioned distinction between audit and returns scrutiny. Claimed violation of VCES Rules and Circular of 14.11.2017. Cut-off date for VCES was 01.03.2013, while Show Cause Notice was issued on 17.04.2013, alleging procedural and legal violations.

3. Department's Response: Department justified rejection of VCES claim, citing initiation of inquiry prior to cut-off date. Referred to communication with appellant before Show Cause Notice. Contended that the Order under challenge was reasonable, seeking dismissal of Appeal.

4. Judgment Analysis: The key question was whether Department rightly rejected VCES claim under Section 106 of Finance Act, 2013. Section 106(1) and (2) outline conditions for declaration of tax dues under VCES. The provision mandates rejection if inquiry or investigation is pending. Appellant received letters for scrutiny prior to cut-off date, and Show Cause Notice was a result of discrepancies found during scrutiny.

5. Legal Interpretation: The judgment applied the provisions of Section 106 to the facts of the case. Emphasized that ongoing inquiry justified rejection of VCES claim. The statutory language in Section 106(2)(iii) mandated rejection due to pending inquiry, irrespective of audit or returns scrutiny distinction. The Order under challenge was upheld based on these legal grounds.

6. Procedural Fairness: Appellant raised concerns about the violation of natural justice principles. However, the judgment highlighted that the absence of a specific hearing did not constitute a procedural lapse. The rejection Order was passed after the inquiry was already in progress, aligning with the statutory requirements of Section 106.

7. Conclusion: The judgment found no infirmity in the Order under challenge and upheld the rejection of the VCES claim. The Appeal was rejected, emphasizing compliance with statutory provisions and lack of procedural irregularities.