2018 (10) TMI 327 - HC - Service Tax

Rejection of VCES Declaration - pending issue under in any forum of litigation - rejection on the ground that if the issue with regard to any period on any issue is pending in litigation at any Forum from the side of the assessee, no Declaration can be made by the assessee under VCES, 2013 and the same cannot be accepted by the Respondent-Authority and therefore, the present rejection of the Declaration by the concerned authority was justified - applicability of provisions of Section 73 of Chapter V of the Finance Act, 1994 as inserted by Finance Act, 2006 w.e.f. 18.04.2006 for the impugned period. Held that - This Court is satisfied that the Second Proviso to Section 106 of the VCES-2013 does not make any distinction about the payment of service tax by the assessee under the VCES as to Section 73 or Section 73A of the Act. There is no watertight compartment between the payment of due service tax by the assessee under the said VCES whether it is under Section 73 of the Act or 73A of the Act. Section 73 of the Act envisages recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded to the assessee whereas Section 73A of the Act which was later on inserted by Finance Act, 2006 envisages the service tax wrongly collected by any person to be deposited with Central Government. Section 73A of the Act was obviously to prevent any situation of unjust enrichment to the assessee by retaining the amount even wrongly collected from the customers in the name of service tax and therefore that amount so collected as service tax in any case was liable to be deposited with the Central Government. The short payment of service tax under Section 73 of the Act whether or not levied earlier or short levied earlier does not stand on a different footing so far as VCES, 2013 is concerned. The Second Proviso clearly begins with a negative stipulation that Where a notice or an order of determination has been issued to a person in respect of any period on any issue , no Declaration shall be made of his tax dues on the same issue for any subsequent period . Therefore, the Second Proviso to Section 106 of the Act is a clear bar in the present case for the assessee. The appeal filed by Assessee admittedly pending before the CESTAT regarding its liability to pay service tax on the service provided by it for the previous period. Merely because the period in the appeal before the Tribunal and the period covered in the Declaration are different, the Second Proviso cannot be rendered otiose or inapplicable to the case. The VCES and the determination of issues by competent adjudication Forums cannot be separated in any water-tight compartments and segregated in silos, so to say. The combined purpose of Sections 73 and 73A of the Act is obvious and clear and that is not to allow the Assessee to retain any component of service tax in any manner whether already assessed but not paid, deposited short levied or short paid or erroneously refunded or even wrongly collected but not so far deposited and paid to the Central Government. The loophole left in Section 73 of the Act was sought to be plugged by the Legislature by bringing on the statute book Section 73A of the Act and therefore, both these provisions cannot be read in isolation for the purpose of VCES. The assessee s Declaration was rightly rejected by the Respondent-authority - petition dismissed.

Summary

Issues Involved:
1. Applicability of Section 73 vs. Section 73A of the Finance Act, 1994.
2. Eligibility under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES).
3. Impact of pending litigation on VCES eligibility.

Issue-Wise Detailed Analysis:

1. Applicability of Section 73 vs. Section 73A of the Finance Act, 1994:

The petitioner/assessee contested the applicability of Section 73A of the Finance Act, 1994, instead of Section 73, for the period April 2012 to December 2012. The Assistant Commissioner of Service Tax rejected this contention, stating that the audit query dated 18-11-2013, which initially referred to Section 73A, was procedural and corrected in subsequent documentation to Section 73(1). The Court upheld this view, noting that Section 73A, introduced to prevent unjust enrichment, mandates that any wrongly collected service tax be deposited with the Central Government, whereas Section 73 deals with recovery of service tax not levied or short-paid.

2. Eligibility under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES):

The petitioner argued that having paid the service tax for the period in question under VCES in two installments, they should be granted immunity from penalty and prosecution. However, the Court emphasized that the VCES does not differentiate between liabilities under Section 73 and Section 73A. The scheme aims to resolve all pending service tax issues comprehensively, requiring full compliance without ongoing litigation. The Court cited the Second Proviso to Section 106, which bars declarations if any notice or determination order has been issued for any period on any issue.

3. Impact of Pending Litigation on VCES Eligibility:

The Court highlighted that the petitioner had an ongoing appeal before the CESTAT for a previous period (October 2004 to March 2009) under Section 73, which precluded them from making a declaration under VCES for the subsequent period (April 2012 to December 2012). The Court noted that the VCES's purpose is to end litigation and ensure full compliance, and allowing ongoing appeals would defeat this objective. The Court referenced its earlier order and the decisions of other High Courts, reiterating that the petitioner must withdraw all pending litigations to benefit from VCES.

Conclusion:

The Court concluded that the petitioner's declaration under VCES was rightly rejected by the Assistant Commissioner of Service Tax. The Second Proviso to Section 106 of the VCES clearly bars declarations if any related issue is pending adjudication. The Court dismissed the writ petition, emphasizing that the VCES aims to resolve all service tax disputes comprehensively, without allowing ongoing litigation to persist. The judgment underscores the necessity for assessees to fully comply with the scheme's requirements to avail its benefits.