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2019 (5) TMI 814 - HC - Service TaxRejection of VCES Application - Voluntary Compliance Encouragement Scheme, 2013 - rejection of the application on the ground that the payment of the amount of service tax as disclosed in the returns, was not made - The learned Counsel for the petitioner produced material to show that the tax liability for the period October 2010 to March 2011 arrived at as ₹ 3,30,43,821/- was wrong and that as per the return, the liability disclosed was only ₹ 3,27,09,978/-. HELD THAT - The main part of sub-Section (1) of Section 106 of Chapter VI of the Act entitles every person to declare his tax dues, if no notice or determination of the same had been made before 01.03.2013 under Sections 72 or 73 or 73A. Therefore, if the first proviso had not been there, all persons including (1) persons who never filed any returns (2) persons who filed returns which did not disclose the true liability and (3) persons who furnished returns and disclosed their true liability, but not paid the disclosed amount, would all be entitled to file a declaration - But, the first proviso to sub-section (1) to Section 106 of Chapter VI of the Act excludes from the eligibility under Sub-Section (1), persons who belong to the third category, namely, those who filed returns under Section 70 of the Chapter and disclosed their true liability, but had not paid the disclosed amount. Persons belonging to the first and second category, namely, (1) those who never filed returns and (2) those who filed returns but did not disclose the true liability are not excluded by the first proviso. The learned Counsel for the petitioner produced material to show that the tax liability for the period October 2010 to March 2011 arrived at as ₹ 3,30,43,821/- was wrong and that as per the return, the liability disclosed was only ₹ 3,27,09,978/- - Therefore, we directed the learned Senior Standing Counsel to check-up. After checking up, the Assistant Commissioner made a working and communicated to the Senior Standing Counsel by his letter dated 06.02.2019 that there was a mistake on the side of the Department and that for the period October 2010 to March 2011, the total liability as per the tax return was only ₹ 3,27,09,978/- and that the petitioner had made payment of a sum of ₹ 3,27,09,979/-. In other words, the petitioner has paid Re.1/- in excess of the total liability as disclosed in the return for the period October 2010 to March 2011. Therefore, it is now admitted by the Department that the liability disclosed in the returns for four periods, namely, (1) October 2010 to March 2011, (2) October 2011 to March 2012, (3) April 2012 to September 2012 and (4) October 2012 to March 2013, have been fully paid by the petitioner, partly by way of cash and partly by way of cenvat credit. Liability for the Interregnum period, namely, the period from April 2011 to September 2011 - whether on account of this default in respect of the period from April 2011 to September 2011, the entire declaration under VCES was liable for rejection or whether the declaration under the VCES was liable to be accepted atleast in respect of the period covered by the other four returns, namely, (1) October 2012 to March 2011, (2) October 2011 to March 2012, (3) April 2012 to September 2012 and (4) October 2012 to March 2013? - HELD THAT - This period of five years and three months will be covered by ten half yearly returns and a portion of the eleventh half yearly return. The ten half yearly returns that would cover the period to which the scheme relates are October 2007 to March 2008, March 2008 to September 2008, October 2008 to March 2009, March 2009 to September 2009, October 2009 to March 2010, March 2010 to September 2010, October 2010 to March 2011, March 2011 to October 2011, October 2011 to March 2012, March 2012 to October 2012 Section 106 does not contemplate the filing of multiple declarations, each co-relating to one half yearly return. Section 106 provides for the filing of only one declaration. Such a declaration could be in respect of the entire period covered by the scheme namely October 2007 to December 2012 or for a part thereof. While it is possible to split the period in respect of which the declaration is filed, into 10 half yearly returns and a part of the 11th half yearly return, it is not possible to split the declaration itself - V The petitioner filed one single composite declaration for the tax dues in respect of the period October 2010 to March 2013. This period is covered by six returns. While five out of those six returns do not fall within the first proviso to Section 106 (1) of Chapter VI of the Act, one return falls within the purview of the first proviso. Therefore, the declaration becomes defective, as Chapter-VI does not enable the authorities to split up the declaration into several parts - But, as we have already pointed out, the returns are divisible, but the declaration is indivisible. A declaration under the Scheme may have to be dealt with as a single sealed basket of apples and it may not be possible to accept the basket as a whole after throwing out those apples which are rotten. Therefore, we find that the order impugned in the writ petition is unassailable. Service of notice on the declarant calling upon him to pay the taxes due - Section 111 (1) of Finance Act - HELD THAT - The order dated 10.02.2016 is not one under Section 111 of the Act. Section 111 (1) of the Act applies only to cases where the declaration is found to be substantially false. In this case, the petitioner is not accused of filing a false declaration. The case of the respondents is that the declaration of the petitioner would fall within the first proviso to Section 106(1) of Chapter VI of the Act. Therefore, this contention does not hold good. Petition dismissed - decided against petitioner.
Issues Involved:
1. Eligibility criteria under the Voluntary Compliance Encouragement Scheme (VCES), 2013. 2. Validity of the rejection of the VCES declaration. 3. Applicability of the proviso to Section 106(1) of the Finance Act, 2013. 4. Interpretation of the term "return" under Section 106(1). 5. The indivisibility of the VCES declaration. 6. Timeliness of the rejection order under Section 111(2) of the Finance Act, 2013. Detailed Analysis: 1. Eligibility Criteria under VCES, 2013: The petitioner filed a declaration under VCES for the period October 2010 to December 2012 and paid 50% of the tax due by 31.03.2014. The scheme required that no audit should be pending as of 01.03.2013, and 50% of the taxes due should be paid by 31.03.2013, with the balance by 30.06.2014 or 31.12.2014. The petitioner contended that audit commenced only on 01.08.2013, thus meeting the eligibility criteria. 2. Validity of the Rejection of the VCES Declaration: The Assistant Commissioner of Service Tax rejected the VCES declaration on the grounds that the petitioner failed to pay the tax declared in ST-3 returns, invoking the first proviso to Section 106(1). The petitioner argued that they had paid the taxes due for the relevant periods. 3. Applicability of the Proviso to Section 106(1): The proviso to Section 106(1) states that a person who has furnished returns under Section 70 and disclosed their true liability but has not paid the disclosed amount of service tax is not eligible for VCES. The court noted that the Department's initial understanding that a person who filed ST-3 returns is ineligible for VCES was incorrect. However, the petitioner admitted to a short payment for the period April 2011 to September 2011, thus falling within the exclusion of the proviso. 4. Interpretation of the Term "Return" under Section 106(1): The court examined whether the term "return" in the proviso to Section 106(1) could be interpreted to include multiple returns. The court concluded that the term "return" should be treated as independent for each half-yearly period, but the declaration itself under VCES is indivisible. 5. Indivisibility of the VCES Declaration: The court held that the declaration under VCES is a single, indivisible entity. Even if the petitioner met the eligibility criteria for some periods, the failure to meet the criteria for one period (April 2011 to September 2011) rendered the entire declaration defective. The court emphasized that the VCES does not allow for splitting the declaration into acceptable and non-acceptable parts. 6. Timeliness of the Rejection Order under Section 111(2): The petitioner argued that the rejection order dated 10.02.2016 was beyond the one-year period stipulated in Section 111(2) of the Act. The court clarified that this provision applies only to cases where the declaration is found to be substantially false, which was not the case here. The rejection was based on the application of the first proviso to Section 106(1), not on the falsity of the declaration. Conclusion: The court dismissed the writ petition, upholding the rejection of the VCES declaration. The court found that the petitioner did not meet the eligibility criteria for the entire period covered by the declaration due to the short payment for the period April 2011 to September 2011. The VCES declaration is indivisible, and non-compliance for any part of the period renders the entire declaration defective. The rejection order was not subject to the one-year limitation under Section 111(2) as it was not based on the falsity of the declaration.
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