2023 (3) TMI 540 - AT - Service Tax

Wrongful availment of CENVAT Credit - Input Services - Medical Insurance Services provided to its employees for the period 2007 08 to 2011 12 - rejection of appellant s VCES declaration on the ground that the working of the audit through the Internal audit report was the determination of liability by the Central Excise Officer - HELD THAT - The show cause notice dated 19.10.2012 has been issued to the appellant alleging wrongful availment of CENVAT credit of Rs. 1,34,18,976/- on Medical Insurance Services provided to its employees for the period F.Y. 2007 08 to F.Y. 2011 12. This Notice was adjudicated in favour of the Appellant vide order dated 28.10.2016. A perusal of the list of services on which the appellant declared under the VCES does not include Medical Insurance Services . The VCES declaration indicates that appellant had declared nine other services on which they had chosen to pay the service tax dues under the VCES, 2013. So the argument that a notice on the said issues was pending as on 01.03.2013 is factually incorrect. Whether an Audit report forms determination of liability under section 106(1) 160(2) of the Finance Act, 2013? - Commissioner (Appeals) has rejected the appellant s VCES declaration on the ground that the working of the audit through the Internal audit report was the determination of liability by the Central Excise Officer - HELD THAT - An order of determination under sections 72, 73 or 73A would be an order in relation to a show cause notice issued under such indirect tax enactment. An audit report cannot be regarded as an order of determination. If that be the case, it would render clause (b) of section 106(2) infructuous - the Commissioner (Appeals) has erred in holding that the audit report is akin to an order of determination under the relevant sections of the Scheme. The VCES declaration filed by the Appellant was correct - Appeal allowed.

Summary

Issues Involved:
1. Eligibility of the appellant to file a declaration under the Voluntary Compliance Encouragement Scheme (VCES), 2013.
2. Whether an audit report constitutes a determination of liability under section 106(1) of the Finance Act, 2013.

Summary:

Issue 1: Eligibility to File VCES Declaration
The appellant, a company engaged in manufacturing automobile parts, filed a VCES declaration for service tax dues amounting to Rs. 7,22,89,051/- for the period 2007-08 to 2011-12. The designated authority proposed to reject the application on the grounds that an Internal Audit Report (IAR) was issued and a Show Cause Notice (SCN) dated 19.10.2012 was pending as of 01.03.2013. The appellant contended that none of the restrictive clauses of section 106 of the Finance Act, 2013 applied to them as no notice or order of determination had been issued. The CESTAT noted that the SCN dated 19.10.2012 related to wrongful availment of CENVAT credit on Medical Insurance Services, which was not included in the VCES declaration. Consequently, the notice did not bar the appellant from filing the declaration.

Issue 2: Audit Report as Determination of Liability
The Commissioner (Appeals) rejected the VCES declaration on the ground that the audit report constituted a determination of liability. The appellant argued that an audit report is not an order of determination as envisaged under sections 72, 73, or 73A of the Finance Act, 2013. The CESTAT agreed, citing the Bombay High Court judgment in Pace Setter Business Solutions Pvt Ltd Vs Union of India, which held that a past audit objection cannot be used to reject a VCES application. The tribunal concluded that the audit report does not equate to an order of determination and thus does not disqualify the appellant from filing the VCES declaration.

Conclusion:
The CESTAT allowed the appeal, holding that the Commissioner (Appeals) erred in treating the audit report as an order of determination. The tribunal set aside the impugned order and directed the jurisdictional authority to issue the VCES 2 for the full and final settlement under the Scheme.