2024 (11) TMI 1349 - HC - Service Tax

Validity under the Voluntary Compliance Encouragement Scheme (hereafter VCES) - SCN Issued to the taxpayer alleging wrongful availing of cenvat credit in regard to the service tax paid on medical insurance services provided to the taxpayer s employees during the period from 2007-08 to 2011-12 - whether the taxpayer was ineligible to furnish a declaration under VCES in terms of Section 106 (1) of the 2013 Act on account of the audit report dated 22.09.2010 and the SCN? HELD THAT - The question is not whether any exercise for determining the service tax dues had been conducted or whether an ascertainable quantum of outstanding service tax had been reported. The opening sentence of Section 106 of the 2013 Act is unambiguous, and expressly provides that any person may make a declaration with respect to the dues in respect of which no notice or an order of determination under Section 72 or Section 73 or Section 73A of the Chapter had been issued or made before the 1st day of March, 2013 . Thus, for the said exception to apply, it would be necessary that an order of determination under Section 72, Section 73 or Section 73A of the 1994 Act had been issued. Clearly, an audit report is not an order of determination under either of the aforesaid sections, as mentioned in the opening sentence of Section 106 (1) of the 2013 Act. Issuance of the SCN - There is no cavil that SCN was a limited notice in respect of service tax dues relating to the medical insurance services provided to the taxpayer s employees. The taxpayer s declaration under Section 107 of the 2013 Act was not in respect of the said dues. The order-in-original dated 24.05.2016 also indicates that the taxpayer was entitled to file a declaration in respect of the dues that were not covered by an earlier demand cum show cause notice. On that basis, the taxpayer s declaration was partly allowed. Thus, since the SCN did not cover any of the dues in respect of which a declaration was filed, the taxpayer cannot be deprived of the benefit of VCES. We find no infirmity with the decision of the learned CESTAT in allowing the taxpayer s appeal.

Summary

Issues:
1. Eligibility of the taxpayer to file a declaration under the Voluntary Compliance Encouragement Scheme (VCES).
2. Interpretation of Section 106(1) of the Finance Act, 2013 in relation to the audit report and show cause notice issued to the taxpayer.
3. Whether an audit report constitutes an order of determination under Sections 72, 73, or 73A of the Central Excise Act, 1944.

Analysis:

The judgment involves a dispute regarding the eligibility of a taxpayer to avail benefits under the Voluntary Compliance Encouragement Scheme (VCES). The taxpayer, a company engaged in manufacturing automobile parts, was accused of wrongfully availing cenvat credit. An audit conducted in 2010 revealed discrepancies, following which a show cause notice was issued in 2012. In 2013, the taxpayer submitted a declaration under the VCES, disclosing its service tax dues. However, the Designated Authority rejected part of the declaration, citing the audit report and pending show cause notice. The Appellate Authority upheld the rejection, leading the taxpayer to appeal to the CESTAT.

The core issue revolved around the interpretation of Section 106(1) of the Finance Act, 2013. The provision allows declarations of tax dues if no prior notice or order of determination had been issued before March 1, 2013. The Designated Authority argued that the audit report constituted a determination of liability, rendering the taxpayer ineligible for VCES benefits. However, the CESTAT disagreed, emphasizing that an audit report does not qualify as an order of determination under the relevant sections of the Act.

The CESTAT's decision was supported by the High Court, which highlighted that the taxpayer's declaration did not overlap with the dues covered by the show cause notice. As the show cause notice did not pertain to the declaration made under VCES, the taxpayer could not be denied the scheme's benefits. The Court concluded that no substantial question of law arose from the case, leading to the dismissal of the appeal and the disposal of pending applications.

In summary, the judgment clarifies the scope of Section 106(1) of the Finance Act, 2013 concerning the eligibility of taxpayers to avail themselves of the VCES. It underscores the distinction between an audit report and an order of determination, affirming that the former does not preclude a taxpayer from benefiting under the scheme if no prior notice or order had been issued on the same issue.