2016 (3) TMI 351 - HC - Service Tax

Failure to deposit 50% under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) - Admittedly, the respondent nos. 1 and 2 made a declaration in VCES Form I declaring that a sum of ₹ 11,49,32,357/- was due as service tax and intended to make payment of 50% of the dues under VCES. However, by letter dated 24th December, 2014, the writ petitioners had indicated the manner in which the tax dues were to be paid and also prayed for adjustment with the income tax refund which, as evident from the letter dated 26th December, 2013, was rejected by the service tax authorities. The question is, whether the respondent nos. 1 and 2 were entitled under VCES to seek adjustment of service tax dues against the income tax refund. Held that - Since admittedly 50% of the declared tax dues were not paid by 31st December, 2013, the writ petitioners were not entitled to the benefits under the VCES. Since VCES is a statutory scheme having a fixed time frame, we are of the view that Court by its observations cannot enlarge the time frame as has been done in the instant case. Rather non-payment of 50% of the declared tax dues or other dues under section 107(3) empowers the service tax authority to proceed under section 87 and also under section 89 of the Act, which in the instant case has been initiated. - Decided in favor of revenue.

Summary

Issues:
1. Interpretation of Service Tax Voluntary Compliance Encouragement Scheme, 2013.
2. Eligibility criteria for benefits under VCES.
3. Authority's power to take action in case of default under VCES.
4. Adjustment of tax dues against income tax refund under VCES.
5. Validity of judgment passed in W.P. 10245(W) of 2014.

Interpretation of Service Tax Voluntary Compliance Encouragement Scheme, 2013:
The High Court of Calcutta analyzed the interpretation of the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES). The court noted that the scheme aimed to encourage disclosure of service tax dues and compliance with the Service Tax law by individuals who had not paid service tax dues for a specific period. The court highlighted the provisions of sections 107 and 110 of the VCES, emphasizing the consequences of default in compliance with the scheme's requirements. The judgment clarified that the scheme's benefits are provided to those against whom no investigations or proceedings are initiated.

Eligibility Criteria for Benefits under VCES:
The court examined the eligibility criteria for availing benefits under the VCES. It was emphasized that under section 107(3) of the VCES, a declarant must pay at least fifty percent of the declared tax dues by a specified deadline to qualify for the scheme's benefits. The judgment highlighted that failure to meet this payment requirement would render the declarant ineligible for the VCES benefits. The court analyzed the importance of timely compliance with the scheme's provisions to avail oneself of the benefits offered.

Authority's Power to Take Action in Case of Default under VCES:
The judgment addressed the authority's power to take action in case of default under the VCES. It was clarified that if a declarant commits a default in complying with the scheme's provisions, the authorities are empowered to take action as per the provisions outlined in the scheme. The court underscored that the consequences of default, either partial or full payment, would entail the recovery of the balance amount through the appropriate legal recourse provided in the Finance Act.

Adjustment of Tax Dues Against Income Tax Refund under VCES:
The court deliberated on the issue of adjusting tax dues against income tax refunds under the VCES. It was observed that the scheme's provisions did not allow for such adjustments, and failure to pay fifty percent of the declared tax dues within the specified timeframe would disqualify the declarant from seeking such adjustments. The judgment highlighted that the rejection of the prayer for adjustment by the service tax authorities indicated the ineligibility of the declarant for VCES benefits in this regard.

Validity of Judgment Passed in W.P. 10245(W) of 2014:
The High Court reviewed the judgment passed in W.P. 10245(W) of 2014, where the court dismissed the writ petition challenging the authorities' actions under the VCES. The court set aside the impugned judgment, emphasizing that non-compliance with the VCES requirements would render the declarant liable for consequences under the Service Tax Act. The appeal was allowed, the writ petition was dismissed, and costs were awarded to the appellant. The court refused the prayer for stay of operation of the judgment due to the late payment made by the respondents.

This detailed analysis of the judgment provides insights into the court's interpretation of the VCES provisions, the eligibility criteria for benefits, the authority's powers in case of default, and the implications of non-compliance with the scheme's requirements.