2016 (9) TMI 899 - HC - Service Tax

VCES - rejection of VCES application - correct rate of service tax - petitioner had calculated and deposited tax @ 10.3% whereas the tax had to be calculated @ 12.36% as per department - on the date of raising the invoice for rendering services, the rate of tax stood revised to 12.36% - Held that - it was not obligatory for the Respondent to inform the Petitioner what the correct rate of service tax was. It was for the Petitioner to have ascertained the correct rate of tax and calculated the service tax liability accordingly. There is no provision in the VCES, which permits correction of errors of this nature by the Petitioner. In this writ petition, the Court is called upon to examine if the Respondent has committed any legal error in rejecting the application of the Petitioner under the VCES. The Court is unable to find any such error either in fact or in law. Consequently the relief prayed for by the Petitioner cannot be granted. - Decided against the petitioner

Summary

Issues:
1. Rejection of application under Voluntarily Compliance Encouragement Scheme (VCES) due to incorrect calculation of service tax rate.
2. Application of de minimis principle to overlook minor shortfall in service tax deposit.
3. Dispute over the correct service tax rate and responsibility of the taxpayer to ascertain it.
4. Lack of provision in VCES for correction of errors by the taxpayer.
5. Legal error in rejecting the application under VCES.

Analysis:
1. The petitioner, engaged in hardware and software services, applied under VCES for the period April 2011 to December 2012, declaring a service tax liability of ?10,95,191. However, the application was rejected by the Respondent due to the petitioner's calculation of tax at 10.3% instead of the correct rate of 12.36%. The rejection led to a demand of ?1,080 in additional tax payment, prompting the petitioner to file a writ petition seeking to quash the rejection and have the declaration accepted.

2. The petitioner argued that the actual shortfall in tax deposit was minimal, less than 0.1%, and should be overlooked under the de minimis principle. However, the court noted that the petitioner's invoice, raised after the revised tax rate came into effect, reflected the correct rate of 12.36%. The responsibility to calculate and pay the correct tax rate rested with the taxpayer, and the Respondent was not obligated to inform the petitioner of the correct rate.

3. The court highlighted that the VCES did not provide for correction of errors by the taxpayer, emphasizing that it was the petitioner's duty to ensure accurate calculation of tax liability. Despite the petitioner's argument, the court found no legal error in the Respondent's rejection of the application under VCES. Consequently, the relief sought by the petitioner was denied, and the writ petition was dismissed.

4. In conclusion, the court's decision upheld the rejection of the petitioner's application under VCES, emphasizing the taxpayer's responsibility to ascertain and pay the correct service tax rate. The judgment underscored the importance of accuracy in tax compliance and the limitations on correcting errors under the VCES scheme.