2017 (4) TMI 564 - HC - Service Tax

Rejection of VCES - Valuation - inclusion of reimbursement of their expenses in the value of taxable services - Since the petitioners throughout held the view that they are not liable to pay service tax but noticing that there was a Voluntary Compliance Encouragement Scheme of 2013 traceable to paragraph 104 to 114 of the Finance Act, 2013 with effect from 10th May, 2013 and the Service Tax Voluntary Compliance Encouragement Rules, 2013 were also introduced, they filed an application in the prescribed form. Held that - the payment which has been made and for a past audit objection, for an earlier period cannot be utilized to reject the application as is now made by the present writ petitioner. The application invoking VCES has to be considered and if at all rejected, it must be on the touchstone of the paragraphs of the VCES, 2013 and the wording thereof. The scheme itself cannot be defeated by holding that on the earlier occasion parties like the petitioners have accepted their liability. The authorities need not be so anxious to protect the government revenue and reject the applications, as are made in the present case by closing the files instantaneously. They have to apply their mind. They must consider the application in accordance with the paragraphs of the scheme. - Matter restored before the authorities.

Summary

Issues:
Challenge to order dated 21st July, 2015 under Article 226 of the Constitution of India. Interpretation of Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES 2013).

Analysis:
The petitioners, engaged in providing "Auxiliary services" under Section 65(19) of the Finance Act, 1994, claimed that they did not recover service tax on expenses reimbursed by clients. An audit in 2008-2009 led to a demand for service tax, which was paid by the petitioners. Subsequently, they voluntarily paid a sum under the VCES 2013 for the period from April 2008 to December 2012. Despite this, they received a show-cause notice and the impugned order without due consideration of their submissions. The petitioners argued that the VCES application should have been accepted, as they had made the requisite payment voluntarily.

The key contention revolved around the interpretation of the VCES 2013. The petitioners argued that the absence of a formal determination under Sections 72, 73, or 73A of the Finance Act, 2013 precluded reliance on audit observations. They contended that the payment made for a past audit objection could not be used to reject the VCES application for a distinct period. The Court agreed, emphasizing that the scheme's provisions must be strictly adhered to and not defeated by past actions or conclusions.

The Court referenced judgments like Indokem Limited Vs. Union of India and S2 Infotech Pvt. Ltd. Vs. Union of India, highlighting the importance of aligning decisions with the specific wording of the VCES 2013. It emphasized that authorities must not hastily reject applications but carefully consider them in line with the scheme's provisions. Consequently, the impugned order was quashed, directing a fresh consideration of the application in accordance with the law and without influence from prior conclusions. The Court allowed the writ petition, emphasizing the need for a fair and thorough review process.