2019 (5) TMI 263 - AT - Service Tax

Voluntary Compliance Entitlement Scheme - Department rejected the VCES application for the reason that audit was initiated as departmental internal audit team had visited the appellant s Unit on 26.11.2013 and that VCES application cannot be entertained in view of section 106(2) of the Finance Act, 2013 - CBEC Circular No.170/5/2013-ST, dated 08.08.2013 - HELD THAT - In the present case, the department though contends that they have visited the premises on 26.11.2012 no documents have been produced to establish the same. From the Circular, the department is duty bound to maintain register of visit for audit purposes. The learned Authorised Representative for Revenue represented that though two letters were sent to the department no reply has been received so far. It has to be then concluded that the department has no documents to establish their contention that they have visited the premises on 26.11.2012. More so, in the reply to the show-cause notice itself, the appellant has taken the plea that there has been no visit of audit party on 26.11.2012. It is also submitted that the father of the appellant had passed away on 08.11.2012 and the office was closed during the said period. The department then has to establish that they had visited the premises on 26.11.2012. A letter merely requesting for furnishing of documents cannot be considered as initiation of audit as clarified by the Board in the said Circular, dated 08.08.2013. There is no hesitation to conclude that the rejection of VCES stating the reason that audit has been initiated is against the facts of the case - appeal allowed - decided in favor of appellant.

Summary

Issues:
Rejection of Voluntary Compliance Encouragement Scheme (VCES) application based on initiation of audit.

Analysis:
1. The appellant, engaged in providing Man-power Supply and Recruitment Agency Services, filed a VCES application declaring total service tax. The department rejected the application citing initiation of audit by the internal audit team. Show-cause notice was issued, and rejection was confirmed by the original authority and Commissioner (Appeals), leading to the appeal.

2. The appellant's counsel argued that the department proposed rejection based on audit initiation in a show-cause notice dated 29.01.2014. The department claimed to have sent letters regarding audit in September and November 2012, but the appellant denied any audit taking place. The appellant emphasized that no audit occurred on the stated date and that the department failed to provide evidence of the alleged audit.

3. The Authorized Representative for the Revenue supported the rejection, referring to section 106(2) of the Finance Act, 2013, stating that an audit was initiated as the department visited the premises. The appellant contested this, asserting no such visit occurred. The Board's clarification on the initiation of audit was cited, emphasizing the need for a physical visit by the audit team for initiation.

4. The Tribunal examined the relevant provision in section 106(2) and the Board's clarification on audit initiation and culmination. It was highlighted that for VCES purposes, the visit of auditors to the taxpayer's unit marks the initiation of audit. The department's failure to produce evidence of the alleged visit on 26.11.2012 and the appellant's consistent denial raised doubts about the audit initiation claim.

5. Conclusively, the Tribunal found the rejection of VCES based on audit initiation unsubstantiated. The lack of evidence supporting the department's claim of a visit on 26.11.2012 led to setting aside the impugned order. The appellant's appeal was allowed, granting consequential reliefs.