Circular No. 170/5 /2013 - ST
F. No. B1/19/2013-TRU (Pt)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
Tax Research Unit
*****
New Delhi, dated the 8
th
August, 2013
To,
Chief Commissioners of Central Excise and Customs (All),
Director General (Service Tax), Director General (Systems),
Director General (Central Excise Intelligence), Director General (Audit),
Commissioners of Service Tax (All), Commissioners of Central Excise (All), Commissioners of Central Excise and Customs
(All)
Madam/Sir,
Subject: The Service Tax Voluntary Compliance Encouragement Scheme - clarifications regarding.
The Service Tax Voluntary Compliance Encouragement Scheme (VCES) has come into effect from 10.5.2013. Some of the
issues raised with reference to the Scheme have been clarified by the Board vide circular No. 169/4/2013-ST, dated
13.5.2013. Subsequently, references have been received by the Board seeking further clarifications as regards the scope and
applicability of the Scheme.
2. The issues have been examined and clarifications thereto are as follows:
S
No.
Issues Clarification
1
Whether the communications, wherein
department has sought information of roving
nature from potential taxpayer regarding their
business activities without seeking any
documents from such person or calling for his
presence, while quoting the authority of
section 14 of the Central Excise Act, 1944,
would attract the provision of section 106 (2)
(a)?
Attention is invited to clarification issued at S. No. 4 of the circular No.
169/4/2013-ST, dated 13.5.2013, as regards the scope of section 106 (2)
(a) of the Finance Act, 2013, wherein it has been clarified that the provision
of section 106 (2)(a)(iii) shall be attracted only in such cases where
accounts, documents or other evidence are requisitioned by the authorized
officer from the declarant under the authority of a statutory provision.
A communication of the nature as mentioned in the previous column would
not attract the provision of section 106 (2)(a) even though the authority of
section 14 of the Central Excise Act may have been quoted therein.
2
An assessee has two units at two different
locations, say Mumbai and Ahmedabad. Both
are separately registered. The Mumbai unit
has received a Show Cause Notice for non-
payment of tax on a revenue stream but the
Ahmedabad unit has not. Whether the
Ahmedabad unit is eligible for VCES?
Two separate service tax registrations are two distinct assessees for the
purposes of service tax levy. Therefore, eligibility for availing of the Scheme
is to be determined accordingly. The unit that has not been issued a show
cause notice shall be eligible to make a declaration under the Scheme.
3
Whether a declaration can be made under the
Scheme in respect of CENVAT credit wrongly
utilized for payment of service tax?
Any service tax that has been paid utilizing the irregular credit, amounts to
non-payment of service tax. Therefore such service tax amount is covered
under the definition of "tax dues".
4
Whether a party, against whom an inquiry,
investigation or audit has been initiated after
1.3.2013 (the cutoff date) can make a
declaration under the Scheme?
Yes. There is no bar from filing of declaration in such cases.
5
There was a default and a Show Cause Notice
was issued for the period prior to the period
covered by the Scheme, i.e. before Oct 2007.
Whether declaration can be filed for default on
the same issue for the subsequent period?
In the context of the Scheme, the relevant period is from Oct 2007 to Dec
2012. Therefore, the 2
nd
proviso to section 106 (1) shall be attracted only in
such cases where a show cause notice or order of determination has been
issued for the period from Oct 2007 to Dec 2012. Accordingly, issuance of
a show cause notice or order of determination for any period prior to Oct
2007, on an issue, would not make a person ineligible to make a
declaration under the Scheme on the same issue for the period covered by
the Scheme. Therefore, declaration can be made under VCES.
6
In a case where the assessee has been
audited and an audit para has been issued,
whether the assessee can declare liability on
an issue which is not a part of the audit para,
under the VCES 2013?
Yes, declarant can declare the "tax dues" concerning an issue which is not a
part of the audit para.
7
Whether a person, who has paid service tax
for a particular period but failed to file return,
can take the benefit of VCES Scheme so as
to avoid payment of penalty for non- filing of
return?
Under VCES a declaration can be made only in respect of "tax dues". A
case where no tax is pending, but return has not been filed, does not come
under the ambit of the Scheme. However, rule 7C of the Service Tax Rules
provides for waiver of penalty in deserving cases where return has not been
filed and, in such cases, the assessee may seek relief under rule 7C.
8
A person has made part payment of his 'tax
dues' on any issue before the scheme was
notified and makes the declaration under
VCES for the remaining part of the tax dues.
Will he be entitled to the benefit of non-
payment of interest/penalty on the tax dues
paid by him outside the VCES, i.e., (amount
paid prior to VCES)?
No. The immunity from interest and penalty is only for "tax dues" declared
under VCES.
If any "tax dues" have been paid prior to the enactment of the scheme, any
liability of interest or penalty thereon shall be adjudicated as per the
provisions of Chapter V of the Finance Act, 1994 and paid accordingly.
9
Whether an assessee, who, during a part of
the period covered by the Scheme, is in
dispute on an issue with the department under
an erstwhile provision of law, can declare his
liability under the amended provisions, while
continuing to litigate the outstanding liability
under the erstwhile provision on the issue?
In terms of the second proviso to section 106 (1), where a notice or order of
determination has been issued to a person in respect of any issue, no
declaration shall be made by such person in respect of "tax dues" on the
same issue for subsequent period. Therefore, if an issue is being litigated
for a part of the period covered by the Scheme, i.e., Oct, 2007 to Dec 2012,
no declaration can be filed under VCES in terms of the said proviso on the
same issue for the subsequent period.
10
Whether upon filing a declaration a declarant
realizes that the declaration filed by him was
incorrect by mistake? Can he file an amended
declaration?
The declarant is expected to declare his tax dues correctly. In case the
mistake is discovered suo-moto by the declarant himself, he may approach
the designated authority, who, after taking into account the overall facts of
the case may allow amendments to be made in the declaration, provided
that the amended declaration is furnished by declarant before the cut off
date for filing of declaration, i.e., 31.12.2013.
11
What is the consequence if the designated
authority does not issue an acknowledgement
within seven working days of filing of
declaration? Whether the declarant can start
making payment of the tax dues even if
acknowledgement is not issued?
Department would ensure that the acknowledgement is issued in seven
working days from the date of filing of the declaration. It may however be
noted that payment of tax dues under the Scheme is not linked to the
issuance of an acknowledgement. The declarant can pay tax dues even
before the acknowledgement is issued by the department.
12
Whether declarant will be given an opportunity
to be heard and explain his cases before the
rejection of a declaration under section 106(2)
by the designated authority?
Yes. In terms of section 106 (2) of the Finance Act, 2013, the designated
authority shall, by an order, and for reasons to be recorded in writing, reject
a declaration if any inquiry/investigation or audit was pending against the
declarant as on the cutoff date, i.e., 1.3.2013. An order under this section
shall be passed following the principles of natural justice.
To allay any apprehension of undue delays and uncertainty, it is clarified that
the designated authority, if he has reasons to believe that the declaration is
covered by section 106 (2), shall give a notice of intention to reject the
declaration within 30 days of the date of filing of the declaration stating the
reasons for the intention to reject the declaration. For declarations already
filed, the said period of 30 days would apply from the date of this circular.
The declarant shall be given an opportunity to be heard before any order is
passed by the designated authority.
13
What is the appeal mechanism against the
order of the designated authority whereby he
rejects the declaration under section 106 (2) of
the Finance Act, 2013?
The Scheme does not have a statutory provision for filing of appeal against
the order for rejection of declaration under section 106 (2) by the
designated authority.
14
A declarant pays a certain amount under the
Scheme and subsequently his declaration is
rejected. Would the amount so paid by him be
adjusted against his liability that may be
determined by the department?
The amount so paid can be adjusted against the liability that is determined
by the department.
15
Section 111 prescribes that where the
Commissioner of Central Excise has reasons
to believe that the declaration made by the
declarant was 'substantially false', he may
serve a notice on the declarant in respect of
such declaration. However, what constitutes a
'substantially false' declaration has not been
specified.
The Commissioner would, in the overall facts of the case, taking into
account the reasons he has to believe, take a judicious view as to whether a
declaration is 'substantially false'. It is not feasible to define the term
"substantially false" in precise terms. The proceeding under section 111
would be initiated in accordance with the principles of natural justice.
To illustrate, a declarant has declared his "tax dues" as Rs 25 lakh.
However, Commissioner has specific information that declaration has been
made only for part liability, and the actual "tax dues" are Rs 50 lakh. This
declaration would fall in the category of "substantially false".
This example is only illustrative.
16
What is the consequence if a declarant fails to
pay atleast 50% of declared amount of tax
dues by the 31
st
Dec 2013?
One of the conditions of the Scheme [section 107 (3)] is that the declarant
shall pay atleast an amount equal to 50% of the declared tax dues under the
Scheme, on or before the 31.12.2013. Therefore, if the declarant fails to pay
atleast 50% of the declared tax dues by 31
st
Dec, 2013, he would not be
eligible to avail of the benefit of the scheme.
17
Whether the CENVAT credit is admissible on
the inputs/input services used for provision of
output service in respect of which declaration
has been made under VCES for payment of
any tax liability outside the VCES?
The VCES Rules 2013 prescribe that CENVAT credit cannot be utilized for
payment of "tax dues" under the Scheme. Accordingly the "tax dues" under
the Scheme shall be paid in cash.
The admissibility of CENVAT credit on any inputs and input services used
for provision of output service in respect of which declaration has been
made shall continue to be governed by the provisions of the Cenvat Credit
Rules, 2004.
18
(a) Whether the tax dues amount paid under
VCES would be eligible as CENVAT credit to
the recipient of service under a supplementary
invoice?
(b) Whether cenvat credit would be admissible
to the person who pays tax dues under VCES
as service recipient under reverse charge
mechanism?
Rule 6(2) of the Service Tax Voluntary Compliance Encouragement Rules,
2013, prescribes that CENVAT credit cannot be utilized for payment of "tax
dues" under the Scheme. Except this condition, all issues relating to
admissibility of CENVAT credit are to be determined in terms of the
provisions of the Cenvat Credit Rules.
As regards admissibility of CENVAT credit in situations covered under part
(a) and (b), attention is invited to rule 9(1)(bb) and 9(1)(e) respectively of the
Cenvat Credit Rules.
19
In terms of section 106 (2)(b), if a declaration
made by a person against whom an audit has
been initiated and where such audit is pending
, then the designated authority shall by an
order and for reasons to be recorded in
writing, reject such declaration. As the audit
process may involve several stages, it may be
indicated as to what event would constitute,-
(i) initiation of audit; and
(ii) culmination of audit.
Initiation of audit : For the purposes of VCES, the date of the visit of auditors
to the unit of the taxpayer would be taken as the date of initiation of audit. A
register is maintained of all visits for audit purposes.
Culmination of audit: The audit process may culminate in any of the following
manner.-
(i) Closure of audit file if no discrepancy is found in audit;
(ii) Closure of audit para by the Monitoring Committee Meeting (MCM);
(iii) Approval of audit para by MCM and payment of amount involved therein
by the party in terms of the provisions of the Finance Act, 1994;
(iv) Approval of audit para by MCM, and issuance of SCN, if party does not
agree to the para so raised.
The audit culminates at a point when the audit paras raised are settled in
any manner as stated above.
The pendency of audit as on 1.3.2013 means an audit that has been
initiated before 1.3.2013 but has not culminated as on 1.3.2013.
3. Trade Notice/Public Notice may be issued to the field formations and tax payers.
Please acknowledge receipt of this Circular.
Hindi version follows.
Yours sincerely,
(S. Jayaprahasam)
Technical Officer, TRU
Tel: 011-2309 2037
