Voluntary Compliance
Encouragement Scheme (VCES)
“While there are nearly
17 Lakhs registered assessees under service tax, only about 7 Lakhs file
returns. Many have simply stopped filing returns. We cannot go after each of
them. I have to motivate them to file returns and pay the tax dues. Hence, I
propose to introduce a one-time scheme called ‘Voluntary Compliance
Encouragement Scheme’. A defaulter may avail of the scheme on condition that he
files a truthful declaration of service tax dues since 1.10.2007 and makes the
payment in one or two installments before prescribed dates. In such a case,
interest, penalty and other consequences will be waived. I hope to entice a
large number of assessees to return to the tax fold. I also hope to collect a
reasonable sum of money.” [Budget speech 2013- para 183] – With this honorable
Finance Minister of India- P. Chidambaram introduced one time scheme for
service a tax defaulter which is known as Voluntary Compliance Encouragement
Scheme (VCES), 2013.
Provisions
VCES is contained in
section 104 to section 114 of The Finance Act, 2013. The central government has
notified Service Tax Voluntary Compliance Encouragement Rules (STVCER) vide
notification no. 10/2013 dated 10th May, 2013. And 2 circulars (or FAQ) were issued one dated
13th May, 2013 & other dated 8th August, 2013.
Link for circulars:-
Who
can apply for scheme?
Any person who was
required to pay service tax for the period from 1st October, 2007 to
31st December, 2012; but failed to pay service tax till 31st
March, 2013 for the said period can get himself registered for the scheme. The
scheme is also open for those who have not registered as a service tax
assessee.
List of persons
ineligible to apply for the scheme are:-
1)
Assessee who has received notice from
the department;
2)
Any dispute is pending or an inquiry is
going on against the assessee;
3)
Assessee who has filed ST-3; but did not
pay tax wholly or partially;
4)
Audit is initiated by the department
against a person;
5)
A person filing ‘Nil return’; but failed
to file it
Immunity
VCES would entitle a
person to get immunity from payment of interest on non-payment of due, penalty
for non-payment of dues, penalty on late registration as a service tax
assessee. Interest on non-payment of due is leviable as per section 73B or
section 75. Current rate of such interest is 2% p.m. or part thereof. Penalty
on non-payment of due is 200 per day (maximum upto Rs. Rs. 10000) for no. of
days for which the payment has been delayed. Currently penalty on late
registration as a service tax assessee is Rs. 200 per day (maximum upto Rs.
5000). So it can be said that this is golden opportunity for service tax
defaulters to apply for the scheme and avoid long drawn litigation process.
Procedure
An eligible person
desiring to declare voluntarily has to file so called “Truthful declaration” in
form VCES-1 on or before 31st December, 2013. The declarant has to ascertain, calculate exact sum of tax
dues with a separate calculation sheet attached to it. It is to be submitted to designated authority
upon which the designated authority would issue VCES-2 within 7 working
days. After the declaration, the person will have to pay pending service tax in
2 equal installments. 1st by 31st December, 2013 and
another by 30th June, 2014. Upon furnishing of details of payment of
dues in full, the designated authority will issue an acknowledgement of discharge
in form VCES-3. If the declaration is substantially false then
Commissioner may issue a show cause notice to the assessee. And it that is
proven then the immunity would stand withdrawn.
Legality
of VCES
VCES is 3rd
amnesty scheme introduced by central government. 9 years back, i.e., in 2004
the government introduced ‘Extra ordinary tax payer friendly scheme’ for
instant registration as a service tax assessee. And in 2008 the central
government introduced ‘Service tax dispute resolution scheme’. Both the schemes
did not achieve the desired outcome.
“I believe there is a
little bit of the spirit of Mr. Azim Premji in every affluent tax payer. I am
confident that when I ask the relatively prosperous to bear a small burden for
one year, just one year, they will do so cheerfully.” [Budget speech 2013- para
130] If honorable Finance minister is asking honest tax payers to bear a small
burden; then ‘Why tax defaulters are getting immunity from such scheme?’
VCES can be challenged
on the ground of Article 14 of Constitution of India which stipulates that ‘The
State shall not deny to any person equality before the law or the equal
protection of the laws within the territory of India’. In VCES, equal treatment
is not given to all class of service tax assessees. Also the decision of case- R. K. Garg vs. Union
of India is worth considering. In the said case the court laid down that classification
of persons as illegal tax evaders and honest tax payer is unjustifiable. Therefore
one may argue on VCES in the court of law.
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