By TIOL News Service

CHENNAI, DEC 28, 2015: THE Petitioner is running hotel business and is registered with the department for payment of Service Tax under restaurant service and accommodation service and has been paying Service Tax. Departmental auditors conducted audit of the accounts of the Petitioner on 23.02.2013 and 25.02.2013 and pointed out that the Petitioner is liable to pay Service Tax under Renting of immovable property service also.

Petitioner filed a declaration under VCES in respect of Service Tax payable on renting service and the same was rejected by the Designated Authority. The Petitioner is before the High Court challenging the order passed by the Designated Authority.

It is the case of the Petitioner that the audit was held on 23.2.2013 and 25.2.2013 by the officers attached to the Additional Commissioner (Audit), Salem in the premises of the petitioner company and after a month, the Superintendent of Customs, Central Excise and Service Tax sent a letter dated 16.4.2013 informing the petitioner to pay service tax under the category of renting of immovable property service. Only thereafter, the petitioner company came to know that they failed to pay the service tax for the category of renting of immovable service. The rejection of the declaration of the petitioner made by the fourth respondent is against the circular dated 25.11.2013 issued CBEC clarifying the provisions of Section 106(2) of the Finance Act, 2013 that if an inquiry, investigation or audit pending as on 1.3.2013 was being carried out for the period from 2008-11, the benefit of VCES would be eligible in respect of tax dues for the year 2012, namely, period not covered by the inquiry, investigation or audit. As the renting of immovable property service was not covered in the audit report and that the petitioner also has not obtained any service tax registration certificate for renting of immovable property service, the petitioner is entitled to file the declaration under VCES. Hence the declaration is within the parameters of the VCES and the same ought not to have been rejected.

After hearing both sides, the High Court held:

+ A close reading of Section 106(2) would clearly show that if a declaration is made by a person against whom an inquiry or investigation in respect of a service tax not levied or not paid or short-levied or short-paid has been initiated by way of search of premises or an audit has been initiated, during the pendency of such an inquiry as on the first day of March, 2013, the designated authority shall by an order reject such declaration with the reasons to be recorded therein. In the present case, admittedly the premises of the petitioner came to be visited by the internal audit section of the respondents and an audit was conducted on 25.2.2013 and 28.2.2013. During the course of audit, the audit party noticed that the assessee was also providing renting of immovable property service, but had not taken registration for this service nor had included this service in the service tax registration certificate and also not paid the service tax for the renting of immovable property service. Hence the matter was under consideration of audit as on 1.3.2013, which is not yet being over. Therefore, as per Section 106(2) of the Finance Act, the petitioner is not entitled to get the benefit of the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES), hence the fourth respondent, rightly in this case, has rejected the application dated 21.6.2013 holding that the petitioner is not entitled to get the benefit of the VCES.

(See 2015-TIOL-2905-HC-MAD-ST)