VCES, 2013 - A different interpretation as far as classification of services cannot tantamount to substantial misdeclaration - Rejection of declaration improper: CESTAT
By TIOL News Service
BANGALORE, DEC 28, 2017: THE appellant is engaged in the activity of Construction of Residential and Commercial complexes. They filed declaration under the Service Tax Voluntary Compliance Encouragement Scheme (VCES), 2013 and declared service tax liability for the period April 2011 to December 2012 to be Rs. 8,14,025/- and paid the service tax accordingly.
Subsequently, during scrutiny of records, the Revenue noticed that the appellant had failed to declare his service tax liability properly.
Alleging there has been a substantial misdeclaration of service tax dues in the VCES declaration, a show-cause notice was issued.
An order came to be passed by the Commissioner by which an additional service tax of Rs 4,88,415/- was demanded from the appellant along with interest and penalties were imposed by denying the benefit of the abatement claimed.
The appellant is before the CESTAT along with an application for condonation of delay of 266 days. The reason given for the delay is that the partner of the appellant firm was suffering from serious heart ailment and was under treatment during the period May 2016 till January 2017. And also, there was a change of counsel because of which also appeal could not be filed in time.
Accepting the reasons for the delay, the Tribunal allowed the COD application and took up the appeal for decision.
It is submitted by the appellant that after declaring the total value of taxable services in the VCES declaration, they had claimed abatement (as available to Construction services) to the extent of 75% as per the Notf. No.26/2012-ST and paid the balance dues of Rs.8,14,025/-.
However, the Revenue procured copies of the returns filed by the appellant to the VAT Department wherein the services rendered by the appellant have been declared as Works Contract services.
The alleged misdeclaration, as per the department, is in the classification of services, the appellant submits.
The appellant further submitted that the definition of Works Contract service under the Finance Act, 1994 as well as the respective State Government Act are different and the services rendered by them would be rightly classifiable under the Construction of Complex services under FA, 1994 since the consideration received by the appellant also includes the cost of the undivided share of the land transferred after construction of the apartments.
The AR submitted that in view of the apex court decision in Larsen & Toubro Ltd = 2013-TIOL-46-SC-CT-LB, the services are rightly classifiable under WCS and, therefore, the impugned order is proper and legal.
The Bench inter alia observed -
+ We note that the total amount of consideration received by the appellant has not been found to be any different from what was declared.
+ The appellant had declared the same under construction of complex service but the same was held to be classifiable under works contract service.
+ The Service Tax Voluntary Compliance Encouragement Scheme (VCES) was framed by the Government with the intention of encouraging voluntary compliance and payment of service tax.
+ The declarations made under such scheme were to be accepted, by and large.
+ However the power was given to the jurisdictional Commissioners to reopen such declarations only in cases where they were found to be substantially misdeclared.
+ In the present case, we note that the Revenue has noticed that the same services were declared to be under works contract services for the purposes of VAT assessment.
+ We are of the view that Revenue has not made out a case of substantial misdeclaration in this case. They have not brought on record any contract or document which indicates that the appellant has not made full declaration of the service tax liability for the disputed period.
+ The Revenue has only taken a different interpretation as far as the classification of services. This cannot tantamount to substantial misdeclaration.
The impugned order was set aside and the appeal was allowed.
The CESTAT also made it clear that tax liability accepted in the VCES by the appellant is not being interfered.
In passing : Board Circular 170/5/2013-ST dated 08.08.2013
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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.
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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.
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++ The effort must be to accept a declaration, as far as possible, and recover the arrears of tax - CBEC Circular 174/9/2013-ST dated 25.11.2013.
(See 2017-TIOL-4567-CESTAT-BANG)
