By TIOL News Service

MUMBAI, NOV 23, 2018: INVESTIGATIONS in January 2013 revealed that the appellant had obtained service tax registration but were not making payment of service tax as required.

The appellant made a declaration under VCES scheme and declared tax dues of Rs.2,72,82,470/-. Out of this, a certificate under VCES was issued for only Rs.2,56,16,742/- [period of tax dues 1 st October 2007 to 31 st December 2012] as the amount of Rs.16,65,728/- was for the period prior to enactment of the scheme and hence not considered as a payment under the said scheme. The appellant also paid an amount of Rs.55,80,772/- being other payments (i.e. against service tax demand of Rs.3,11,97,514/- minusRs.2,56,16,742/-) for which VCES certificate was issued.

The Commissioner of Service Tax has passed an order confirming the service tax demand of Rs.81,64,644/- and appropriated the amount of Rs.55,80,772/- along with the interest paid of Rs.15,35,354/-. An equivalent penalty has also been imposed along with late fees etc.

The appellant challenges this order on the ground that since they had file dadeclaration under VCES scheme and a certificate had also been issued under VCES scheme, the impugned proceedings could have been initiated against them only in terms of Section 111 of the Finance Act, 2013 and not under Section 73 of the Finance Act, 1994.

The AR submitted that Section 73 is the provision for demand of service tax short paid or not paid for any reason and, therefore, no fault could be found in the action initiated by Revenue. It is also emphasized that Section 111 of the Finance Act, 2013 does not bar initiation of the said proceedings, but in terms of Section 111(3), a notice issued under Section 111 is deemed to be issued under Section 73.

The Bench extracted the provisions under reference and observed -

++ In terms of Section 111(3), it is a fact that any notice issued under the provisions of this section is deemed notice under Section 73 of the Finance Act, 1994. If that be so, this section does not bar initiation of the proceedings under Section 73 of the Finance Act vis-à-vis the service tax short paid or not paid. The show cause notice issued under Section 73 cannot be faulted on this account.

++ Further, investigations in the present case have been started on 8.1.2013 whereas the VCES scheme has come into operation only from 10.5.2013. Thus, when the proceedings have already been initiated before the VCES scheme, the show cause notice for short payment would have been issued only in terms of Section 73 of the Finance Act, 1994.

++ CBEC, FAQ on VCES, Q. 12 also clarifies that - 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. In view of the above reply also, the recovery was to be initiated in terms of Chapter V of the Finance Act, 1994 and adjudged accordingly.

++ When a declaration is made under the provisions of VCES, 2013 … and the declaration passes the test laid down under Section 106 & Section 111 of Finance Act, 2013 by being not substantially false; the declaration made needs to be accepted and immunity granted. However, if the department intends to raise any additional demand, they can issue show cause notice for such additional demand in terms of Section 73 of Finance Act, 1994.

Concluding that there is no merit in the submissions made by the appellant, the appeal was rejected.

(See 2018-TIOL-3533-CESTAT-MUM)