Budget 2013 – Amnesty scheme in service tax
By Surbhi Premi
In 1997, the Government of India introduced the Voluntary Disclosure of Income and Wealth Scheme, 1997 (VDIS), an amnesty scheme under the direct taxes which unearthed approximately Rs. 33,000 Crores worth of black-money yielding tax revenue of approximately Rs. 10,000 Crores. The amnesty scheme was criticized on the ground that it was discriminative as it gave premium to the dishonest taxpayers. However, the Supreme Court in the case of All India Federation of Tax Practitioners v. UOI [(1998) 2 SCC 161] upheld the constitutional validity of the amnesty scheme rejecting the contention that it was arbitrary and violative of Article 14 of the Constitution of India.
Budget, 2013 has proposed an amnesty scheme under service tax law (Chapter VI of the Finance Act, 1994) by way of waiver of interest, penalty and immunity from prosecution to stop filers and non filers, who declare their tax dues for the period from 1st October, 2007 to 31st December, 2012 by 31st December, 2013 and pay at least 50% of the outstanding amount by 31st December, 2013 and balance by 30th June, 2014 or by 31st December, 2014 with interest.
Service Tax Voluntary Compliance Encouragement Scheme
The Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) provides that any person who has furnished service tax return and disclosed his true liability, but has not paid the disclosed amount of service tax or any part thereof, shall not be eligible to make declaration for the period covered by the said return. In other words, the persons eligible are those who have either failed to furnish the return or not disclosed the true liability in case where return was furnished.
Persons eligible or otherwise
The scheme does not provide any benefit to honest taxpayers, ones who have filed the returns and paid the true liability disclosed therein. Defaulters of payment of tax dues can be categorized into three. First are those who have not filed the return. Second are those who have filed the return but have not disclosed the true liability. Third are those who have filed the return and disclosed the true liability. Out of these, first two are entitled to the benefit under the scheme but the third category of persons is not entitled to the benefit. The scheme not only discriminates between honest and dishonest taxpayers, it also creates separate categories within the dishonest taxpayers which indicates that the scheme targets to incentivize only those persons about whom the department was not having information.
The Finance Minister introduced the scheme in his budget speech by stating:
“While there are nearly 17,00,000 registered assessees under service tax, only about 7,00,000 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.”
The obvious question which arises is whether the scheme suggests that the persons who have not paid their service tax dues for any period during 1st July, 2012 to 31st December, 2012 should refrain from filing the return where the last date for submission of the return has not expired before 31st December, 2012 so as to avail the benefits under VCES? Although, the intention of the legislature may not have been such.
The scheme also provides that a person against whom, an inquiry or investigation in respect of service tax not levied or not paid or short-levied or short-paid has been initiated by way of search of premises under Section 82 of Chapter V of the Finance Act, 1994; or issuance of summons under Section 14 of the Central Excise Act, 1944, as made applicable to Chapter V under Section 83 thereof; or requiring production of accounts, documents or other evidence under the Chapter or the rules made thereunder; or a person against whom an audit has been initiated, and such inquiry, investigation or audit is pending as on the 1st day of March, 2013, will not be eligible to make declaration under the scheme.
Questions left open
The scheme has left certain points open, e.g., it states that if an audit is pending against a person, he shall not be eligible to make a declaration but the scheme is silent as to the kind of audit.
The Supreme Court in the case of Tanna & Modi v. CIT, Mumbai [(2007) 7 SCC 434] had held that though for the purpose of income tax, a firm and its partners are treated to be separate legal entities but while construing a statute granting immunity (VDIS in the instant case), it should not be construed in such a manner so as to frustrate its objective. Keeping in view the purport and objective of VDIS, the Supreme Court denied the benefit of the scheme to the partnership firm where the partner of the firm was disentitled to make a declaration. It would be an interesting point to see whether such a disentitlement will exist under service tax also.
Unlike VDIS, VCES does not contain any secrecy clause as to the confidentiality of information furnished under VCES. In the absence of a secrecy clause in VCES, a natural question that may arise is: whether the information furnished under VCES will be used by other tax authorities, courts etc.?
Just like other amendments, this scheme also opens up a pandora’s box of issues but how they will be answered or resolved remains to be seen.
[The author is an Associate, Tax Practice, Lakshmikumaran & Sridharan, New Delhi]