VCES is a golden opportunity for the Defaulters and Stop Fillers to regularise their acts without being penalized for their ignorance of Law and thereafter to ensure strict adherence of this Law.
However, there are some problems in the understanding of the scheme by both the Declarant and the Department. We have analysed the Scheme and discussed the problems in implementation of this scheme with suggestions and our opinion - CA Ritul Patwa, Partner M/s. Ritul Patwa & Co, Jaipur; www.ritulpatwa.com or rp@ritulpatwa.com
2. BACKDROP TO THE INTRODUCTION OFBACKDROP TO THE INTRODUCTION OF
VCES, 2013VCES, 2013
Service Tax was introduced in the year 1994 by the then Finance Minister
Dr. Manmohan Singh Ji as an experiment in the indian tax laws.
Since it was an experimental statue, no separate Act was introduced for
the service tax and even till date it is part of the Finance Act only.
Over the years Government has made several efforts to maximum its
coverage and increase the revenue from Service Tax. In this process they
have even covered services like – Sale of food in an AC restaurant or Sale
of Flats or Renting of immovable property, which for a common man
primarily do not appear to be covered under Service Tax.
Today Service Tax has become a mojor source of revenue for the
government.
3. BACKDROP TO THE INTRODUCTION OFBACKDROP TO THE INTRODUCTION OF
VCES, 2013VCES, 2013
Due to rapid changes and unstructured evolution of this Law, two major
grey areas remained in the implementation of this law:-
1. Lack of separate administrative set-up to monitor this Law; and
2. Ignorance and lack of information with the prospective assessees.
As a result of above 2, as at the end of 31-03-2012 out of the total 17
Lakhs registered assessees only 7 Lakhs were filling their Service Tax
Returns.
In light of the above facts, the H’ble Finance Minister Sh. P.
Chidambaram resolved to give a onetime opportunity to the
defaulters and stop-fillers to regularise their acts without being
penalized for their ignorance of Law and thereafter to ensure strict
adherence of this Law.
4. LEGAL CLASSIFICATION OF VCES, 2013LEGAL CLASSIFICATION OF VCES, 2013
1. With reference to Duration – It is a Temporary Statute as its duration is
only for a specified time and it expires on the expiry of the specified time
unless it is repealed earlier or extended by a fresh statue.
2. With reference to nature of operation – It is a Retrospective statute that
takes away or impairs vested rights acquired under the existing laws or
creates a new obligation into a new duty or attaches a new disability in
respect of transactions or considerations already passed are deemed
retrospective or retroactive statute.
3. With reference to Objective - It is an Enabling statute which enlarges the
common law where it is too strict or narrow. It is a statute which makes it
lawful to do something which would not otherwise be lawful.
5. INTERPRETATION OF VCES, 2013INTERPRETATION OF VCES, 2013
The interpretation of VCES 2013 has become essential as this law
is an exceptional law that has been enacted as a Temporary Statue,
with a very specific objective. The biggest hurdle of this act is that it
lacks any precedence or settled case laws for reference by the
department or the assessee.
Thus for the manifold permutations and combinations that may arise
in the actual implementation of the Scheme and also to provide for
each one of them in terms free from all ambiguities we have to rely
on the following:-
1. The judicial Interpretation of the Scheme; and
2. Departmental Circulars for clarification in respect of the scheme.
6. However, as rightly said by Salmond –
“the essence of law lies in the spirit,
not its letter,
for the letter is significant only as being the external manifestation
of the intention that underlies it”.
7. The essence of VCES, 2013 can be taken from the budget speech
of the H’able Finance Minister Sh. P. Chidambaram that is quoted
below for ready reference:-
“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. 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 instalments
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. “
8. If we analyse the above statement of the H’ble FM, the key essence
or the intention behind this scheme was:-
1. It is a self-declaration (voluntary) scheme.
2. It intends to give 1 time amnesty to defaulters and stop fillers of
service tax; through friendly incentive of interest and penalty
waiver;
3. The declarant must have an intention for truthful rectification of
default;
4. The object is to avoid administrative proceedings and / or large
scale litigation in service tax; and
5. Focus is on broadening of the coverage of the Service Tax rather
than hunting individual assesses.
9. THE LANGUAGE & DRAFTING OFTHE LANGUAGE & DRAFTING OF
THE SCHEME AND THE RULESTHE SCHEME AND THE RULES
The key features of the language and drafting of the scheme and
rules made there under are as below:-
1. Very simple and un-ambiguous English has been used for the
scheme;
2. The scheme has clearly marked the exceptions for
(a) Rejection [Section 106 (2)] and
(b) Review [Section 111 (1)], of the declaration made by an
assessee;
10. THE LANGUAGE & DRAFTING OFTHE LANGUAGE & DRAFTING OF
THE SCHEME AND THE RULESTHE SCHEME AND THE RULES
3. Time Lines have been clearly defined, for e.g.
(a) Issue of acknowledgement in VCES 2 – within 7 working days of the
date of receipt of declaration [Rule 5];
(b) Issue of Notice for Rejection u/s 106(2) – Within 30 days of the date
of filling of the declaration [Para 12 of the F. No. B1/19/2013-
TRU(Pt) dated 08-08-2013]
(c) Issue of Form VCES 3 – within 7 working days from the date of
furnishing of details of payment of tax dues in full along with interest,
if any, by the declarant [Rule 7 (2)].
(d)Review of Declaration – within 1 year from the date of filling the
declaration [Section 111 (2)]
(e)Payment of Tax Dues – Minimum 50% upto 31-12-2013 and
balance before 30-06-2014 and with interest payment upto 31-12-
2014.
11. PART - BPART - B
PROBLEMS FACED BYPROBLEMS FACED BY
DECLARANT DURINGDECLARANT DURING
IMPLEMENTATION OF SCHEMEIMPLEMENTATION OF SCHEME
12. P -1:P -1: At the time of making the declaration, theAt the time of making the declaration, the
department is scrutinising each and every aspect ofdepartment is scrutinising each and every aspect of thethe
declaration and seeking several queries anddeclaration and seeking several queries and show-show-
causes to ensure the correctness of the claimcauses to ensure the correctness of the claim by theby the
assessee.assessee.
Our View on the above problem:-
In our opinion the scheme is devised as a self-
declaration (voluntary) scheme and unless otherwise
observed by the Designated Authority, the declaration
made by the declarant should be accepted in totality.
13. P -2:P -2: At the time of verification from Concerned Ward andAt the time of verification from Concerned Ward and
Anti Evasion Division under Section 106 (2) forAnti Evasion Division under Section 106 (2) for
rejection of the declaration – the ward and antirejection of the declaration – the ward and anti evasionevasion
wing are issuing show-cause to thewing are issuing show-cause to the assessee andassessee and
giving their comments regardinggiving their comments regarding correctness of his claim.correctness of his claim.
Our View on the above problem:-
In our opinion the mandate given under section 106 (2) to
the concerned ward and the anti-evasion wing is to identify
whether the declaration filled by the assessee is liable for
rejection in accordance with the conditions stipulated in
section 106 (2) and it is beyond the scope of the mandate
given to them, to issue show cause notices to the declarant
for seeking clarification related to the declaration made by
them.
14. P -3:P -3: Delay in issue of Form VCES 3 for want ofDelay in issue of Form VCES 3 for want of
information and inquiry into the correctness of theinformation and inquiry into the correctness of the claimclaim
of the declarantof the declarant
Our View on the above problem:-
In our opinion Rule 7(2) is very clear in its verdict that
Form VCES – 3 has to be issued within 7 working days
from the date of furnishing of details of payment of tax
dues in full along with interest, if any, by the declarant
and the same should not be withheld for any reason
whatsoever.
15. P - 4:P - 4: Denial of Composition Schemes by the departmentDenial of Composition Schemes by the department
for lack of documentary compliance by the declarant.for lack of documentary compliance by the declarant.
Our View on the above problem:-
• In our opinion the various composition schemes are being proposed by
the government in order to ease the procedural compliances, calculation
of tax liability and to avoid litigation between the department and the
assessee. AND clearly the object of any composition schemes does not
include reduction of the tax burden on the assessee.
• It is observed that under VCES, 2013 the declarant is denied benefit of
the composition scheme on petty defaults like non-submission of an
option letter for opting under the scheme.
• It is suggested that since this scheme is for defaulters, the petty
documentation compliances should not be used as a ground for denial of
any scheme legally available to the declarant, had he been a non-
defaulter.
• This will not only reduce the calculation and technical disputes but will
also make scheme more accessible for the defaulter.
16. P -5:P -5: Acceptability and Friendliness towards the defaulterAcceptability and Friendliness towards the defaulter
filling declaration under the schemefilling declaration under the scheme
Our View on the above problem:-
As appears from the scheme and the advertisements
issued by the government from time to time, the
government intends a friendly acceptance of the defaulters
and avoid any harsh and penal action against true
declarant.
It is important that the declarant should be treated in a
friendly and cohesive environment while interacting with the
department under VCES, 2013.
17. CA RITUL PATWACA RITUL PATWA
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