OBJECT & IMPLEMENTATION OF VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013

1. OBJECT & IMPLEMENTATIONOF VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013 Presented By:- CA. RITUL PATWA B. Com, F.C.A., I.S.A. (ICAI) Partner – M/s. RITUL PATWA & CO Chartered Accountants 30 Ka 6, Opp Rajasthan VidhanSabha, Jyoti Nagar, LalKothi, Jaipur -302015 Phone : 0141-2741234, 09001231231 E-mail : rp@ritulpatwa.com Website : www.ritulpatwa.com

2. 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. BACKDROP TO THE INTRODUCTION OF VCES, 2013

3. 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. BACKDROP TO THE INTRODUCTION OF VCES, 2013

4. LEGAL 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Statute as its duration is only for a specified time and it expires on the expiry of the specified time unless it is repealed earlier or extended by a fresh statue. 2.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, 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:- • It is a self-declaration (voluntary) scheme. • It intends to give 1 time amnesty to defaulters and stop fillers of service tax; through friendly incentive of interest and penalty waiver; • The declarant must have an intention for truthful rectification of default; • The object is to avoid administrative proceedings and / or large scale litigation in service tax; and • Focus is on broadening of the coverage of the Service Tax rather than hunting individual assesses.

9. THE LANGUAGE & DRAFTING OF THE SCHEME AND THE RULES The key features of the language and drafting of the scheme and rules made there under are as below:- • 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 OF THE 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 - B PROBLEMS FACED BY DECLARANT DURING IMPLEMENTATION OF SCHEME

12. P -1: At the time of making the declaration, the department is scrutinising each and every aspect of the declaration and seeking several queries and show-causes to ensure the correctness of the claim by the 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: At the time of verification from Concerned Ward and Anti Evasion Division under Section 106 (2) for rejection of the declaration – the ward and anti evasion wing are issuing show-cause to the assessee and giving their comments regarding 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: Delay in issue of Form VCES 3 for want of information and inquiry into the correctness of the claim of 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: Denial of Composition Schemes by the department 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: Acceptability and Friendliness towards the defaulter filling 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.

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