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Service tax amnesty scheme: Caught in web of fine print

Prosecution may also be launched if it is found that the non-payment of service tax was wilful and deliberate.

Published:March 31, 2014 3:36 am

If you thought that by meeting formalities for availing of the service tax amnesty scheme, you have escaped the government’s radar, chances are that you may be in for a rude shock. If you did not conform to all the conditions that came with the Voluntary Compliance Encouragement Scheme (VCES), your application may not be accepted even if you have paid the amount as required.

The service tax amnesty scheme, announced last year by finance minister P Chidambaram in the Budget 2013-14, though witnessed 66,062 applications pouring in till February 21 as per Parliament data, not every assessee desirous of making the most of the opportunity has been successful due to myriad reasons.

“We have got many cases where assessees came to us, got themselves registered, made a declaration and then simply sat back, thinking that since they have declared, they are protected by the scheme. Similarly, a few did not pay the entire 50 per cent amount by December deadline, on the grounds that the remaining payment they could make by June-end. Such applications have of course been rejected as they are not in line with the conditions laid down,” according to a government official.

This would mean that all such assessees now would be under the department scanner and will have to shell out penalty and interest on the amount declared. Prosecution may also be launched if it is found that the non-payment of service tax was wilful and deliberate. So essentially, the immunity they would have enjoyed in the event of being covered by the scheme will no longer be there.

Further, assessees who collected the service tax but did not deposit it, and if this amount is more than Rs 50 lakh, they may face arrest too.

As such, the service tax department is vetting the applications received so far and tallying the declaration with the amount paid. The department is also verifying the veracity of declarations. While many applications have already been rejected, many are likely to get rejected due to issues relating to interpretation of the provisions.

Most of the applicants are from the sectors including construction, real estate, works contract, business auxiliary, goods transport operation, financial services, and renting of immovable property. The highest number of applications have been from Maharashtra, especially Mumbai, which contributes over 40 per cent of the total service tax collection. This is followed by Delhi.

The government had announced the scheme with a view to encourage people to come forward and clear that service tax dues pending for the last five years either due to lack of awareness or any other reason.

According to the scheme, if anyone liable to pay service tax, either as service provider or receiver, has not been able to pay during October 2007 to December 2012 as on March 31, 2013, they could do it subject to certain conditions. In the event of availing of the facility, the penalty and interest due on the amount unpaid was to be waived off along with penal proceedings provided the person made a truthful declaration of all the pending dues. Also, at least 50 per cent of the total tax due was to be paid before December 31, 2013.

The rest of the amount was to be paid by June 30, 2014 without interest and by December 31, 2014, with interest for the period of delay.

However, the scheme would not cover those against whom any inquiry or investigation is pending and search warrants or summons have been issued before March 31, 2013. Further, those who have been audited and issued show cause notice, or filed return but did not pay the disclosed tax, would also not be covered.

Ad campaigns were launched to make people aware of the scheme and service tax per se while Bollywood actors were roped in to send across the message of paying service tax on time.

The efforts paid off with the government mopping up Rs 3,962 crore till February 21 in the current year. The scheme was essentially to nudge both registered and unregistered assessees to clear their dues as of the 17 lakh assessees registered, only 7 lakh were filing returns. However, there has been an improvement in that too.

The official said that although around 20,000 assessees keep registering every month, after the announcement of the VCES, more than 25,000 have been registering each month. As a result of greater awareness, many assessees who were originally registered for one service have now asked for amendment in their registration.

“A culture of paying service tax is emerging. Several people have claimed that they got to know about the service tax only through ad campaigns. Many of them have come forward to clear their past liabilities,” the official added.

However, tax experts say that many of those who wanted to benefit from the scheme could not actually benefit owing to lack of clarity in the policy and the stigma attached to such schemes in India.

People had some key concerns, said MS Mani, senior director, Deloitte India. He said that for some, the first instalment of 50 per cent of the total dues was too steep to pay, while for others the stigma attached prevented them from going for it.

There is ambiguity in the guidelines, said Bipin Sapra, tax partner, EY. He added that even the clarifications which were issued were contradictory in nature, which is why very few people who applied for VCES have got a clean chit from the department and at least 5-10 per cent of cases have been adversely impacted due to issues related to interpretation of the policy.

“The department should have given opportunity to people who have received show cause notice. That would have made the scheme truly successful,” Sapra said adding that before calling it a success, he would wait for more clarity. The views are echoed by Mani, who said, “The scheme has been a moderate success though it has certainly brought in greater awareness”.

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