Benefit of VCES is deniable if summons have been issued before 1.3.2013.

Case:- SWETA SALES CORPORATION VERSUS UNION OF INDIA

Citation:- 2015 (37) S.T.R. 167 (Guj.)

Brief facts:- Brief facts of this case are as under :
The petitioner is a proprietary concern and is engaged in the business of construction and related services which are taxable service under the Finance Act, 1994. The petitioner enjoys Service Tax registration for such purpose.
The petitioner had executed work order for laying down, installation, construction, testing and commissioning of Polythylene Gas Pipeline’s network between April, 2008 to September, 2012. According to the petitioner, Service Tax liability for such execution of work was also discharged. The Directorate General of Central Excise Intelligence, Ahmedabad Zonal Unit, however, initiated inquiry against the petitioner with respect to such liability by issuing summons, dated 26-2-2013 under Section 14 of the Central Excise Act, 1944, which was served on the petitioner on 4-3-2013. Another summon was also issued on 28-2-2013 served to the petitioner on 5-3-2013. In response to such summons, the petitioner appeared before the authority. Statements were recorded, various documents were collected and Demand-cum-Show Cause Notice was issued to the petitioner on 21-10-2013.
In the meantime, w.e.f. 10-5-2013, the said scheme was implemented under the Finance Act, 2013. Under the said scheme, subject to certain conditions, a person could make a declaration of his tax dues and upon payment of such tax dues in two instalments within the prescribed time the declarant would get immunity from penalty, interest and other proceedings. With respect to details provisions of the said scheme we would advert to it a later stage.
In terms of the said scheme, the petitioner made a declaration on 24-12-2013 in the prescribed proforma declaring total tax dues of Rs. 14,85,460/-. Along with covering letter dated 24-12-2013, the petitioner also enclosed a copy of summons, dated 26-3-2013 received from the department. It is not in dispute that the petitioner did deposit the first instalment of tax dues of Rs. 7,42,730/-. The other instalment was due latest by 30-6-2014. However, in the meantime, the department issued a show cause notice, dated 21-10-2013 and called upon the petitioner to explain why the declaration made under Section 106 be not rejected. This was on the premise, by virtue of issuance of summons dated 26/28-2-2013, inquiry or investigation, was already initiated before 1-3-2013 and therefore, in terms of Section 106(2)(a) of the Finance Act, 2013, the petitioner was not entitled to make a declaration of tax dues.
The petitioner opposed the show cause notice by filing a reply dated 27-1-2014. The contention of the petitioner was that the summon though issued on 26-2-2013 was served only on 4-3-2013. As per Section 37C of the Central Excise Act, 1944, such summons had to be served as provided under sub-section (1) thereof. Till the summon was so served to the petitioner, inquiry or investigation cannot be stated to have been initiated.
The Assistant Commissioner of Central Excise, however, was not convinced. He therefore, by order dated 23-6-2014, rejected the petitioner’s contention and disallowed the petitioner’s application for declaration under the Scheme of 2013. In the said order, it is mentioned as under :
“It is very clear that the inquiry or investigation is started against the assessee by the way of issuance of summons under Section 14 of the Central Excise Act, 1944 as made applicable to the Chapter under Section 83, dated 26/28-2-2013 before the cut of date 1-3-2013.
Hence, according to proviso of the Section 106(2)(a)(II) of Chapter VI of the Finance Act, 2013 (17 of 2013) VCES application of the M/s. Sweta Sales Corporation is disallowed.
Accordingly, I pass the following order :
I hereby reject the VCES application of the M/s. Sweta Sales Corporation dated 24-12-2013.”
It is this order which the petitioner has challenged in this petition and prayed for consequential relief permitting the petitioner to deposit remaining 50% of the tax dues as per the declaration and for acceptance of such declaration.

Appellant’s contention:- Learned counsel Mr. Paresh Dave for the petitioner strenuously urged before the High Court that under sub-section (2) of Section 106 of the Finance Act, 2013, requirement is initiation of an inquiry or investigation in respect of unpaid Service Tax. Initiation of inquiry can be completed only upon service of summon, under Section 14 of the Central Excise Act 1944, not by merely issuance of summons. He placed reliance on Section 37C of the Central Excise Act, 1944, to contend that such summon had to be served on the noticee as per the procedure prescribed in the said provision. He contended that unless such procedure is completed, service of summon would remain incomplete. In turn, there would be no initiation of inquiry as envisaged under sub-section (2) of Section 106.

Respondent’s contention:- On the other hand, learned counsel Mr. Gaurang Bhatt for the respondent opposed the position of the petitioner contending that what Section 106 of the Finance Act, 2013, requires is issuance of summon and not service thereof. Admittedly in the present case, the summon was issued before 1-3-2013. Petitioner’s case was thus covered the exclusion clause contained in the Scheme of 2013.
As noted, the said Scheme 2013 was implemented with effect from 10-5-2013. The said Scheme was framed under the Finance Act, 2013. Section 105 of the Finance Act, 2013 contains definition clause. Clause (e) of sub-section (1) of Section 105 defines tax dues as under :
‘“tax dues” means the Service Tax due or payable under the Chapter or any other amount due or payable under Section 73A thereof, for the period beginning from the 1st day of October, 2007 and ending on the 31st day of December, 2012 including a cess leviable thereon under any other Act for the time being in force, but not paid as on the 1st day of March, 2013.’
Section 106 of the Finance Act, 2013 pertains to person who may make declaration of tax dues which reads as under :
“106. Person who may make declaration of tax dues.- (1) Any person may declare his tax dues in respect of which no notice or an order of determination under Section 72 or Section 73 or Section 73A of the Chapter has been issued or made before the 1st day of March, 2013 :
Provided that any person who has furnished return under Section 70 of the Chapter 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 :
Provided further that where a notice or an order of determination has been issued to a person in respect of any period on any issue, no declaration shall be made of his tax dues on the same issue for any subsequent period.
(2) Where a declaration has been made by a person against whom, -
(a)        an inquiry or investigation in respect of a Service Tax not levied or not paid or short-levied or short-paid has been initiated by way of -
(i)         search of premises under Section 82 of the Chapter; or
(ii)        issuance of summons under Section 14 of the Central Excise Act, 1944 (1 of 1944), as made applicable to the Chapter under Section 83 thereof; or
(iii)       requiring production of accounts, documents or other evidence under the Chapter or the rules made thereunder; or
(b)        an audit has been initiated,
and such inquiry, investigation or audit is pending as on the 1st day of March, 2013 then, the designated authority shall, by an order, and for reasons to be recorded in writing, reject such declaration.”

Reasoning of judgment:- After hearing both the sides , the Hon’ble High Court submitted the last & ultimate short question that whether the case of the petitioner falls under sub-section (2) of Section 106 of the Finance Act. They therefore, peruse the said Scheme of 2013 more closely. They explained the section 106(1) and found that sub-section (1) of Section 106 that permits the person to make a declaration of his tax dues in respect of which no notice or an order of determination under Section 72 or Section 73 or Section 73A of the Chapter V of the Finance Act, 2013 has been made before the 1st day of March 2013. They were not concerned with two proviso below sub-section (1) of Section 106.
What is of prime importance for them is sub-section (2) of Section 106 which provides that where a declaration has been made by a person against whom an inquiry or investigation in respect of a Service Tax not levied or not paid or short-levied or short-paid has been initiated and such inquiry, investigation or audit is pending as on the 1st day of March, 2013, then, the designated authority shall, by an order, and for reasons to be recorded in writing, reject such declaration. Sub-section (2) of this Section contains two conditions. First condition is to be found in clauses (a) and (b). Clause (a) of sub-section (2) of Section 106 pertains to an inquiry or investigation in respect of a Service Tax not levied or not paid or short-levied or short-paid has been initiated. Clause (b) of sub-section (2) of Section 106 pertains to an audit which has been initiated. The other condition of sub-section (2) of Section 106 is that such inquiry, investigation or audit should be pending as on the 1st day of March, 2013. If these two conditions are satisfied, it is in duty of the designated authority to reject such a declaration under clause (a). Clause (a) itself provides that an inquiry or investigation could be initiated by any of three modes provided in sub-clauses (i) to (iii). Sub-clause (i) pertains to search of premises under Section 82 of Chapter V of the Finance Act, 1994. Sub-clause (ii) pertains to issuance of summons under Section 14 of the Central Excise Act, 1944 and Sub-clause (iii) pertains to requiring production of accounts, documents or other evidence. In other words, under clause (a), an inquiry or investigation shall be stated to have been initiated by way of any of the three modes referred to in three sub-clauses thereof. In particular, sub-clause (ii) refers to issuance of summons under Section 14 of the Central Excise Act, 1944. Thus, if summons under Section 14 of the Central Excise Act, 1944 has been issued; for the purpose of clause (a) inquiry or investigation in respect to the Service Tax not paid shall be stated to have been initiated. What is therefore, sufficient for the application of sub-section (2) of Section 106 is issuance of summons under Section 14 of the Central Excise Act, 1944. The other condition required to be verified is whether such an inquiry or the investigation or an audit was pending as on 1-3-2013. Sub-clause (ii) thus refers to issuance of summons and not to service of summons on the petitioner. In other words, therefore, if summons under Section 14 of the Central Excise Act, 1944, is issued, an inquiry or the investigation as referred to in clause (a) of sub-section (2) of Section 106 can be stated to have been initiated.
Admittedly in the present case, summonses were issued on 26 and 28-2-2013. Mere fact that summons were served after 1-3-2013 shall be of no consequence. Thus the first condition of Section 106(2) that such an inquiry or the investigation was initiated before 1-3-2013 was satisfied. The later condition of such an inquiry or the investigation being still pending as on 1-3-2013 was also satisfied. The designated authority was justified in rejecting the declaration of the petitioner.
Further the judicial person of the Hon’ble High Court also explained Section 37C of the Central Excise Act, 1944 that merely provides for manner and method of service of decisions, orders or summons. The said section reads as under :
“37C. (1) Any decision or order passed or any summons or notices issued under this Act or the rules made thereunder, shall be served, -
(a)         by tendering the decision, order, summons, or notice, or sending it by registered post with acknowledgment due or by speed post with proof of delivery or by courier approved by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) to the person for whom it is intended or his authorised agent, if any;
(b)         if the decision, order, summons, or notice cannot be served in the manner provided in clause (a), by affixing a copy thereof to some conspicuous part of the factory or warehouse or other place of business or usual place of residence of the person for whom such decision, order, summons or notice, as the case may be, is intended;
(c)          if the decision, order, summons or notice cannot be served in the manner provided in clauses (a) and (b), by affixing a copy thereof on the notice board of the officer or authority who or which passed such decision or order or issued such summons or notice.
(2) Every decision or order passed or any summons or notice issued under this Act or the rules made thereunder, shall be deemed to have been served on the date on which the decision, order, summons or notice is tendered or delivered by post or courier referred to in sub-section (1) or a copy thereof is affixed in the manner provided in sub-section (1).”
Sub-section (1) of Section 37C of the Central Excise Act, 1944, provides for different modes of service of decision, order, summons or notice issued under the Central Excise Act, 1944. It does not have any bearing on the requirement of initiation of an inquiry or the investigation. Later provision of sub-section (2) of Section 37C provides for a fiction where the decisions, summons or notices made under the rules shall be deemed to have been served. The said provision would not have any application on the interpretation of sub-section (2) of Section 106 of the Finance Act.
Equally, merely because the petitioner filed a declaration and summons along with such declaration would not compel the department to accept the same de hors to the provisions of the scheme. Merely filing of the declaration and disclosure of issuance of summons before 1-3-2013 do not give any vested right to the petitioner that such a declaration must be accepted irrespective of the provisions of the scheme.
Learned counsel for the petitioner at this stage requested that at least the amount deposited by the petitioner of 50% of tax dues should be refunded. It would be open for the petitioner to apply to the authority for such purpose and if such request is rejected for some reasons, it will be open to agitate the same before the appropriate forum.
In the result, this petition is dismissed. Notice is discharged.

Decision:- Petition dismissed.

Comment:- The substance of the case is that as per exclusion clause under VCES, 2013, the issuance of summons before 01.03.2013 is sufficient to treat that inquiry is pending against the assessee. The contention that summon was served only after 01.03.2013 would not entitle an assessee to avail the benefit of amnesty scheme because the assessees to whom summons have been issued prior to 01.03.2013 have been specifically debarred from availing the benefit of the VCES, 2013.

Prepared by: Kushal Shah

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PJ/CASE LAW/2014-15/2555

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