Whether 1st instalment of 50% tax dues can be paid along with interest even after 31.12.2012 under VCES ?

Case:-PARIJAT VYAPPAR (P) LTD. VS UNION OF INDIA

Citation:-2015 (37) S.T.R. 922 (Cal.)

Brief Facts:-At the time of moving the writ petition a point of law arose relating to the interpretation of Section 107 and Section 110 of the Service Tax Voluntary Compliance Encouragement Scheme, 2013 and the respective advocates have addressed the Court on the point of law. Since the facts are not disputed, this Court proceeded to decide the writ petition on the question of law agitated by the respective counsels.

The aforesaid scheme came into effect on and from May 10, 2013 for immunity against the penalty, interest and other proceedings against the defaulter of the Service Tax. The person who defaulted in deposit of the Service Tax may make a declaration before the designated authority on/or before December 31, 2013 in a prescribed manner. Section 107 of the Finance Act, 2013 further provided that such declaration is required to be acknowledged by the designated authority in such form and manner as may be prescribed and the declarant was statutorily bound to pay 50% of the tax dues as declared in the prescribed form within December 31, 2013. Sub-section (4) of Section 107 of the said scheme relates to the deposit of the balance amount within June 30, 2014 whereas the proviso appended thereto provides for an extension of time for deposit till December 31, 2014 subject, however, to the payment of interest fixed under Section 73B or Section 75 of the Finance Act. Section 110 of the said scheme empowers the authorities to recover the dues along with the interest under the provisions of Section 87 of the Finance Act whereas Section 109 bestowed further power upon the authority to forfeit the amount paid in pursuance of the declaration.

The ‘tax dues’ as defined in Section 105(e) of the said scheme is to mean the Service Tax dues payable under the said Chapter or any amount due or payable under Section 73A thereof for the period beginning from October 1, 2007 and ending on December 31, 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.

Appellant contentions:- Mr. Bose, learned advocate appearing for the petitioners raised a point that when the proviso appended to Section 107 entitles the declarant to pay the amount after the period provided under sub-section (3) and sub-section (4) with interest till December 31, 2014, the authorities cannot take any recourse for recovery thereof including the steps for arrest of the declarant. He further submits that Section 110 of the said scheme clearly provides for modes of recovery under Section 87 of the Finance Act and, therefore, the authorities cannot take recourse to any other provisions except the one provided therein. Lastly it is submitted that the petitioner is all along ready to deposit the balance amount of the ‘tax dues’ with interest under the proviso to the aforesaid section and, therefore, action of the authorities in taking recourse to other provisions except the provision under Section 87 of the said Chapter is invalid, illegal and beyond the boundary set by the said scheme.

Respondent contentions:- On behalf of the respondent authorities, it is submitted that the moment 50% of the ‘tax dues’ is not paid on/or before December 31, 2013, the declaration itself becomes invalid and, therefore, the authorities are not bound to take action contemplated under Section 110 of the said act. It is further submitted that once the conditions attached for availing the scheme framed by the appropriate authority are not fulfilled, the benefit under the said scheme cannot be extended to the petitioner. It is further contended that Section 109 of the said scheme postulates that any amount paid in pursuance of the declaration made under sub-section (1) of Section 97 shall not be refunded under any circumstances meaning thereby that any payment made would not be treated to have been made under the said scheme.

Reasoning of Judgment:-Since the matter relates to the interpretation of the various provisions of the said scheme it would be appropriate and profitable to put the relevant provisions of the said scheme herein below :-
The Finance Act, 2013 (17 of 2013)
Chapter VI
Service Tax Voluntary Compliance Encouragement Scheme, 2013
‘105. (1)(c) “designated authority” means an officer not below the rank of Assistant Commissioner of Central Excise as notified by the Commissioner of Central Excise for the purposes of this Scheme;
*** *** *** *** *** *** ***
“107 Procedure for making declaration and payment of tax dues. –
(1) Subject to the provisions of this Scheme, a person may make a declaration to the designated authority on or before the 31st day of December, 2013 in such form and in such manner as may be prescribed.

(2) The designated authority shall acknowledge the declaration form in such form and in such manner as may be prescribed.

(3) The declarant shall, on or before the 31st day of December, 2013 pay not less than fifty per cent. of the tax dues so declared under sub-section (1) and submit proof of such payment to the designated authority.

(4) The tax dues or part of remaining to be paid after the payment made under sub-section (3) shall be paid by the declarant on or before the 30th day of June, 2014 :

Providedthat where the declarant fails to pay said tax dues or part thereof on or before the said date, he shall pay the same on or before the 31st day of December, 2014 along with interest thereon, at such rate as is fixed under Section 75, or, as the case may be, Section 73B of the Chapter for the period of delay starting from the 1st day of July, 2014.

(5) Notwithstanding anything contained in sub-section (3) and sub-section (4), any Service Tax which becomes due or payable by the declarant for the month of January, 2013 and subsequent months shall be paid by him in accordance with the provisions of the Chapter and accordingly, interest for delay in payment thereof, shall also be payable under the Chapter.

(6) The declarant shall furnish to the designated authority details of payment made from time to time under this Scheme along with a copy of acknowledgement issued to him under sub-section (2).

(7) On furnishing the details of full payment of declared tax dues and the interest, if any, payable under the proviso to sub-section (4), the designated authority shall issue an acknowledgement of discharge of such dues to the declarant in such form and in such manner as may be prescribed.”

“109. No refund of amount paid under the Scheme. - Any amount paid in pursuance of a declaration made under sub-section (1) if Section 97 shall not be refundable under any circumstances.”
“110. Tax dues declared but not paid. -Where the declarant fails to pay the tax dues, either fully or in part, as declared by him, such dues along with interest thereon shall be recovered under the provisions of Section 87 of the Chapter.”

“112. Removal of doubts. -For the removal of doubts, it is hereby declared that nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on the declarant other than the benefit, concession or immunity granted under Section 98.”

The definition assigned to ‘tax dues’ makes it abundantly clear that the dues must fall within the parameter of the time limit provided therein. Section 107 entitles a defaulter in payment of the Service Tax falling within the period provided under the definition of the ‘tax dues’ to make a declaration before the designated authority within 31st day of December, 2013 in prescribed form and manner. Section 108 gives immunity to such declarant from penalty, interest and other proceedings whereas Section 109 empowers the authority to forfeit the amount deposited under the said scheme and shall not be made refundable under any circumstances. Sub-section (3) of Section 107 makes it obligatory on the part of the declarant to deposit not less than 50% of the tax dues as declared by him within 31st December, 2013.

The petitioner tried to impress upon this Court that proviso inserted under sub-section (4) is applicable in respect of the situation and/or circumstances contemplated under sub-section (3) and sub-section (4) of Section 107 thereof and cannot be restricted to sub-section (4) itself. Sub-section (4) of Section 107 caste obligation and duty upon the person who makes the declaration to pay the balance amount of the ‘tax dues’ within 30th day of June, 2014. The proviso, which assumes importance because of the different interpretations, tried to be made by the respective counsels, relates to the extension of time to deposit the ‘tax dues’ or a part thereof within 31st December, 2014 with interest.

It is a settled proposition of law that the insertion of the proviso is made to regulate the enabling provision. The right conferred under the enabling provision is subject to the proviso and the conditions enshrined therein. On the meaningful reading of the proviso it appears that if the declarant fails to pay within 31st December, 2013 with interest thereof and the interpretation tried to be given by the petitioner is accepted, then the proviso would not have indicated that the interest would be calculated from 1st day of July, 2014. When there is clear indication in the proviso relating to the starting point of the limitation, there is no ambiguity to understand that such proviso is relatable to sub-section (4) of Section 107 and not sub-section (3) thereof. The aforesaid proposition can be further fortified from sub-section (7) of Section 107 of the said Act which is in unequivocal terms says that on furnishing the details of full payment of declared tax dues and the interest, if any, payable under the proviso to sub-section (4), the designated authority shall issue an acknowledgement of discharge of such dues to the declarant in such form and in such manner as may be prescribed.

The Legislature have clearly indicated that such proviso is appended to sub-section (4) and by no stretch of imagination it would be conceived that the same can also apply in the eventuality contemplated under sub-section (3) of Section 107 thereof.

There is a fallacy in the submission of the learned advocate appearing for the respondent on the interpretation of Section 110 of the said scheme. If the provisions of the scheme are read meaningfully, it leaves no manner of doubt that once the person makes a declaration for invocation of the said scheme, he is subjected to all the provisions contained therein. If the provisions relating to the forfeiture as contemplated under Section 109 of the said Act, this Court fails to comprehend that Section 110 would not apply in case of a default committed in making the payment under Section 107 of the said Act.

My endeavour has failed to find out from the provision of the said scheme that once a default is committed for non-compliance of the provisions contained therein relating to the deposit, the declarant shall be thrown outside the ambit of the said scheme and shall be thrown in the pool of the Chapter containing the Service Tax. Section 110 of the said act clearly indicates that in the event of the default of the payment either fully or in part, the balance amount would be recovered by taking recourse to Section 87 of the Finance Act.

It is tried to be contended by the respondent that Section 102 which contemplates for removal of doubts makes it abundantly clear that the immunity provided under the scheme would not be available to the declarant who committed default for compliance of the conditions relating to the deposit of tax dues.

On meaningful reading of the provisions contained therein it appears that the immunity as to any benefit, concession or immunity granted under Section 96 shall not be available to the defaulting declarant. The aforesaid provisions have to be read conjointly with Section 110 of the said Act. If default is committed under the scheme the consequences provided in the scheme is to be adhered to and the authority cannot travel beyond the boundaries set therein. The benefit under the scheme is provided to a person against whom no enquiry or investigation or other proceeding are initiated. Section 106 of the said act makes the position clear and, therefore, the person who voluntarily declares his liability to pay Service Tax, if commits defaults in complying the provisions contained under the said scheme, the authorities are bound to take action under the provisions which provides for the steps to be taken for non-compliance of any of the provisions of the said scheme.

To sum up, this Court must conclude that the proviso is applicable only in respect of sub-section (4) of Section 107 and cannot be stretched to sub-section (3) of Section 107. The authorities can take recourse under Section 110 of the said act, in the event any default is committed under the said scheme.

With these observations, this Court dispose of the writ petition. There shall, however, be no order as to costs.

Decision:- Petition disposed off.

Comment:-The crux of the case is that if the person who voluntarily declares his liability to pay Service Tax under VCES, 2013 commits default in complying the provisions contained under the said scheme, the authorities are bound to take action under the provisions including the recovery proceedings under section 87 with respect to declared tax dues. It was concluded that from the provisions contained in VCES, it is clear that for availing benefit of this scheme, one of the substantial condition is that 50% of the tax dues are paid upto 31.12.2012. Furthermore, the balance tax dues may be paid upto 30.06.2013 without interest and upto 31.12.2013 with interest. It was concluded that the benefit of payment of tax dues along with interest is only available for second instalment of 50% and not with respect to 1^st instalment. When assessee fails to pay 1^st instalment of 50% of the tax dues, the assessee is out of the beneficial scheme and the normal provisions of Finance Act would be applicable including the recovery proceedings.

Prepared By:- Meet Jain

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PJ/CASE LAW/2015-16/2790

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