Whether VCES application was liable to be rejected for non-payment of 50% of tax dues for no fault of assessee?

PJ/Case Study/2014-15/94

26 July 2014

PJ/Case Study/2013-14/89

Case Study

Prepared by:- CA Neetu Sukhwani &
Monika Tak

Introduction: M/s. Suncity Polymers, Jodhpur (hereinafter referred as declarant) had filed an application in the FORM VCES -1 on 31-12-2013 and declared total Service Tax Rs. 20911/- under sub section (1) of section 107 of the Finance Act, 2013 for the period from 2007-08 to December, 2012 under the category of “Transportation of Goods by Road Service”. The FORM VCES-1 pertained to application for Voluntary Compliance Encouragement Scheme, 2013 which was service tax amnesty scheme introduced for service tax defaulters wherein the scheme provided the service tax defaulters immunity from interest and penalty liability and any other proceeding in future for the said declaration made by them. To avail the benefit of this scheme, there was a mandatory condition prescribed in section 107 (3) wherein the declarant was required to pay 50% of the tax dues declared by him under the VCES application and the proof of such payment of 50% was also required to be submitted to the designated authority before 31.12.2013. However, as the declarant took registration on the last date, the database on the bank’s server could not be updated and the declarant could not make the payment of 50% of the tax dues till 31.12.2013 in its name. Consequently, show cause notice was issued by the designated authority proposing to reject the VCES application filed by the declarant. The outcome of the show cause notice is the subject matter of the present case study.

M/s Suncity Polymers
[C.NO.V (ST)167/VCES/JDR/2013/16818 DATED 06.03.2014]

Relevant legal provisions:

Section 107(3) of Finance Act, 2013
CBEC circular no. 169/4/2014-ST dated 13-5-2013.
CBEC circular no. 137/50/2013-ST dated 30-12-2013.

Issue involved:The issue involved before the adjudicating authority in this case was that-
Whether VCES application was liable to be rejected for non-payment of 50% of tax dues for no fault of assessee?

Brief facts:- This order is being passed in pursuance to the Show Cause Notice issued to M/s. Suncity Polymers (Here in after referred to as the VCES declarant) bearing service tax registration no. AAYFS7356MSD001 under Section 69 of the Finance Act, 1994 read with Rule 4 of Service Tax Rules, 1994. The declarant have filed an application in the FORM VCES -1 on 31-12-2013 and declared total Service Tax Rs. 20911/- under sub section (1) of section 107 of the Finance Act, 2013 for the period from 2007-08 to December, 2012 under the category of ‘Transportation of goods by road service’.

As per section 107(3) of the Finance Act, 2013 (17 of 2013) “The declarant shall, on or before the 31^st day of December, 2013, pay not less than fifty percent of tax dues so declared under sub section (1) and submit proof of such payment to the designated authority.” The declarant has not submitted the proof regarding payment of fifty percent of tax dues so declared under sub section (1) to the designated authority.

As the declarant could not submit the proof of deposition of 50% of the tax dues declared by them in their VCES application by 31.12.2013, their VCES-1 dated 31-12-2013 for Rs. 20911/- was proposed to be liable for rejection under section 107(3) of the Finance Act, 2013 read with para 16 of the Board’s Circular o. 170/5/2013-ST dated 8-8-2013.

Accordingly, the assessee/declarant was called upon to show cause and explain to the Assistant Commissioner, Central Excise Division, Jodhpur(Raj.), as to why the VCES-1 application for Rs. 20911/- should not be rejected under section 107(3) of the Finance Act,2013, read with para 16 of the Board’s circular no. 170/5/2013-ST dated 8-8-2013.

Assessee Contentions:The assessee made the following submissions before the adjudicating authority:-
1.          M/S SUNCITY POLYMERS is a unit registered under the Finance Act, 1994 with Registration No. AAYFS7356MSD001. The assessee has filed a VCES application declaring service tax liability of Rs. 20,911/- . They submitted that the show cause notice issued to them is wholly and totally erroneous and is liable to be set aside.
2.            They submit that the only allegation raised in the impugned show cause notice is that they have not submitted proof of evidence of deposition of 50% of the tax dues declared by them in the VCES declaration. In this regard, they submit that they were unable to furnish the proof evidencing the payment of service tax declared by them under VCES due to technical error with the updation of database on server of the bank. They submit that the last date for filing VCES application and deposition of the service tax dues declared therein was 31.12.2013. It is well known that for deposition of service tax dues, service tax registration number is mandatorily required. Consequently, they applied for service tax registration on 31.12.2013 itself. A copy of the Form ST-1 was enclosed. However, as the assessee code was issued by CBEC on 31.12.2013, the details of the same was not mapped on the bank’s database. They submit that although they were only required to deposit 50% of the service tax dues declared in their VCES application amounting to Rs. 10,456/-, they arranged for a demand draft for the whole service tax declared under the VCES application amounting to Rs. 20,911/-. It is also worth noting that in order to facilitate and encourage more and more VCES applications, a Press Statement was also released by the Finance Secretary on VCES wherein it was communicated that the government has also extended banking hours in the designated branches , upto 6 pm on 31-12-2013. In addition, all Commissionerates were advised to accept demand drafts/ pay orders submitted by declarants, under the Receipt Payment Rules. Accordingly, they also intended to avail the benefit of the VCES scheme and submitted the demand draft for the whole amount of Rs. 20,911 having no. as 868960 dated 31.12.2013 to the revenue department. A copy of the demand draft was also enclosed. However, as stated above, the database of the bank’s server was not updated because assessee code was granted to them by the CBEC on 31.12.2013, the demand draft was realised by the bank but could not be transferred to the government’s account in their name. Thereafter, they applied for refund of their demand draft money in favour of “Suncity Polymers”. A copy of the letter dated 07.01.2014 written to bank for refund of the amount was also enclosed. Subsequently, the refund of the said amount was granted to them vide Banker’s cheque no. 742342 dated 07.01.2014. Afterwards, they requested the Bank Manager of the SBBJ Bank to issue a letter regarding non processing of the bank draft in government account due to non updation of assessee code on the database of bank’s server. This request was made vide their letter dated 14.01.2014. The Chief Manager of the SBBJ Bank issued the said letter to them on 16.01.2014.

3.            They further submitted that they again attempted to deposit the amount of service tax declared under VCES application and issued an account payee cheque of the amount of Rs. 20,911/- in favour of “SBBJ Govt. A/C-Service Tax”. The cheque issued had no. 089359 dated 21.01.2014. A copy of the cheque issued by them was also enclosed. However, they were again intimated that as the assessee code granted to them was still not updated on the bank’s database, the above mentioned cheque was not cleared and credited in the account of government and the above procedure was again repeated. The copy of their letter dated 05.02.2014 seeking refund of their cheque money was also enclosed.

4.            They further submit that after following all means of depositing the service tax dues declared in their VCES application, they finally made electronic payment of the said amount of Rs. 20,911/- having challan no. 00085 dated 01.02.2014. A copy of the e-receipt was also enclosed.

5.            They submit that the above set of events are clear indicator of the fact that there was no mistake on their part and they had become the victim of technical lapse in deposition of the service tax dues declared in their VCES application. They submit that they constantly tried to deposit their dues declared and the same is evidenced by their above submissions. Moreover, the deposition of whole amount of service tax dues declared in the VCES application when only 50% was required to be deposited by them itself indicates the genuineness and bonafides of the case. As such, the impugned show cause notice proposing to reject their VCES application for the procedural lapse that too not attributable to them is totally erroneous and deserves to be quashed.

6.            Without prejudice to the above, they submit that although they are not liable to pay any interest amount for the delay that occurred for no fault on their part. Even then, they submit that instead of rejecting their VCES application, they request you that it may please be communicated to them if they are required to pay any interest on account of delay in deposition of 50% of the tax dues declared by them. Accordingly, the VCES application filed by them should not be rejected and the impugned show cause notice should be set aside.

Reasoning of Judgment:After carefully going through the records of the case, the adjudicating authority stated that as per S.No. 01 of CBEC circular no. 169/4/2014-ST dated 13.5.2013 “Any person who has tax dues to declare can make a declaration in terms of the provisions of VCES. If such person does not already have a service tax registration he will be required to take a registration before making such declaration.” It was further found that assessee/ declarant has applied for service tax registration on 31.12.2014. The declarant vide letter no. PJ/Stax/S/13-14/3810 dated 31.12.2013 informed that the NSDL (Bank site) is not accepting their details and submitted Demand Draft No. 868960 dated 31.12.2013 of Rs. 20119 (whole amount) drawn on bank of India to this office.
As per press release circulated by CBEC vide F.NO. 137/50/2013-Service Tax dated 30.12.2013, it was communicated that all Commissionerates were advised to accept demand drafts/pay orders submitted by declarant, under the Receipt Payment Rules. The database of the bank’s server was not updated because assessee code was granted on 31.12.2013, and so the demand draft was realized by the bank but could not be transferred to the government’s account. The manager, SBBJ vide letter dated 16.1.2014 also stated that STC AAYFS7356MSD001 was issued on 31.12.2014 and the same was not mapped on bank’s database.
The declarant again attempted to deposit the amount of service tax declared under VCES application and issued an account payee cheque no. 089359 dated 21.1.2014 of Rs. 20,911/- in favour of “SBBJ Govt. A/C - Service Tax”. However, as the assessee code was still not updated on the bank’s database, the above mentioned cheque was not cleared. The declarant finally made electronic payment of the said amount of Rs. 20,911/- having challan no. 00085 dated 01.02.2014. It was concluded by the adjudicating authority that the declarant constantly tried to deposit dues as evidenced by above submissions and so the adjudicating authority agreed with argument of the declarant that due to some technical mistake on the part of bank, payment got delayed. Accordingly, the VCES application filed by the declarant was accepted and the proceedings initiated vide the impugned show cause notice were dropped.

Decision:SCN was dropped.

Conclusion:- The essence of the case is that although for availing the benefit of the Voluntary Compliance Encouragement Scheme, it was mandatorily required by the assessee to make payment of 50% of the tax dues by 31.12.2013 and submit the proof of deposition, still, in cases where the said requirement could not be fulfilled on account of technical problems, without any fault of the assessee, the benefit of the scheme should be extended to the declarants. However, it is also worth mentioning here that such relaxation is available only in extremely special cases like the present case. Further, the High Court of Gujarat in the case of Ramilaben Bharatbhai Patel Vs UoI [2014-TIOL-678-HC-AHM-ST] that there is no power to relaxing the condition of depositing 50% of the tax dues under VCES application. As such, the relaxation is admissible only in extremely peculiar circumstances where every effort was made to deposit the 50% tax under VCES scheme.

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PJ/Case Study/2014-15/94
26 July 2014

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