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Non-filers & Stop filers First Class Citizens under Service Tax

RS Sharma AdvocateRS Sharma Advocate

Finance Bill 2013 has proposed a scheme making non-filers & stop filers as First Class Citizens under Service Tax while those who filed returns are not eligible for scheme. Those who have not filed the returns and have not paid service tax; they should better wait for the notification under the scheme to avoid interest and penal provisions.

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 installments before prescribed dates. In such a case, interest, penalty and other consequences will be waived.

The scheme can be availed of by non-filers or stop-filers or persons who have not made a truthful declaration in their return. However it will not be applicable to persons against whom any inquiry or investigation is pending by the issue of search warrant or summon or by way of audit.

“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.

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:

In cases  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.

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 by way of search of premises under section 82 of the Chapter; or issuance of summons under section 14 of the Central Excise Act, 1944, as made applicable to the Chapter under section 83 thereof; or requiring production of accounts, documents or other evidence under the Chapter or the rules made thereunder; or 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.

The defaulter will be required to make a truthful declaration of all his pending tax dues (from October1, 2007 to December 31, 2012) and pay at least half of that before December 31, 2013; remaining half to be paid by:

(a) June 30, 2014 without interest; or

(b) By December 31, 2014 with interest from July 1, 2014 onwards;

(iii) On compliance with all the requirements the person will have immunity from interest (as specified), penalties and other proceedings;

The scheme will come into force when the Finance Bill is enacted. However, the tax-payers will need to settle their dues for the period after December 31, 2012 under the present law.  

Those who have filed service tax returns and have shown the service tax payable are not eligible for the scheme. They are required to pay service tax along with the interest and can also be subject to penalty equal to service tax not paid in case of default.

There is still time for Finance Minister to amend the provisions of Finance Bill 2013(while the Parliament takes up passage of Finance Bill 2013) to include those category of persons under the scheme who have filed the returns and against whom any enquiry is on and even those cases where show cause notices for demand of service tax have been issued. The service tax demands of over Rs 30000 Crore are pending in litigation which takes over 20 years and by the time the Department moves for recovery of dues when the demand is finally confirmed by courts in appeal; the companies close down and even the addresses are not traceable and none is available for receipt of recovery notices. If amendments are not done; even the constitutional validity of the scheme can be challenged   in High Court. If the scheme is struck down by High Court; it would be more embarrassing for FM to shield the scheme. The proposal to reward non-filers and stop filers by treating them as First Class Citizens while imposing penalty of Rs 20000/- on those who merely delayed  filing of the return; is discriminatory and would lead to a situation like payment of property tax where hardly few property owners pay taxes and wait for schemes which are regularly announced for waiver of interest and penalty.

(Writer is an Advocate having offices in Delhi, Gurgaon & Bombay and is advising several MNCs, Indian Corporates & PSUs on Service tax, Central Excise, Customs & Foreign Trade matters. He can be mailed at ). 


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