- Q-1: Whether the communications, wherein department has
sought information of roving nature from potential taxpayer regarding their business
activities without seeking any documents from such person or calling for his presence,
while quoting the authority of section 14 of the Central Excise Act, 1944, would
attract the provision of section 106 (2) (a)?
Attention is invited to clarification issued at S. No. 4 of the circular No. 169/4/2013-ST,
dated 13.5.2013, as regards the scope of section 106 (2) (a) of the Finance Act,
2013, wherein it has been clarified that the provision of section 106 (2)(a)(iii)
shall be attracted only in such cases where accounts, documents or other evidence
are requisitioned by the authorized officer from the declarant under the authority
of a statutory provision.
A communication of the nature as mentioned in the previous column would not attract
the provision of section 106 (2)(a) even though the authority of section 14 of the
Central Excise Act may have been quoted therein.
- Q-2: An assessee has two units at two different locations,
say Mumbai and Ahmedabad. Both are separately registered. The Mumbai unit has received
a Show Cause Notice for non-payment of tax on a revenue stream but the Ahmedabad
unit has not. Whether the Ahmedabad unit is eligible for VCES?
Two separate service tax registrations are two distinct assessees for the purposes
of service tax levy. Therefore, eligibility for availing of the Scheme is to be
determined accordingly. The unit that has not been issued a show cause notice shall
be eligible to make a declaration under the Scheme.
- Q-3:Whether a declaration can be made under the Scheme
in respect of CENVAT credit wrongly utilized for payment of service tax?
Any service tax that has been paid utilizing the irregular credit, amounts to non-payment
of service tax. Therefore such service tax amount is covered under the definition
of "tax dues".
- Q-4:Whether a party, against whom an inquiry, investigation
or audit has been initiated after 1.3.2013 (the cutoff date) can make a declaration
under the Scheme?
Yes. There is no bar from filing of declaration in such cases.
- Q-5:There was a default and a Show Cause Notice was issued
for the period prior to the period covered by the Scheme, i.e. before Oct 2007.
Whether declaration can be filed for default on the same issue for the subsequent
In the context of the Scheme, the relevant period is from Oct 2007 to Dec 2012.
Therefore, the 2 nd proviso to section 106 (1) shall be attracted only in such cases
where a show cause notice or order of determination has been issued for the period
from Oct 2007 to Dec 2012. Accordingly, issuance of a show cause notice or order
of determination for any period prior to Oct 2007, on an issue, would not make a
person ineligible to make a declaration under the Scheme on the same issue for the
period covered by the Scheme. Therefore, declaration can be made under VCES.
- Q-6:In a case where the assessee has been audited and an
audit para has been issued, whether the assessee can declare liability on an issue
which is not a part of the audit para , under the VCES 2013?
Yes, declarant can declare the "tax dues" concerning an issue which is not a part
of the audit para .
- Q-7:Whether a person, who has paid service tax for a particular
period but failed to file return, can take the benefit of VCES Scheme so as to avoid
payment of penalty for non- filing of return?
Under VCES a declaration can be made only in respect of "tax dues". A case where
no tax is pending, but return has not been filed, does not come under the ambit
of the Scheme. However, rule 7C of the Service Tax Rules provides for waiver of
penalty in deserving cases where return has not been filed and, in such cases, the
assessee may seek relief under rule 7C.
- Q-8:A person has made part payment of his â€˜tax dues'
on any issue before the scheme was notified and makes the declaration under VCES
for the remaining part of the tax dues. Will he be entitled to the benefit of non-payment
of interest/penalty on the tax dues paid by him outside the VCES, i.e., (amount
paid prior to VCES)?
No. The immunity from interest and penalty is only for "tax dues" declared under
If any "tax dues" have been paid prior to the enactment of the scheme, any liability
of interest or penalty thereon shall be adjudicated as per the provisions of Chapter
V of the Finance Act, 1994 and paid accordingly.
- Q-9:Whether an assessee , who, during a part of the period
covered by the Scheme, is in dispute on an issue with the department under an erstwhile
provision of law, can declare his liability under the amended provisions, while
continuing to litigate the outstanding liability under the erstwhile provision on
In terms of the second proviso to section 106 (1), where a notice or order of determination
has been issued to a person in respect of any issue, no declaration shall be made
by such person in respect of "tax dues" on the same issue for subsequent period.
Therefore, if an issue is being litigated for a part of the period covered by the
Scheme, i.e., Oct, 2007 to Dec 2012, no declaration can be filed under VCES in terms
of the said proviso on the same issue for the subsequent period.
- Q-10:Whether upon filing a declaration a declarant realizes
that the declaration filed by him was incorrect by mistake? Can he file an amended
The declarant is expected to declare his tax dues correctly. In case the mistake
is discovered suo-moto by the declarant himself, he may approach the designated
authority, who, after taking into account the overall facts of the case may allow
amendments to be made in the declaration, provided that the amended declaration
is furnished by declarant before the cut off date for filing of declaration, i.e.,
- Q-11:What is the consequence if the designated authority
does not issue an acknowledgement within seven working days of filing of declaration?
Whether the declarant can start making payment of the tax dues even if acknowledgement
is not issued?
Department would ensure that the acknowledgement is issued in seven working days
from the date of filing of the declaration. It may however be noted that payment
of tax dues under the Scheme is not linked to the issuance of an acknowledgement.
The declarant can pay tax dues even before the acknowledgement is issued by the
- Q-12:Whether declarant will be given an opportunity to
be heard and explain his cases before the rejection of a declaration under section
106(2) by the designated authority?
Yes. In terms of section 106 (2) of the Finance Act, 2013, the designated authority
shall, by an order, and for reasons to be recorded in writing, reject a declaration
if any inquiry/investigation or audit was pending against the declarant as on the
cutoff date, i.e., 1.3.2013. An order under this section shall be passed following
the principles of natural justice.
To allay any apprehension of undue delays and uncertainty, it is clarified that
the designated authority, if he has reasons to believe that the declaration is covered
by section 106 (2), shall give a notice of intention to reject the declaration within
30 days of the date of filing of the declaration stating the reasons for the intention
to reject the declaration. For declarations already filed, the said period of 30
days would apply from the date of this circular.
The declarant shall be given an opportunity to be heard before any order is passed
by the designated authority.
- Q-13:What is the appeal mechanism against the order of
the designated authority whereby he rejects the declaration under section 106 (2)
of the Finance Act, 2013?
The Scheme does not have a statutory provision for filing of appeal against the
order for rejection of declaration under section 106 (2) by the designated authority.
- Q-14:A declarant pays a certain amount under the Scheme
and subsequently his declaration is rejected. Would the amount so paid by him be
adjusted against his liability that may be determined by the department?
The amount so paid can be adjusted against the liability that is determined by the
- Q-15:Section 111 prescribes that where the Commissioner
of Central Excise has reasons to believe that the declaration made by the declarant
was â€˜substantially false', he may serve a notice on the declarant in respect of
such declaration. However, what constitutes a â€˜substantially false' declaration
has not been specified.
The Commissioner would, in the overall facts of the case, taking into account the
reasons he has to believe, take a judicious view as to whether a declaration is
â€˜substantially false'. It is not feasible to define the term "substantially false"
in precise terms. The proceeding under section 111 would be initiated in accordance
with the principles of natural justice.
To illustrate, a declarant has declared his "tax dues" as Rs 25 lakh. However, Commissioner
has specific information that declaration has been made only for part liability,
and the actual "tax dues" are Rs 50 lakh. This declaration would fall in the category
of "substantially false".
This example is only illustrative.
- Q-16:What is the consequence if a declarant fails to pay
atleast 50% of declared amount of tax dues by the 31 st Dec 2013?
One of the conditions of the Scheme [section 107 (3)] is that the declarant shall
pay atleast an amount equal to 50% of the declared tax dues under the Scheme, on
or before the 31.12.2013. Therefore, if the declarant fails to pay atleast 50% of
the declared tax dues by 31 st Dec, 2013, he would not be eligible to avail of the
benefit of the scheme.
- Q-17:Whether the CENVAT credit is admissible on the inputs/input
services used for provision of output service in respect of which declaration has
been made under VCES for payment of any tax liability outside the VCES?
The VCES Rules 2013 prescribe that CENVAT credit cannot be utilized for payment
of "tax dues" under the Scheme. Accordingly the "tax dues" under the Scheme shall
be paid in cash.
The admissibility of CENVAT credit on any inputs and input services used for provision
of output service in respect of which declaration has been made shall continue to
be governed by the provisions of the Cenvat Credit Rules, 2004.
(a) Whether the tax dues amount paid under VCES would be eligible as CENVAT credit
to the recipient of service under a supplementary invoice?
(b) Whether cenvat credit would be admissible to the person who pays tax dues under
VCES as service recipient under reverse charge mechanism?
Rule 6(2) of the Service Tax Voluntary Compliance Encouragement Rules, 2013, prescribes
that CENVAT credit cannot be utilized for payment of "tax dues" under the Scheme.
Except this condition, all issues relating to admissibility of CENVAT credit are
to be determined in terms of the provisions of the Cenvat Credit Rules.
As regards admissibility of CENVAT credit in situations covered under part (a) and
(b), attention is invited to rule 9(1)(bb) and 9(1)(e) respectively of the Cenvat
- Q-19:In terms of section 106 (2)(b), if a declaration
made by a person against whom an audit has been initiated and where such audit is
pending, then the designated authority shall by an order and for reasons to be recorded
in writing, reject such declaration. As the audit process may involve several stages,
it may be indicated as to what event would constitute,-
(i) initiation of audit; and
(ii) culmination of audit.
Initiation of audit: For the purposes of VCES, the date of the visit of auditors
to the unit of the taxpayer would be taken as the date of initiation of audit. A
register is maintained of all visits for audit purposes. Culmination of audit: The
audit process may culminate in any of the following manner.-
- Closure of audit file if no discrepancy is found in audit;
- Closure of audit para by the Monitoring Committee Meeting (MCM);
- Approval of audit para by MCM and payment of amount involved therein by
the party in terms of the provisions of the Finance Act, 1994;
- Approval of audit para by MCM, and issuance of SCN, if party does not agree
to the para so raised.
The audit culminates at a point when the audit paras raised are settled in any manner
as stated above.
The pendency of audit as on 1.3.2013 means an audit that has been initiated before
1.3.2013 but has not culminated as on 1.3.2013.