Enjoyed Service Tax VCES: Now face the Music?

May 5, 2014 by

Arjuna (Fictional Character): Krishna, in the year 2013-14 government has given an opportunity to service tax evaders for paying service tax through Voluntary Compliance Encouragement Scheme. In this scheme taxpayers are relieved from interest and penalty. But all the taxpayers who have enrolled in this scheme may now receive letters of verification to know whether VCES declaration is genuine or substantially false. Due to this taxpayer may get in trouble. Does it mean first given opportunity and now trapping.

Krishna (Fictional Character): Yes Arjuna, Government introduces schemes for the taxpayers, however very few grab the opportunity of the schemes. In India 17 Lakh taxpayers are registered under service tax however only 7 Lakh of them file the returns of service tax. Thus, Government has introduced VCES scheme however only 66,062 taxpayers has grabbed the opportunity. In this scheme taxpayers has paid the first installment of service tax but taxpayers has not relieved as they have to follow the remaining compliances of the scheme. Therefore Arjuna, taxpayers might have received the letters of verification along with list of documents such as Profit and Loss account, Balance sheet, bills, ledgers, etc.

Arjuna: In this scheme government has assured taxpayers for relief of interest, penalty and other complexities. So, when taxpayers enrolled under this scheme will be relieved?

Krishna: Arjuna, if taxpayer has paid 50% of service tax before 31st December 2013 then they will have to pay the balance 50% service tax before 30th June 2014. After that taxpayer will have to submit form VCES – 3. Service tax department is required to issue discharge letter within 7 days after submission of this form. After receiving discharge letter the service tax officer cannot reopen the books of accounts up to December 2012.

Arjuna: But Krishna, when taxpayer will get trapped under this scheme?

Krishna: Arjuna, while verifying, if any “Substantial False” VCES declaration is  made by the taxpayer then service tax officer may send notice to the taxpayer and ask for further information. The department may make further proceeding from the information submitted by the taxpayer. If “Substantial False” declaration is found then the taxpayer will have to pay interest, penalty and will have to face the problems and will be out of the scheme.

Arjuna: Krishna, what about the letter of verification received to the taxpayers who have submitted VCES form?

Krishna: Arjuna, Service tax officers are verifying the details submitted by the taxpayers in VCES form by issuing letters of verification to them. It is expected that the officers should not increase difficulties of the taxpayer and should be fair in proceedings as per the spirit of the scheme. Department encouraged taxpayers for availing the scheme and now they may be facing various inquiries. But if the taxpayer is not satisfied with the decision of the Service tax officer i. e. the decision is against him or not acceptable to him, then the taxpayer may go for an appeal.

Arjuna: O Krishna, what lesson of life one should learn from first forgiving and then enquiring?

Krishna: Arjuna, whenever Government announces any tax waiver or other schemes it has a comprehensive motto of public and revenue interest behind it. The main motto behind these schemes is to provide voluntary opportunity to defaulting taxpayer to pay tax and to regularize them and relieve them from penal clauses. Further the Finance Minister has also assured that the taxpayers applying for this scheme would not face any difficulty. But if the declaration is “Substantial False” then the taxpayer may land in trouble. It is expected that the taxpayer do not face any problem due to small mistakes. But let’s hope that the officers would obey the rules framed by the government under the scheme with integrity and will give justice to taxpayers as it’s a voluntary compliance further enquiry should not lead to coercive compliance. However in economic world, some taxpayers never follow laws, they will have to face the music but it is expected that the law abiding taxpayers would not face any trouble. Similarly one should always remember in life that the person who forgives is always greater than the one who committed the mistake.

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