Hotel business denied VCES benefits due to unpaid service tax, upheld by court.

The court upheld the rejection of a hotel business's declaration under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) by the Assistant Commissioner. The rejection was based on an ongoing audit identifying unpaid service tax as of 1.3.2013, rendering the petitioner ineligible for VCES benefits under Section 106(2) of the Finance Act, 2013. Despite appeals to higher authorities, the rejection was deemed valid, and the writ petition challenging it was dismissed.

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Issues:
1. Rejection of declaration under Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) by the Assistant Commissioner.
2. Appeal process before Commissioner of Central Excise (Appeals) and Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
3. Entitlement to file declaration for service tax under VCES in light of Section 106(2) of the Finance Act, 2013.

Issue 1: Rejection of VCES Declaration
The petitioner, a hotel business, filed a writ petition challenging the rejection of their declaration under VCES by the Assistant Commissioner. The petitioner argued that they were regular in paying taxes, but failed to pay service tax for renting of immovable property service. The rejection was based on an ongoing audit as of 1.3.2013. The petitioner contended that the rejection was against a circular clarifying VCES eligibility. The respondents argued that the audit identified the unpaid service tax, making the petitioner ineligible for VCES. The court held that as per Section 106(2) of the Finance Act, if an audit was initiated and pending as of 1.3.2013, the declaration should be rejected. Since the audit identified the unpaid tax, the rejection was upheld.

Issue 2: Appeal Process
The petitioner appealed to the Commissioner of Central Excise (Appeals) and later to CESTAT. However, due to the writ petition, the CESTAT appeal was withdrawn. The petitioner argued that the legal issues raised were pending consideration, yet a show cause notice was issued demanding payment. The court noted the procedural history but emphasized that the rejection under VCES was valid due to the ongoing audit, dismissing the writ petition and the related motion.

Issue 3: Entitlement to File Declaration under VCES
The key question was whether the petitioner, liable for service tax for specific years, could file a VCES declaration. Section 106(2) of the Finance Act, 2013 was cited, stating that if an audit was ongoing as of 1.3.2013, the declaration should be rejected. The court found that the audit identified the unpaid service tax, making the petitioner ineligible for VCES benefits. The rejection was deemed valid, and the writ petition was dismissed, along with the related motion.

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