2016 (7) TMI 638 - HC - Service Tax

Court Rules Against Interest Demand on Entire Service Tax Dues Under VCES Scheme, Emphasizes Compliance

FIBROLITE CO Versus COMMR. OF SERVICE TAX, HYD. AND ANO.

The Court found the demand for interest on the entire amount of service tax dues under the VCES scheme unjust. It set aside the demand but allowed action ... Demand of interest and penalty - VCES, 2013 - Credit of payment made before introduction of scheme was not given - Service Tax Voluntary Compliance Encouragement Scheme (VCES) - Held that:- While the tax dues declared by the petitioner was for a sum of ₹ 3,77,150/-, they paid 50% thereof i.e. Rs,1,88,575/- on 31.12.2013 and an additional sum of ₹ 1,66,260/- on 28.06.2014 prior to the cut off date prescribed under the scheme i.e 30.06.2014. The aforesaid payments were made after introduction of the scheme and prior to the cut off date. The petitioner had paid only ₹ 22,135/- prior to the introduction of the scheme. The clarification issued by the Central Board of Excise and Customs would have enabled the respondents to levy interest and impose penalty only for the amount paid by the petitioner towards tax dues prior to enactment of the scheme. Their power to levy interest and impose penalty was, therefore, only on ₹ 22,135/- paid by the petitioner during November 2007 to March 2008, and not for the remaining amount paid by them after the scheme was introduced. The impugned letter dated 03.12.2015, to the extent the petitioner was called upon to pay ₹ 1,99,183/-, is set aside. It is made clear that this order shall not preclude the respondents from initiating action to levy interest and impose penalty on the amount paid by the petitioner during November 2007 to March 2008 (i.e for ₹ 22,135/-) in accordance with law. - Decided partly in favor of petitioner. Issues involved:Challenge to demand for interest on service tax dues under VCES scheme.Analysis:The petitioner, engaged in Mandap Keeper Services, challenged a demand for interest on service tax dues. They registered in 2001, paid taxes regularly until September 2007, and stopped when turnover fell below the threshold. The VCES scheme was introduced for 2008-2012, and the petitioner declared dues of Rs. 3,77,150, paying part before and after the scheme. The dispute arose when the authorities demanded interest on the entire amount, including the pre-scheme payment of Rs. 22,135. A Circular clarified that interest/penalty immunity under VCES applied only to declared dues, not pre-scheme payments. The petitioner argued that interest on the pre-scheme amount was time-barred under Section 111(2) of the Finance Act, 2013. The Court found the demand for Rs. 1,98,183 interest on the full amount unjust. It set aside the demand but allowed action on interest for the pre-scheme payment. The petitioner had paid Rs. 3,54,785, and the Court directed issuance of a certificate for this amount. The writ petition was disposed of without costs.This judgment dealt with the challenge against a demand for interest on service tax dues under the VCES scheme. The petitioner's compliance history, declaration under the scheme, and subsequent payments were crucial in the analysis. The Circular clarifying the treatment of pre-scheme payments was a key point of contention. The Court's interpretation of the Circular, along with the petitioner's argument on the applicability of Section 111(2) of the Finance Act, 2013, shaped the decision. The Court found the demand for interest on the entire amount to be unjust, emphasizing that interest could only be levied on the pre-scheme payment. The judgment balanced the interests of the petitioner and the tax authorities, directing the issuance of a certificate for the amount paid by the petitioner. Overall, the judgment provided clarity on the application of interest under the VCES scheme and highlighted the importance of adherence to statutory provisions in tax matters.