CESTAT Allows Appeal: Audit Report Not Determination of Liability

The CESTAT allowed the appeal, finding that the audit report did not constitute a determination of liability under the Finance Act, 2013. The tribunal held that the appellant was eligible to file a declaration under the Voluntary Compliance Encouragement Scheme (VCES), 2013, despite the pending Show Cause Notice related to a different matter. The Commissioner (Appeals) was deemed to have erred in rejecting the VCES declaration based on the audit report. The CESTAT directed the jurisdictional authority to issue the VCES 2 for the full and final settlement under the Scheme.

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Issues Involved:
1. Eligibility of the appellant to file a declaration under the Voluntary Compliance Encouragement Scheme (VCES), 2013.
2. Whether an audit report constitutes a determination of liability under section 106(1) of the Finance Act, 2013.

Summary:

Issue 1: Eligibility to File VCES Declaration
The appellant, a company engaged in manufacturing automobile parts, filed a VCES declaration for service tax dues amounting to Rs. 7,22,89,051/- for the period 2007-08 to 2011-12. The designated authority proposed to reject the application on the grounds that an Internal Audit Report (IAR) was issued and a Show Cause Notice (SCN) dated 19.10.2012 was pending as of 01.03.2013. The appellant contended that none of the restrictive clauses of section 106 of the Finance Act, 2013 applied to them as no notice or order of determination had been issued. The CESTAT noted that the SCN dated 19.10.2012 related to wrongful availment of CENVAT credit on Medical Insurance Services, which was not included in the VCES declaration. Consequently, the notice did not bar the appellant from filing the declaration.

Issue 2: Audit Report as Determination of Liability
The Commissioner (Appeals) rejected the VCES declaration on the ground that the audit report constituted a determination of liability. The appellant argued that an audit report is not an order of determination as envisaged under sections 72, 73, or 73A of the Finance Act, 2013. The CESTAT agreed, citing the Bombay High Court judgment in Pace Setter Business Solutions Pvt Ltd Vs Union of India, which held that a past audit objection cannot be used to reject a VCES application. The tribunal concluded that the audit report does not equate to an order of determination and thus does not disqualify the appellant from filing the VCES declaration.

Conclusion:
The CESTAT allowed the appeal, holding that the Commissioner (Appeals) erred in treating the audit report as an order of determination. The tribunal set aside the impugned order and directed the jurisdictional authority to issue the VCES 2 for the full and final settlement under the Scheme.

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