2025 (11) TMI 131 - HC - Service Tax

Declaration under VCES extinguishes pre-2013 tax liability; paragraph 108 bars further proceedings and nullifies 2016 order

Jyotsna Paul Versus Union of India & Ors.

HC held that the declarant's VCES-1 declaration and subsequent VCES-3 discharge certificate extinguished pre-2013 tax liability and barred further ... Evasion of tax in respect of the financial years 2008-09 to 2012-13 - benefit of Voluntary Compliance Encouragement Scheme, 2013 availed - petitioner’s husband appears to have made a declaration in form VCES -1 on 31st December, 2013 declaring his tax lability thereby seeking exemption and an immunity from payment of interest and other proceedings before the issuance of SCN - HELD THAT:- In the instant case, a show cause cum demand notice was issued on the petitioner’s husband on 15th October, 2013. However, before such show cause could be proceeded with, the petitioner’s husband appears to have made a declaration in form VCES -1 on 31st December, 2013 declaring his tax lability thereby seeking exemption and an immunity from payment of interest and other proceedings in terms of the paragraph 108 of the scheme. Records would reveal that the petitioner’s husband’s declaration was found to be in order and accordingly the final payment made by the petitioner’s husband was accepted and a certificate of discharge in form VCES-3 was issued and forwarded to the petitioner’s husband. As would appear from the above, the aforesaid certificate read with declaration filed by the petitioner’s husband, the entire tax liability of the petitioner’s husband prior to 2013 stood discharged by issuance of form VCES-3. It may be noted that in case there is false declaration and/or short payment of tax and where the Commissioner of Central Excise has reasons to believe that the declaration as made by the declarant under this Scheme was substantially false, he may, for reasons to be recorded in writing, serve notice on the declarant in respect of such declaration requiring him to show cause as to why he should not pay tax dues or the amount of tax which is short paid - Records would reveal that the show case dated 15th October, 2013 was ultimately proceeded with in the year 2016, though there is no reflection in the said order as regards the discharge in form VCES-3. Since the proceedings which was initiated on the basis of the show cause dated 15th October, 2013 should not have been proceeded further to culminate in the order dated 25th May, 2016 as in the interregnum the discharge certificate was issued by the respondents in form VCES-3, the above order dated 25th May, 2016, read with form VCES-3 and paragraph 108 of the scheme, cannot be enforced. The order of attachment of the petitioner’s bank account, if any, made by the respondents in respect of the above liability accordingly stands quashed - Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a declaration under the Voluntary Compliance Encouragement Scheme (VCES) and issuance of Form VCES-3 operates to discharge tax liability and bars further proceedings for the declared period under paragraph 108 of the Scheme. 2. Whether the authorities may reopen or proceed against a declarant on the ground of a false or substantially false declaration after the expiry of the one-year period provided under paragraph 111(2) of the Scheme. 3. Whether, in the absence of compliance with the procedure in paragraph 111(1) (i.e., recording reasons in writing and issuing show cause within one year), subsequent proceedings under section 73 (or similar provisions) are maintainable in respect of periods covered by an acknowledged discharge. 4. Relief consequential to the above: whether attachment of bank accounts (or similar enforcement acts) made in respect of liabilities covered by Form VCES-3 is liable to be quashed. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Effect of declaration and issuance of Form VCES-3 under paragraph 108 Legal framework: Paragraph 108 of the VCES provides that upon payment of declared tax dues and interest, the declarant 'shall get immunity from penalty, interest or any other proceeding' and that, subject to paragraph 111, the declaration becomes conclusive upon issuance of an acknowledgement of discharge (Form VCES-3) and 'no matter shall be reopened thereafter' for the period covered. Precedent Treatment: No earlier judicial authority is invoked or relied on in the judgment; the Court resolves the matter by direct application of the Scheme's provisions. Interpretation and reasoning: The Scheme's language grants finality and conclusive immunity upon fulfilment of the conditions and issuance of the discharge certificate. The Court finds the declarant's Form VCES-1 and the subsequent acceptance and issuance of Form VCES-3 to be determinative of discharge for the tax periods 2008-09 to 2012-13. The Court notes the respondents' concession that the genuineness of the certificate and payment is not disputed. Ratio vs. Obiter: Ratio - The issuance of Form VCES-3, upon compliance with the Scheme's requirements, operates to discharge tax liabilities and bars reopening of matters covered by the declaration, subject only to the limited exception in paragraph 111. Conclusion: The declaration and Form VCES-3 discharged the declared tax liabilities for the relevant periods and, absent valid reliance on paragraph 111 within its temporal limit, the discharge is binding and bars further proceedings in respect of those periods. Issue 2: Temporal limitation on invoking paragraph 111 (reopening for false declaration) Legal framework: Paragraph 111(1) permits the Commissioner to serve notice and require a declarant to show cause if the Commissioner 'has reasons to believe that the declaration ... was substantially false,' but paragraph 111(2) provides that 'No action shall be taken under sub-paragraph (1) after the expiry of one year from the date of declaration.' Precedent Treatment: No precedent is cited; the Scheme's temporal limitation is treated as self-executing and decisive. Interpretation and reasoning: The Court interprets paragraph 111(2) as imposing a strict one-year bar after the date of declaration to initiate action under paragraph 111(1). Because more than one year had elapsed before the impugned order, and because the respondents did not follow paragraph 111(1)'s procedure or record reasons in writing within the one-year window, the respondents were precluded from treating the declaration as false thereafter. Ratio vs. Obiter: Ratio - The one-year limitation in paragraph 111(2) is a substantive, jurisdiction-curtailing provision that prevents initiation of action under paragraph 111(1) after its expiry; failure by the authority to avail itself of paragraph 111(1) within one year bars later proceedings predicated on alleged falsity. Conclusion: The respondents cannot now contend that the declaration was false because paragraph 111 required specified action within one year and no such action was taken; therefore the declaration stands. Issue 3: Requirement of record of reasons and procedural compliance under paragraph 111(1) Legal framework: Paragraph 111(1) conditions reopening on the Commissioner having 'reasons to believe' (to be recorded in writing) and serving notice requiring show cause; paragraph 111(3) deems such show cause to be issued under section 73 (or 73A) and makes the Chapter's provisions applicable. Precedent Treatment: None cited; the Court enforces the Scheme's procedural prerequisites. Interpretation and reasoning: The Court underscores that paragraph 111(1) prescribes a specific procedure - recording reasons in writing and serving a notice - which must be followed before any show cause under section 73 can be said to relate to a false declaration. The respondents admitted they did not follow this procedure. Consequently, even on a contention of short or false declaration, procedural compliance was absent, depriving the respondents of the statutory basis to reopen the matter. Ratio vs. Obiter: Ratio - Procedural compliance with paragraph 111(1) (written reasons and service of notice within the temporal limit) is a prerequisite to initiating proceedings against a declarant for alleged false declaration; absence of such compliance renders subsequent action impermissible. Conclusion: As the requisite reasons in writing and notice under paragraph 111(1) were not recorded or issued, the respondents' subsequent reliance on section 73 to proceed was procedurally impermissible. Issue 4: Consequences for enforcement measures (attachment of bank account) Legal framework: If a declarant's liability is discharged under paragraph 108 and Form VCES-3 issued, enforcement measures taken in respect of the discharged liability are inconsistent with the Scheme's immunity and finality provisions. Precedent Treatment: None cited; Court applies Scheme to relief sought. Interpretation and reasoning: Given the Court's conclusions that the declaration and discharge certificate operate conclusively and that paragraph 111 could not be invoked after one year (and was not properly invoked), any enforcement in respect of the discharged liability is without lawful basis. The impugned order did not acknowledge the discharge, and the respondents provided no documentary basis to contest the certificate's genuineness or payment; accordingly, attachment (if any) must be quashed as inconsistent with the Scheme. Ratio vs. Obiter: Ratio - Enforcement actions taken in relation to liabilities acknowledged as discharged under the Scheme are liable to be set aside when the discharge is valid and the limited exceptions under paragraph 111 do not apply. Conclusion: Attachment of the declarant's bank account (or similar enforcement) in respect of liabilities covered by Form VCES-3 is quashed. Cross-references and final operative findings Paragraphs 106, 108 and 111 of the Scheme are central: paragraph 106 governs eligibility, paragraph 108 confers immunity and finality upon issuance of Form VCES-3, and paragraph 111 supplies a limited, time-bound mechanism for reopening on account of a false declaration. Because eligibility was satisfied, Form VCES-3 was validly issued, the respondents did not invoke paragraph 111(1) with written reasons within the one-year period of paragraph 111(2), and the genuineness of payment and certificate was not disputed, the Court holds that the discharge was conclusive and the subsequent order and any attachment in respect of the declared period cannot be enforced.