2025 (12) TMI 711 - AT - Service Tax

Pre-enactment service tax payments qualify as VCES 'tax dues' under purposive, beneficial interpretation of Section 107

CESTAT allowed the appeal, holding the appellant eligible for benefit under the VCES. It ruled that service tax deposited prior to enactment of the scheme ... Eligibility of the appellant to avail the benefit of VCES scheme - Service tax deposited prior to the enactment of the VCES to be construed as paid towards the ‘tax dues’ or not - submission of declaration as provided in the scheme, following the introduction of the VCES in 2013 - HELD THAT:- Section 107 which prescribes the procedure for making declaration and payment of tax dues require that declarants pay not less than 50% of the tax dues declared before 31.12.2013 after the Designated Authority has acknowledged the declaration made. It is revenue’s case that payments made before the acceptance of declaration cannot be accepted to have been made under the VCES. It has been held by Constitutional Courts that in case of a conflict among the different provisions of a statute, substantive law which defines the rights and liabilities of individuals their duties, life, liberty etc prevails over procedural law which deals with legal process involving actions and remedies. The VCES was a beneficial legislation and as per the recent judgment of the Hon’ble Supreme Court in URMILA DIXIT Vs SUNIL SHARAN DIXIT AND ORS. [2025 (1) TMI 1689 - SUPREME COURT], wherein it was held that interpretation of the provisions of a beneficial legislation must be in line with a purposive construction, keeping in mind the legislative purpose. Furthermore, it was stated that beneficial legislation must be interpreted in favour of the beneficiaries when it is possible to take two views. We find that the purpose of VCES was to encourage voluntary compliance and bring prolonged litigation to a close. Being a beneficial scheme for taxpayers, the divergent views must be answered in favour of the taxpayer appellant. Hence on these grounds also the appeal merits to be decided in the appellant’s favour. The appellant has complied with the provisions of VCES and the declaration filed in VCES – I could not have been rejected and is held valid. The impugned order hence merits to be set aside and the appeal is allowed regarding the eligibility of the appellant to avail the benefit of the scheme. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether service tax paid by the declarant between 14.03.2013 and 25.03.2013, i.e., before the coming into force of the Voluntary Compliance Encouragement Scheme, 2013, falls within the statutory definition of 'tax dues' under section 105(1)(e) of the Finance Act, 2013. 1.2 Whether payments made prior to filing and acknowledgment of declaration can be denied coverage under the Scheme on the ground that section 107 prescribes a specific procedure and timeline for payment of not less than fifty per cent of the 'tax dues'. 1.3 Whether the declaration under VCES could be rejected and demand of balance amount with interest sustained, in light of the nature of VCES as a beneficial legislation and the principles governing the relationship between substantive and procedural provisions. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Inclusion of tax paid between 14.03.2013 and 25.03.2013 within 'tax dues' under section 105(1)(e) Legal framework 2.1 The Court considered section 105(1)(e), which defines 'tax dues' as service tax (and certain related amounts) for the period 01.10.2007 to 31.12.2012, 'but not paid as on the 1st day of March, 2013'. Interpretation and reasoning 2.2 The Court identified two material conditions in section 105(1)(e): (i) the liability must pertain to the period between 01.10.2007 and 31.12.2012; and (ii) it must not have been paid as on 01.03.2013. 2.3 It was undisputed that the appellant's service tax liability related to April 2011 to December 2011, and was therefore within the prescribed period. 2.4 It was also undisputed that the said dues were unpaid as on 01.03.2013 and were actually paid only between 14.03.2013 and 25.03.2013. 2.5 On these admitted facts, the Court held that the statutory conditions in section 105(1)(e) were fully satisfied, and consequently, the amounts so paid formed part of 'tax dues' for the purposes of VCES, notwithstanding that the Scheme came into force later on 10.05.2013. Conclusions 2.6 Service tax liabilities pertaining to April 2011-December 2011, which remained unpaid as on 01.03.2013 but were paid between 14.03.2013 and 25.03.2013, are covered by the definition of 'tax dues' under section 105(1)(e) and are eligible to be reckoned under VCES. Issue 2: Effect of section 107 procedure on payments made prior to declaration/acknowledgment Legal framework 2.7 The Court examined section 107, which: (i) permits a declaration till 31.12.2013; (ii) requires the designated authority to acknowledge the declaration; and (iii) requires the declarant to pay not less than fifty per cent of the declared 'tax dues' on or before 31.12.2013 and the balance within the prescribed time, with a proviso for extended payment with interest. Interpretation and reasoning 2.8 The Revenue contended that payments made before the acceptance/acknowledgment of the declaration could not be treated as payments 'under VCES' in terms of section 107. 2.9 The Court noted the principle, as laid down by the Supreme Court, that in the event of conflict between substantive and procedural provisions, substantive law defining rights and liabilities prevails over procedural rules, which are only 'handmaid to the administration of justice'. 2.10 Relying on Jai Jai Ram Manohar Lal and Uday Shankar Triyar, the Court reiterated that procedural defects or irregularities which are curable should not defeat substantive rights, except where: (i) the statute specifically prescribes consequences of non-compliance; (ii) the defect is not rectified despite opportunity; (iii) the non-compliance is deliberate or mischievous; (iv) rectification would affect the merits or jurisdiction; or (v) there is complete absence of authority in filing an appeal. 2.11 The Court found that the present procedural inconsistency-relating to timing of payment vis-à-vis declaration and acknowledgement-did not fall within any of the above exceptions. 2.12 Accordingly, the Court held that section 107's procedural requirements cannot be so interpreted as to nullify or restrict the substantive definition of 'tax dues' in section 105(1)(e), nor can they be used to deny relief where the substantive conditions are satisfied. Conclusions 2.13 Payments made prior to filing/acknowledgment of the declaration, but satisfying the substantive conditions under section 105(1)(e), cannot be excluded from the ambit of VCES merely on procedural grounds based on section 107. 2.14 The Revenue's position that such pre-declaration payments could not be treated as made under VCES was rejected as contrary to the prevailing principles regarding the relationship between substantive and procedural provisions. Issue 3: Sustainability of rejection of declaration in light of beneficial nature and purposive interpretation of VCES Legal framework 2.15 The Court described VCES as a beneficial, one-time amnesty scheme granting waiver of interest and penalty and immunity from prosecution to defaulters making truthful declarations of 'tax dues' for the specified past period. 2.16 The Court referred to the Supreme Court's pronouncement that beneficial legislation must be interpreted purposively, in line with its legislative object, and where two views are possible, the interpretation favouring the beneficiaries should be adopted. Interpretation and reasoning 2.17 The object of VCES was identified as encouraging voluntary compliance and bringing prolonged disputes to an end. 2.18 The Court observed that there was no disqualification of the appellant under the exclusion clauses of the Scheme, and that the declaration was filed within the prescribed time. 2.19 Given the beneficial character of the Scheme, the Court held that any ambiguity or divergent views as to the treatment of payments that otherwise met the statutory 'tax dues' definition must be resolved in favour of the declarant. 2.20 In this backdrop, rejection of the declaration and re-determination of tax dues, by treating part of the payments as outside VCES solely due to timing vis-à-vis the Scheme's coming into force, was found inconsistent with the purposive and beneficial construction required. Conclusions 2.21 The declaration in Form VCES-1 filed by the appellant satisfied the substantive requirements of the Scheme and could not lawfully be rejected on procedural or timing grounds. 2.22 The impugned order rejecting part of the payments as not covered by VCES, and consequently demanding balance tax with interest outside the Scheme, was unsustainable and liable to be set aside. 2.23 The appellant is held eligible to the benefit of VCES, subject to payment of any remaining tax dues within the time indicated, and entitled to consequential reliefs and immunities as provided by law.