2026 (2) TMI 531 - AT - Service Tax

VCES Scheme: failure to meet 50% pre deposit and bar on subsequent period declarations results in rejection of VCES benefit

VCES declarations must comply strictly with scheme timelines and conditions: failure to pay 50% of declared tax by the specified cutoff disentitles a ... VCES Scheme - Mandatory pre-deposit of 50% of declared tax dues by 31.12.2013 - bar on declarations for the same issue for subsequent periods (second proviso to Section 106(1)) - designated authority's power to reject declarations for noncompliance with scheme stipulations - procedural timetable under the VCES and distinct operation of recovery u/s 110 - strict interpretation of amnesty schemes and inability of courts to enlarge scheme timelines - HELD THAT:- In the instant case the Ld. Designated Authority has rejected the declaration on two grounds: on the ground that the Appellant had not paid fifty percent of the declared amount on or before 31.12.2013 and also on the ground that the appellant could not have filed such a declaration given the prohibition in the second proviso to sub-section (1) of Section 106 which bars a person from making a declaration of his tax dues on an issue for the subsequent period, in case on the very same issue any notice or order of determination has been made. The plea of the Appellant is that it was prevented from adhering to the time line specified due to severe financial hardship, which incidentally, remains a mere averment sans any evidence. Be that as it may, we find that the scheme does not allow for any variance on this count and the stipulations therein are inviolable. In our considered opinion, the nonpayment of fifty percent of the declared tax dues by the specified date of 31.12.2013 would in itself disentitle the appellant from availing the benefit of the VCES Scheme. Admittedly in the instant case the appellant has been issued an SCN No.23/2014 (VCES) dated 24.01.2014 in this regard and it is only after due process of law that the Designated Authority has passed the order which has since been upheld vide the impugned order by the Appellate Authority and therefore the said rejection of the appellant’s declaration cannot be faulted. As noticed above, it is a similar rejection that has been upheld by the Hon’ble Jharkhand High Court in the decision in Manpreet Engg & Construction Co v. Union of India, [2016 (7) TMI 560 - JHARKHAND HIGH COURT] reproduced above. We have already noticed the law laid down by the constitution bench of the Apex Court in Matajog Dubey v. H. C. Bhari [1955 (10) TMI 3 - SUPREME COURT]. We, therefore unhesitatingly hold that the Designated Authority, who has been entrusted with the task of receiving the declaration and issuing discharge, also has inherent powers to scrutinize and act if such declarations are not found conforming with the stipulations in the VCES. All such powers that are truly incidental and ancillary for doing all such acts or employing all such means as are reasonably necessary to make the scheme effective, need not always have to be explicitly spelt out in the scheme. We are of the view that the Declaration filed by the Appellant in respect of the service tax not paid for the period from April 2010 to December 2012, is a declaration that has been made for the subsequent period on the same issue in respect of which an order of determination has been passed, i.e., the Order in Original No.17/2012, and thus it attracts the bar under second proviso to Section 106(1) of the VCES. Hence we hold that the declaration has been rightly rejected by the Designated Authority and the Appellate Authority has not committed any error in upholding such rejection. We find that the decision submitted by the Appellant in the case of Assistant Commissioner v Frankfinn Aviation Services Pvt Ltd, [2018 (7) TMI 2387 - SC ORDER (LB)] whereby the Apex Court dismissed the SLP preferred against the Delhi High Court Judgement as [2014 (4) TMI 133 - DELHI HIGH COURT] is distinguishable as the outcome was premised on facts different from the facts of the instant case. Procedural timetable under the VCES and distinct operation of recovery under Section 110 - strict interpretation of amnesty schemes and inability of courts to enlarge scheme timelines - As is evident from the Judgement of the Delhi High Court, the petitioner therein was aggrieved by the rejection of a declaration premised upon the existence of the dispute concerning the previous period between 10-9-2004 - 27-2-2010 before the CESTAT, whereas the declaration had been filed by the said petitioner for the period 01-04-2012 to 31-12-2012. Thus evidently since the dispute pending before the CESTAT was for a period even prior to the period of October 2007 to December 2012 specified in the VCES, the Delhi High Court held the rejection to be unsustainable. Be that as it may, there can be no quarrel with the proposition of law laid down therein, in so far as the requirement of deposit of 50% of the declared dues was concerned. Unlike in the present case, the petitioner therein had also complied with this mandate of the Scheme. Thus, we are of the considered view that the impugned order does not warrant any interference as it has rightly upheld the order of the Designated Authority rejecting the VCES declaration filed by the Appellant. The appeal is dismissed as devoid of merits. Issues: (i) Whether the Designated Authority was empowered to reject a VCES declaration outside the limited situations listed in Section 106(2) and whether the power to reject is confined to the Commissioner under Section 111; (ii) Whether the rejection of the VCES declaration was justified on the grounds that the declarant failed to pay not less than fifty percent of the declared tax dues by 31.12.2013 and that the declaration related to a subsequent period on the same issue for which an order of determination existed (second proviso to Section 106(1)).Issue (i): Whether the Designated Authority had jurisdiction to reject a VCES declaration for non-compliance with mandatory scheme stipulations beyond the situations enumerated in Section 106(2), and whether rejection power is restricted to Commissioners under Section 111.Analysis: Section 106(1) and Section 107 set out who may declare and the procedural requirements; Section 106(2) prescribes specific circumstances requiring rejection where certain inquiries or audits are pending. Nothing in the VCES expressly prohibits the Designated Authority from rejecting declarations that do not comply with other mandatory provisions of the scheme (for example, prescribed payment timelines). Statutory provisions dealing with consequences of false declarations (Section 111) and recovery (Section 110, Section 87 of Chapter V of the Finance Act, 1994) do not, by their existence, oust the Designated Authority's power to act when mandatory conditions of the scheme are violated. Authorities may exercise ancillary or inherent powers necessary to effectuate the scheme provided that principles of natural justice are observed.Conclusion: In favour of Revenue.Issue (ii): Whether rejection of the declaration was sustainable because the declarant failed to deposit at least fifty percent of declared tax dues by 31.12.2013 and because the declaration covered a subsequent period on the same issue as an earlier adjudication (second proviso to Section 106(1)).Analysis: Section 107(3) mandates payment of not less than fifty percent of declared tax dues on or before 31.12.2013 and submission of proof thereof; Section 107(4) and its proviso allow staged payment and provide limited extension with interest for delayed payment of the balance. The statutory scheme evidences a strict, time-bound pre-deposit requirement as an essential condition for entitlement to scheme benefits. Circular clarification echoes that failure to pay 50% by 31.12.2013 renders a declarant ineligible. Separately, the second proviso to Section 106(1) bars declarations in respect of an issue for any subsequent period where a notice or order of determination on that issue has been issued earlier. The record shows the declarant paid only a portion after the deadline and that an earlier order addressed the same issue for an earlier period, bringing the subsequent-period bar into play. Precedents uphold strict adherence to Section 107(3) and the second proviso.Conclusion: In favour of Revenue.Final Conclusion: The Tribunal upholds the Designated Authority's rejection of the VCES declaration because the declarant failed to comply with the mandatory pre-deposit requirement of Section 107(3) and the declaration was barred under the second proviso to Section 106(1); the appeal is dismissed.Ratio Decidendi: Administrative authorities under the VCES may reject declarations that do not strictly comply with mandatory, time-bound statutory conditions of the scheme (including the 50% pre-deposit under Section 107(3)), and declarations are barred for subsequent periods on the same issue where an earlier notice or order of determination exists under the second proviso to Section 106(1).