The Dispute Resolution Scheme, 2008 has been notified vide Chapter VI of the Finance Act, 1994. This compounding scheme has been notified as a one time measure for quick resolution of disputes.

(a) involving small service tax amounts upto Rs 25000; and

(b) involving non-recovery of penalty or interest. However, cases involving non-payment of service tax after having collected the same from client/customer are not included in the Scheme.

To give effect to the provisions of the Scheme:

1.  Central Government has notified (notification no. 28/2008 dated 4-6-2008) the Rules and Forms for the purpose of Service Tax Resolution Scheme

2.  Issued a circular 102 /5/2008-ST dated 4-6-2008clarified the scope of the scheme with illustrated examples

Service tax compounding scheme offers one-time dispute resolution but excludes cases of collected-but-unpaid tax from providers. The notification establishes a Service Tax Dispute Resolution Scheme as a one time compounding mechanism for quick settlement of small service tax disputes and cases of penalty or interest non recovery, while excluding matters where tax collected from clients was not remitted. Implementing rules and forms have been issued by notification and scope clarified by an explanatory circular with illustrative examples.