By TIOL News Service

AHMEDABAD, MAY 08, 2014: THE petitioner filed a VCES-1 declaration u/s 107 of the FA, 2013 declaring an unpaid tax dues of Rs.16,42,936/-.As per the VCES, 2013, the declarant was required to pay not less than fifty per cent of the tax dues so declared on or before the 31st day of December, 2013.

However, the petitioner deposited a sum of Rs.8,01,120/- before December 31, 2013 and, therefore, there was a shortfall of Rs.20,348/- towards the first installment of fifty percent of the declared tax dues.

The Assistant Commissioner of Service Tax sprung on the declarant.

Vide a letter dated 19 th March, 2014 he informed the declarant that the designated authority has rejected their VCES-1 declaration due to the reason that there has been a short payment of the 50% tax dues and that the declared amount under VCES is recoverable u/s 87 of the FA, 1994 immediately; that the petitioner should pay the said amount immediately along with interest and also submit a host of documents for necessary verification.

This communication has been challenged by the declarant before the Gujarat High Court. It is submitted that the shortfall was due to a bona fide calculation error; the amount involved was very small. Secondly, under section 110, the tax short-paid could be recovered with interest, but the declaration itself cannot be rejected.

The High Court observed -

++ The scheme requires a declarant to deposit 50% of the tax dues latest by December 31, 2013 and the remaining 50% would have to be paid latest by June 30, 2014.

++ The proviso to subsection (4) of section 107 gives some flexibility for the purpose of depositing second installment. Additional six months are granted, but to the extent of delay beyond such period, the declarant would have to bear interest as well. Indisputably, the proviso applies only to subsection (4) and not subsection (3).

++ It is only after the full deposit that under subsection (7) of section 107, the declaration would be accepted and the designated authority would acknowledge the discharge of dues of the declarant in the prescribed format.

++ Under the circumstances, the petitioner not having fulfilled the essential requirement of the scheme, the authority committed no error in rejecting such declaration.

In the matter of the two-fold contentions made by the petitioner, the High Court while rejecting the same observed –

++ The scheme makes no difference between tax dues which are shortpaid due to bona fide error and one which flows from deliberate inaction. There is no power for waiving or relaxing the condition of depositing 50% tax dues flowing from section 107. It would not be possible for this Court to exercise writ jurisdiction to direct the authority, in plain terms, which the statutory provision does not permit.

++ Coming to the second contention, the scheme envisages depositing tax dues in two stages. Only after the taxes are fully deposited stage-wise that the declaration under section 107 would be accepted. Section 110 only pertains to recovery of the taxes declared, but not paid. This provision has no bearing on the invalidity of declaration when the declarant fails to deposit the taxes as provided in subsections (3) and (4) of section 107.

++ If we interpret section 110, as urged by the learned counsel for the petitioner, that it encompasses both the cases of delay in depositing the taxes at the first stage of subsection (3) of section 107 and second stage of subsection (4) of section 107, the proviso to subsection (4) would be rendered wholly redundant.

++ If as suggested, shortfall in the taxes could be accepted after charging interest under section 110, there was no need to make special proviso for extending time for depositing the remaining of the taxes under subsection (4) of section 107.

++ Further, section 110 pertains to compulsory recovery of taxes with interest. Subsections (3) and (4) of section 107 refer to voluntary tax deposit by a declarant in terms of the scheme. Both these operate in separate fields.

The petition is dismissed.

In passing: This, the Board Circular 170/5/2013-ST dated 08/08/2013 & FAQ got right –

Q20. What is the consequence if a declarant fails to pay atleast 50% of declared amount of tax dues by the 31 st Dec 2013?

One of the conditions of the Scheme [section 107 (3)] is that the declarant shall pay atleast an amount equal to 50% of the declared tax dues under the Scheme, on or before the 31.12.2013. Therefore, if the declarant fails to pay atleast 50% of the declared tax dues by 31 st Dec, 2013, he would not be eligible to avail of the benefit of the scheme.

Also see 2014-TIOL-630-HC-AHM-ST.

(See 2014-TIOL-678-HC-AHM-ST)