CAG Rips Apart VCES
TIOL-DDT 2911
17 08 2016
Wednesday
THE CAG in is latest report to Parliament on the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES), was highly critical of the Scheme, its launch, executions and post mortem.
It would appear as if the CAG wanted every declarant to be guillotined before a declaration was accepted. CAG forgets the fact that the declarations were voluntary and had they not come forward to file the declarations and pay some tax, the Department would not have got a single rupee from any of those declarants. The fact that 7750 crores could be collected from the scheme without a hassle should itself be hailed as a tax achievement. At least we could get enough money to finance the Audit to lambast the collection of some excess revenue.
The highlights from the CAG's report:
The Performance Audit on Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) was conducted in 35 selected Commissionerates to study whether the Scheme achieved its intended goals through seeking assurance regarding mechanism devised by the department for its implementation, addressing of the systemic failures that necessitated the VCES and monitoring of post-VCES compliance by the declarants.
The key aims of the scheme viz. encouraging non-filers or stop filers to file returns and tax base broadening were not achieved as only 66,072 existing as well as new registrants declared tax dues amounting to Rs. 7,750 crore under VCES as against 10,00,000 non/stop filers when the Scheme was announced and only around 22 per cent of the declarations filed related to new registrations. The Performance Audit revealed deficiencies in the design and enabling provisions of the Scheme, non-compliance to provisions prescribed in various stages and inadequacies in tax administration as detailed below:
a. The Scheme envisaged grant of immunity for truthful declaration of service tax dues. No basic documents in support of tax liability declared were prescribed and verification of correctness of declaration was restricted only to mere check of arithmetic accuracy. Even basic facts apparent on the face of the declaration were not verified.
b. Clarifications given by Board regarding pending demand notice, inquiry, audit or investigation, which would make the declarant ineligible for the scheme, were contradictory to the provisions and the intention of the scheme. This resulted in extension of unintended benefit amounting to Rs. 129.84 crore in 332 cases.
c. Deficient design of VCES application form and non-prescription of proper database by Board deprived department the benefit of having valuable data for post-Scheme analysis and monitoring.
d. The safeguards prescribed in Cenvat Credit Rules, 2004, to avail Cenvat (input) credit were not given due consideration while making payments under VCES admissible for availing Cenvat credit in future.
e. In 444 cases in 20 Commissionerates, involving tax dues of Rs. 85.97crore, we found deficiencies in verification of eligibility criteria.
f. We noticed in 169 cases, involving tax dues of Rs. 20.96 crore, that though the declarants had not paid the declared tax dues as per due dates prescribed, the declarations were not made ineligible for the scheme.
g. Audit attempted to examine truthfulness of declarations made by cross-verification of declared tax dues in two Commissionerates with details available with other authorities (viz. Income Tax Department, Commercial Taxes Department and Registrar of Companies) and found short declaration of tax dues to the extent of Rs. 4.35 crore in eight cases.
h. One time amnesty Scheme like VCES can be a real one time solution for the problem it sought to redress only if the tax systems are strengthened and follow up mechanism is made stringent. In 15 Commissionerates where data was made available to audit, we observed that only 62 per cent of the returns due for filing were actually filed post-VCES and no action was taken by the department against non-filers.
i. The department did not initiate any action to recover the balance of the declared tax dues or to levy applicable interest and penalty in respect of 78 rejected cases involving an amount of Rs. 23.02 crore.
j. The scheme was introduced with undue haste as the department responded with 'lack of time' to several audit observations.
Summary of Recommendations
Part-1 Recommendations to be considered while framing any amnesty Schemes in future
1. The use of IT platforms, integrated with the existing automated systems, for self declarations as well as scrutiny and follow up by the department for such Schemes may be considered.
2. Defining checklists for verifying the truthfulness of declaration filed by the declarants.
3. Identification of challans related to such schemes must be ensured by use of IT Platforms.
4. Provisions/clarification issued should not dilute the safeguards prescribed in the existing provisions as well as the express intention of the Scheme.
Part-2 Recommendations for corrective action Post VCES
5. Cenvat credit should be allowed in respect of only those service tax payments under this Scheme for which documents prescribed in rule 9 of Cenvat Credit Rules, 2004 are available.
6. The amnesty Scheme should be followed by an extensive drive to bring evaders to tax net through departmental investigation and vigilance wings, so as to send a strong message to the defaulters who did not come clean despite the Scheme, to have effective deterrent effect and also to boost morale of regular tax payers.
7. A rigorous follow-up procedure through monitoring of filing of returns and scrutiny of such returns should be ensured to facilitate success as well as impact assessment of the Scheme.
The CAG was equally critical of the Kar Vivad Samadhan Scheme of 1998, the embers of which are still smoldering in the Tribunals and Courts! The CAG then observed, Kar Vivad Samadhan Scheme failed to either declog the system or realise a significant amount of 'reasonable Government dues'. However, it did provide an escape route for select debtors of the Government whose liability was in little or no dispute (vivad). The scheme did not provide any safeguards against such abuse of the scheme. The response from actual cases of dispute was rather poor and they continued to clog the system. Its overall impact on revenue was, therefore, negative.
Maybe next time they launch an amnesty scheme, it should be clearly mentioned in the statute that CAG will not have the power to audit the scheme.
Education is costly affair, after all!
THE levy of service-tax on students will not serve the purpose of disciplining those who make business out of education. Tax on education, particularly when the incidence of tax is passed on to the beneficiaries, that is, the students, is a regressive legislation and has to be condemned, more so, when large number of poor people seek salvation through education and employment. - 2006-TIOL-35-HC-KERALA-ST
In the matter of representations received from various schools, Associations etc. seeking clarifications regarding the levy of service tax on certain services relating to the education sector, the CBEC in its Circular 172/7/2013-ST dated 19 September 2013 emphatically said -
"…the apprehensions conveyed in the representations submitted by certain educational institutions and organizations have no basis whatsoever. These institutions and organizations are requested not to give credence to rumours or mischievous suggestions. If there is any doubt they are requested to approach the Chief Commissioner concerned."
And this was the clarification given -
3. By virtue of the entry in the negative list and by virtue of the portion of the exemption notification, it will be clear that all services relating to education are exempt from service tax. There are many services provided to an educational institution. These have been described as "auxiliary educational services" and they have been defined in the exemption notification. Such services provided to an educational institution are exempt from service tax. For example, if a school hires a bus from a transport operator in order to ferry students to and from school, the transport services provided by the transport operator to the school are exempt by virtue of the exemption notification.
4. In addition to the services mentioned in the definition of "auxiliary educational services", other examples would be hostels, housekeeping, security services, canteen, etc.
Incidentally, take a look at the evolution of the Entry no. 9 of the Mega Exemption Notification 25/2012-ST -
9. Services provided to or by an educational institution in respect of education exempted from service tax, by way of,-
(a) auxiliary educational services; or
(b) renting of immovable property;
The words "or by" went for a toss by the amending notification 3/2013-ST dated 01 March 2013 w.e.f 01.04.2013.
The JS TRU letter dated 28/02/2013 also said -
| B. Exemptions
4. The following changes are being made w.e.f April 1, 2013 in the exemption notification number 25/2012-ST dated June 20, 2012:
(i) Exemption by way of auxiliary educational services and renting of immovable property by (and not to) specified educational institutes under S. No 9 will not be available;
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Actually, things went downhill because of the removal of these two words "or by" inasmuch services provided by the Educational institution now fell in the rain shadow exemption region!
The Circular did say about everything else but but skirted the issue on which the Educational Institutions & others actually wanted a response.
DDT had vividly covered this issue in its edition 2194 dated 20 September 2013.
And then came the notification 6/2014-ST dated 11 July 2014 which substituted Entry no. 9 to read -
9. Services provided,-
(a) by an educational institution to its students, faculty and staff;
(b) to an educational institution, by way of,-
(i) transportation of students, faculty and staff;
(ii) catering, including any mid-day meals scheme sponsored by the Government;
(iii) security or cleaning or house-keeping services performed in such educational institution;
(iv) services relating to admission to, or conduct of examination by, such institution;"
So, in a way the position prevailing prior to 01.04.2013 was restored.
DDT made a reference to this notification while reporting the 'Budget Notifications at a glance' in its episode 2394.
Interestingly, the 'interregnum period' cried for attention but there was no one to attend to the wailing child.
One of our regular writers, P G James has sent us a mail enclosing the following newspaper cutting-
He employed the RTI Act, 2005 and found that all this was the offshoot of an innocuous Board letter dated January 7, 2016.
In fact, he has exhaustively deliberated on this issue in his article which we are carrying in our Guest Column today.
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Curiosity is the very basis of education and if you tell me that curiosity killed the cat, I say only the cat died nobly - Arnold Edinborough
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Former Coal Secretary Wants to Face Trial from Jail
HC Gupta, a 1971 IAS officer and former Coal Secretary is facing trial in the coal scam. A frustrated Gupta yesterday told the CBI Court that he wants to withdraw his bail bond and also the authorisation for his advocate. In a written application, he told the court that:
- he does not wish to examine any witness in his defence and intends to face the trial from inside the jail.
- he is also facing financial difficulties even in engaging a Lawyer.
The Court told him that if he is facing any such financial difficulties then he can be provided services of a Lawyer from New Delhi Legal Aid Services Authority or an Amicus Curiae can be appointed by the Court on his behalf. Gupta however refused to have services of any Counsel either from NDLSA or that of an Amicus Curiae. He was however given time to think over his application and submissions being made by him.
At this stage, the wife and son of accused H.C. Gupta happened to be present in the Court. After getting the Courtroom vacated from all persons present except the Court staff, the Judge had a talk with the wife and son of accused H.C. Gupta in open Court and informed them about the application moved by accused H.C. Gupta. Thereafter accused H.C. Gupta was also called inside the Courtroom and in the presence of Court staff the Judge had a talk with him and his wife and son in the open Court itself. Gupta has been given time to think over the plea made by him yesterday in the application and has been told that a decision on the application shall be taken at a subsequent date.
Fighting a court case is difficult - even for an IAS officer.
Supreme Court Dismisses Revenue Appeal for want of Prosecution
YESTERDAY the Supreme Court dismissed an SLP filed by the Government for want of prosecution. The Court ordered:
No one appears in support of the special leave petition even in the second call.
The special leave petition stands dismissed for want of prosecution.
This is how the Government clogs the Supreme Court and wastes its own time and that of the Supreme Court. At least 50 babus must have worked at various stages to file this SLP in the Supreme Court. The SLP should not have been filed in the first place as the amount involved is only about 8 lakh rupees. The SLP was filed in 2016 only.
A Law which affects only a handful does not, on that account, justify its existence. A law which provides for the decapitation of all men over six feet will still be unfair, even if it affects only a very small minority of the nation
Nani Palkhiwala
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Until Tomorrow with more DDT
Have a nice day.
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