By TIOL News Service

CHENNAI, JUNE 25, 2018: THE appellant was registered as a service provider providing accommodation service and restaurant service.

During the audit conducted in February 2013, it came to notice that the appellant is also providing the service of ‘renting of immovable property' but no registration was taken in this regard or service tax paid.

Subsequently, on 19.03.2013, the appellant obtained a Certificate of Registration for Accommodation, Renting of immovable property and other services.

A letter dated 16.04.2013 was issued to the appellant by the Superintendent for payment of service tax on the services of Renting of immovable property for the period from 01.10.2010 to 28.02.2013. The Service Tax liability for the said period was assessed at Rs.36,10,239/- and certain penalties to the tune of Rs.26,300/- were also proposed.

On 21.06.2013, the appellant filed an application for settlement of the tax dues under the ST VCES, 2013 but this was rejected by the Designated Authority by order dated 03.10.2013.

This rejection was challenged in the Writ Petition in WP No.859 of 2015.

Citing the provisions of section 106(2) of the Finance Act, 2013, the High Court, Single Judge held that the application had been rightly rejected by the designated authority.

We reported this order as 2015-TIOL-2905-HC-MAD-ST.

An appeal was filed against this order by the petitioner.

Section 106(2) of the Finance Act, 2013 reads -

106.(2) Where a declaration has been made by a person against whom,-

(a) an inquiry or investigation in respect of a service tax not levied or not paid or short-levied or short-paid has been initiated by way of -

(i) search of premises under section 82 of the Chapter; or

(ii) issuance of summons under section 14 of the Central Excise Act, 1944, as made applicable to the Chapter under section 83 thereof; or

(iii) requiring production of accounts, documents or other evidence under the Chapter or the rules made there under; or

(b) an audit has been initiated,

and such inquiry, investigation or audit is pending as on the 1st day of March, 2013, then, the designated authority shall by an order and for reasons to be recorded in writing, reject such declaration.

By adverting to the clarification dated 25.11.2013, it is submitted that the inquiry or investigation or audit referred to under Section 106(2)(a) and (b) should be with reference to the service provided by the assessee for which it holds a registration.

Inasmuch as since the audit that was held on 25.02.2013 and 28.02.2013 and was only in relation to accommodation service and restaurant service, it cannot be extended to the service of renting of immovable property, the appellant added. And since no inquiry or investigation or audit was pending against the appellant in respect of the specific service viz. renting of immovable property service, which the appellant wants to declare voluntarily, as per the declaration dated 21.06.2013, the Designated Authority was not justified in rejecting the declaration on the ground that an audit was pending on 01.03.2013.

The counsel for the Revenue submitted that the audit that was conducted on 25.02.2013 and 28.02.2013 was a General Audit and it was not a piece meal audit for a particular service; that the fact that the appellant had not disclosed the provision of service relating to renting of immovable property and since the same was unearthed during the course of audit and the said audit was pending as on 01.03.2013, it would disentitle the appellant from claiming the benefits of the VCES Scheme, in terms of Section 106(2) of Finance Act, 2013.

The Division Bench of the High Court while disagreeing with the submission made by the petitioner inter alia observed -

+ Two situations are contemplated in Section 106(2) as circumstances that would disentitle a person from making a declaration under the VCES scheme, the first one is pendency of an inquiry or investigation in respect of Service Tax not levied or not paid or short levied or short paid initiated pursuant to a search of the premises, issuance of summons under Section 14 of the Central Excise Act 1944, or requiring production of accounts or other evidence under the Finance Act, 1994, are the Rules made there under. Of course, the above would only be in relation to a service which has already been registered.

+ Section 106(2)(b) stands independent of Section 106(2)(a), it only says where an audit has been initiated and such audit is pending on 01.03.2013. The clarification issued by the Department on 25.11.2013 further directs that the condition should be construed strictly and narrowly. There is also a direction to the concerned Commissioner's to ensure that no declaration is rejected on frivolous grounds or by taking a wider interpretation of the condition enumerated in Section 106(2). The clarification issued further reads as follows:

"If the issue or the period of inquiry, investigation or audit is identifiable from summons or any other document, the declaration in respect of such period or issue alone will be liable for rejection under the said provision."

+ It is seen from the material on record that the fact that the appellant was also providing service of renting of immovable property, apart from the two registered services viz. accommodation service and restaurant service was unearthed by the Department, during the course of the audit that was held on 25.02.2013 and 28.02.2013. Therefore, the issue regarding provision of the service of renting of immovable property was discovered later on and it is definitely referable to the audit held on 25.02.2013 and 28.02.2013. It is also borne out by records the said audit was pending as on 01.03.2013. Therefore, the claim of the appellant that the audit must be restricted to the services, which are already registered cannot be countenanced.

+ Once it is shown that an audit has been initiated and it is pending, there is no scope for restricting the sweep of Section 106(2)(b) to an audit in relation to a particular kind of service . If at an audit, the department is able to unearth a service being rendered by the assessee, which has neither been registered nor been assessed to, it is definitely open to the department to require the assessee to pay the service tax and the penalty payable for providing such service. The rigour of such taxing statute cannot be whittled down by the appellant by seeking to invoke so called voluntary compliance that too after the fact that the service has not been registered or has not been taxed was discovered by the department.

Concurring with the view of the Single Judge, the Division Bench held that there was no merit in the appeal, therefore, the same was dismissed.

(See 2018-TIOL-1170-HC-MAD-ST)