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Service Tax VCES Scheme

Service Tax VCES Scheme

Service Tax VCES Scheme

The Service Tax VCES Scheme was a Voluntary Compliance Encouragement Scheme (VCES) that made it easier for businesses and individuals to declare their past due taxes. In the Finance Bill, 2013 (“the Finance Bill”), to Government of India introduced the VCES scheme to encourage voluntary compliance with service tax regulation for those who had defaulted in past service tax payments. It was noted that out of the nearly 17,00,000 registered assessees under the service tax, only about 7,00,000 assessees filed their service tax returns or paid service tax. Hence, the VCES scheme was announced to motivate service tax defaulters to pay the service tax, not paid in the past.

Availing VCES Scheme

  • If the individual or the business does not have service tax registration then the same will have to be obtained first.
  • Both the individual or the business can avail immunity from paying late fee and avoid penalty for not getting service tax registration beforehand under VCES,
  • In case a show cause notice has been sent to the business or individual or any other taxes that are due can be declared under the VCES scheme.
  • If an individual or business has two branches in two different locations and one of the branches receives a show cause notice for nonpayment of tax but the other hasn’t. In such a case the VCES will be applicable for the branch that has not received any notice. Both the branches possess separate tax registrations. Therefore they are two separate assesses. The eligibility to make use of VCES varies accordingly for both the branches thereby.
  • If a business has paid service tax using irregular CENVAT credit – then this amount will not be considered as the amount paid towards service tax. This will call for pending tax and even this can be declared under tax dues on VCES.
  • If there is an enquiry or investigation going on against a business even they can declare their pending taxes under VCES as long as the inquiry or investigation was started after the year 2013.

Conditions that do not allow VCES Benefits

  • VCES is used to declare tax dues. If the business or individual has no tax dues but has not filed the returns, then the benefits of VCES cannot be availed. However under rule 7C of service tax rules, the assesse can claim waiver depending on the severity of the case.
  • A business or individual can avail immunity and save on penalty for the tax dues declared under the VCES scheme. For part payments done before the VCES scheme, if there are any pending interests to be paid by the individual or business in such case they cannot get immunity or save on penalty.
  • A declarant can make amendments on the declared VCES only if the same is done before the cutoff date for filing registration. All facts have to be provided to justify it was an error and that it was identified by the business or the individual on time.
  • A declarant cannot avail VCES benefit if at least fifty percent of the declared tax dues are not paid before the due date.
  • CENVAT credit cannot be utilized for payment of tax dues under the VCES rule.

Alternatives for Rejected VCES Declarations

In case a declaration under VCES is rejected there are no alternatives for the applicant to pursue it further. Declarants should also know that:

  • Under VCES there are no provisions for filing an appeal if the designated authority rejects the declaration under section 106 (2)
  • IF the declarant has done a partial payment post which the declaration has been rejected -in that case, it is not certain if the amount can be adjusted. The paid amount is left at the discretion of the authority of the service tax department if the amount can be adjusted against the business or the individual’s liability.
  • Any declaration made by the business or individual if found by the commissioner of central excise to be false will by default result in rejection. Additionally, the declarant will be sent a notice too with a view on the anomaly.