Only 66,072 out of 10 lakhs declarants under Service Tax Voluntary Compliance Encouragement Scheme

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New Delhi : The central government’s much touted Voluntary Compliance Encouragement Scheme, 2013 (VCES) has failed to achieve its target.

The comptroller and auditor general (CAG) of India conducted an independent assessment of the success of this scheme.

This is an amnesty Scheme which was introduced for the first time after introduction of tax on services. As per Budget Speech of the Finance Minister delivered on 28 February 2013, the Scheme was aimed to motivate around 10,00,000 stop/non-filers to file returns and pay tax dues. However, only 66,072 declarations were received involving tax of Rs 7,750.30 crore under this Scheme.

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.

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.

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.

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.

In 444 cases in 20 Commissionerates, involving tax dues of Rs 85.97 crore, we found deficiencies in verification of eligibility criteria.

“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” CAG stated.

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.

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.

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.

The scheme was introduced with undue haste as the department responded with ‘lack of time’ to several audit observations.