Case study on Service Tax Voluntary Compliance Encouragement Scheme – last date 31st December 2013

The Service Tax Voluntary Compliance Encouragement Scheme (VCES) has come into effect upon enactment of the Finance Bill 2013 on the 10th May, 2013 . The said scheme provides an opportunity to any person whose service tax is due or has short paid and has not declared in his service tax return to pay only the service tax amount and get immunity from interest and penalty. The person availing the opportunity  has to declare his service tax liability for the period 1st Source :, 2007 till 31st December, 2012. In this article, we have put Case study on Service Tax Voluntary Compliance Encouragement Scheme – last date 31st December 2013 .


According to this scheme, a service provider not having declared his details now has    An option to declare his due tax liabilities, including the cess charges for a period between October 1, 2007 and December 31, 2012 and pay it to the government after making a truthful declaration and can avoid penalty, interest or any other penal proceedings.


1) The person who wishes to make declaration under the Scheme, if not already registered, take registration with the Service Tax Department.

2) The declaration in respect of tax dues under the Scheme shall be made in Form VCES – 1   before 31st December, 2013.

3) The Assistant Commissioner on receipt of declaration shall issue an acknowledgement in Form VCES – 2 within a period of seven working days from the date of receipt of the declaration.

4)The tax dues has to be paid in the following manner : –

Percentage of Tax to be Paid Due Date by which tax has to be paid Interest payable if
50% of the Tax Dues Before 31st December,2013 NIL
Remaining 50% of the Tax Dues Before 30th June, 2014 NIL
If remaining 50% was not paid before 30th June, 2014 Before 31st December, 2014 Along with Interest at the rate 15% or 18% as the case may be from 1st July, 2014 till the date of payment

5) The Assistant Commissioner shall issue an acknowledgement of discharge under in Form VCES – 3


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Immunity from penalty, interest and other proceeding

Upon compliance of payment of tax and interest [under Section 107(4)], the declarant will have immunity from further interest, penalties and other proceedings, and no matter shall be reopened thereafter before any authority or Court for the period covered by such declaration.

Failure to make true declaration

Where the Commissioner of Central Excise has reasons to believe that the declaration made by a declarant under this Scheme was not true, he may. for reasons to be recorded in writing, serve a notice upon such declarant within a period of 1 year from the date of such declaration.


1) Assessee  has paid 100% tax before enactment of VCES, 2013 but failed to file ST return. Whether the assessee can file a declaration under VCES, 2013 and get the benefit of immunity from Interest and penalty?

Ans: – No, in this case the assessee cannot file a declaration under VCES. Under VCES a declaration can be made only in respect of “tax dues”. A case where no tax is pending, but the return has not been filed, does not come under the ambit of the scheme.

2) Assessee has made part payment of his “tax dues” on any issues before the scheme was notified and makes the declaration under VCES for remaining part of tax dues. Will he be entitled to the benefit of non payment of interest/penalty on the tax dues paid by him outside the VCES i.e. amount paid prior to VCES?

Ans:-  No the assessee will not get immunity from the levy of interest and penalty on the amount paid prior to VCES, 2013. The immunity from interest and penalty is only for tax dues declared under VCES.

3) Mr. A has paid tax by challan on 01.05.2013 before the VCES is operational. He filed application on 11.06.2013 and the payment made by him on 09.05.2013 is treated as payment against this declaration. Can he do so? Is there any requirement that the payment against tax dues need to be made on or after 10.05.2013 or on or after filing declaration?

Ans:- The person cannot be treated as “declarant” in terms of S. 107 and the procedure prescribed therein viz. filing of VCES issue of acknowledgement in VCES – II have to be complied with. This view is confirmed by the CBEC Circular (supra). It has been further clarified that if any “tax dues” have been paid prior to the enactment of the scheme, any liability of interest or penalty thereon shall be adjudicated as per the provisions of Chapter V of the Finance Act, 1994 and paid accordingly.

4) ABC Ltd. has there different premises in Ahmadabad, Rajkot and Jamnagar respectively. ABC Ltd. is providing services from each office and such offices are separately registered with respective service tax range. Further, it has received a show -cause notice dated 25-02-2013 in respect of some alleged short payment of service tax for Ahmadabad office but has not received any such notice or any communication for Rajkot or Jamnagar offices. Can Rajkot and Jamnagar branch take benefit under VCES for any tax dues relating to those places?

Ans: – As per the CBEC Circular (supra), two separate service tax registrations are two distinct assesses for the purposes of service tax levy. Therefore, eligibility for availing of the Scheme is to be determined accordingly. The unit that has not been issued a show cause notice shall be eligible to make a declaration under the Scheme.
5) Whether the CENVAT credit is admissible on the inputs/input services used for provision of output service in respect of which declaration has been made under VCES for payment of any tax liability outside the VCES?

Ans:- As per the CBEC Circular (supra), the VCES Rules 2013 prescribe that CENVAT credit cannot be utilized for payment of “tax dues” under the Scheme. Accordingly the “tax dues” under the Scheme shall be paid in cash.

The admissibility of CENVAT credit on any inputs and input services used for provision of output service in respect of which declaration has been made shall continue to be governed by the provisions of the Cenvat Credit Rules, 2004. In other words, CENVAT Credit can be carried forward if otherwise eligible.

6). Whether declarant will be given an opportunity to be heard and explain his cases before the rejection of a declaration under section 106(2) by the designated authority?

Ans:- Yes, it has been clarified in the CBEC Circular (supra), that the designated authority, if he has reasons to believe that the declaration is covered by section 106 (2), shall give a notice of intention to reject the declaration within 30 days of the date of filing of the declaration stating the reasons for the intention to reject the declaration. For declarations already filed, the said period of 30 days would apply from the date of this circular.

The declarant shall be given an opportunity to be heard before any order is passed by the designated authority. In terms of section 106 (2)(b), if a declaration made by a person against whom an audit has been initiated and where such audit is pending, then the designated authority shall by an order and for reasons to be recorded in writing, reject such declaration.

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