Finance Act, 2013 | Audit Report Determining Tax Liability Doesn't Bar Eligibility Under Voluntary Compliance Encouragement Scheme: Delhi HC

Section 106 talks about Person who may make declaration of tax dues. Sub-section (1) states that any person may declare his tax dues in respect of which no notice or an order of determination under section 72 or section 73 or section 73A of the Chapter has been issued or made before the cut-off date, i.e., 1st March, 2013.

A division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma held,

“…for the said exception to apply, it would be necessary that an order of determination under Section 72, Section 73 or Section 73A of the 1994 Act had been issued. Clearly, an audit report is not an order of determination under either of the aforesaid sections, as mentioned in the opening sentence of Section 106 (1) of the 2013 Act.”

In the case at hand, an audit was conducted and the Respondent-assessee was issued a show cause notice (SCN) alleging wrongful availing of cenvat credit in regard to the service tax paid on “medical insurance services” provided to the its employees.

Assessee made an application under the Voluntary Compliance Encouragement Scheme, whereby a tax-payer may declare their past due taxes before the and avail immunity from interest, penalty and other proceedings, provided no notice or order as provided under Section 106 is issued prior to the cut off date.

The Designated Authority however rejected Assessee's application on the ground that it was ineligible in terms of Section 106, on account of the audit report and SCN.

Significant to note that the CESTAT had allowed Assessee's appeal, finding that the audit report in question could not be considered as an order of determination under Sections 72 or 73 or 73A and, therefore, the fact that an audit report had been issued prior to the cut off date did not render the tax payer ineligible for claiming the benefit of VCES.

The Revenue on the other hand contended that an audit report also contains the determination of the service tax liability and, therefore, the Assessee's liability had been determined prior to it filing a declaration.

The High Court observed that the question is not whether any exercise for determining the service tax dues had been conducted or whether an ascertainable quantum of outstanding service tax had been reported.

“The opening sentence of Section 106 of the 2013 Act is unambiguous, and expressly provides that any person may make a declaration with respect to the dues in respect of which “no notice or an order of determination under Section 72 or Section 73 or Section 73A of the Chapter had been issued or made before the 1st day of March, 2013,” it said.

So far as the SCN is concerned, High Court said it did not cover any of the dues in respect of which a declaration was filed by the Assessee.

“There is no cavil that SCN was a limited notice in respect of service tax dues relating to the medical insurance services provided to the tax payer's employees. The tax payer's declaration under Section 107 of the 2013 Act was not in respect of the said dues,” it noted.

Accordingly, Revenue's appeal was dismissed.

Appearance: SSC CBIC Aditya Singla with Advocate Raghav Bakshi for Revenue; Advocates Vivek Sarin and Dhruv Dev Gupta for Respondent

Case title: Principal Commissioner, Cgst Principal Commissioner, CGST v. M/S. Federal Mogul Goetze India Limited & Anr.

Case no.: SERTA 6/2024

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