Delhi HC: Tax Liability in Audit Report Cannot Deny Eligibility for Voluntary Compliance Encouragement Scheme

An audit report computing the liability for tax dues is not a notice or an order of determination as reflected u/s 106(1) of the Finance Act, 2013, Delhi High Court ruled.

Section 106 cited the person who might make tax dues declaration. It was mentioned under sub-section (1) that any individual may declare his tax dues for 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.

It was carried by a division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma that

“…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. 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.”

For the matter, an audit was performed and the respondent-taxpayer was furnished a show cause notice (SCN) alleging the incorrect claiming of cenvat credit for the service tax filed on “medical insurance services” provided to its employees.

Under the Voluntary Compliance Encouragement Scheme, the taxpayer has made an application whereby the taxpayer has declared their past due taxes before and claimed immunity from the interest, penalty, and other proceedings, given that no notice or order as provided u/s 106 is issued before the cut-off date.

However, the designated authority has rejected the application of the taxpayer based on the thing that it was not qualified as per section 106, based on the audit report and SCN.

It is important to mark that the CESTAT has permitted the appeal of the taxpayer discovered that the audit report in question cannot be regarded as a determination order under Sections 72, 73, or 73A and, hence the fact that an audit report has been furnished before the cutoff date does not direct the assessee ineligible to assert the VCES advantage.

The revenue argued that an audit report includes the determination of the service tax obligation and hence the obligation of the taxpayer has been specified before it filed a declaration.

HC marked that the question is not whether any practice for determining the service tax obligations has been performed or whether an ascertainable quantum of left service tax has been informed.

“The opening sentence of Section 106 of the 2013 Act is unambiguous, and expressly provides that any person may make a declaration concerning 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 stated.

Concerning the SCN, the HC cited that it does not count any of the dues for which a declaration was furnished by the taxpayer.

It marked that no complaint would be there that SCN was a limited notice for the service tax obligations for the medical insurance services furnished before the employees of the taxpayer. Under Section 107 of the 2013 Act the declaration of the assessees was not concerning the cited obligations.

As per that the appeal of the revenue was dismissed.

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