Service Tax Amnesty Declaration Cannot Be Reopened After Statutory Deadline: CESTAT Chennai

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has recently held that the Service Tax Department cannot reopen a declaration accepted under the Voluntary Compliance Encouragement Scheme (VCES) after the statutory time limit prescribed under the Scheme has expired.

VCES, introduced in 2013, was a one-time service tax amnesty scheme that allowed taxpayers to voluntarily disclose and pay unpaid service tax dues from earlier years in return for immunity from further proceedings.

It also ruled that construction undertaken for educational institutions and the public welfare projects involved in the case does not become commercial construction merely because the institutions earn incidental income or the projects include ancillary facilities.

The tribunal comprising Judicial Member Mr. Ajayan T.V. and Technical Member Mr. Vasa Seshagiri Rao passed the order while partly allowing an appeal filed by M/s SSS Constructions against the Service Tax Department.

The tribunal observed, "We specifically hold that once the declaration stood accepted and no proceedings questioning such declaration were initiated within the statutory period prescribed under the Scheme, the Department lacked jurisdiction to reopen the declaration thereafter."

The dispute arose from a service tax demand covering construction work carried out between May 2008 and September 2013. The Department alleged that the company had failed to pay service tax on projects executed for, among others, SRM Medical College and Hospital, the Tamil Nadu Housing Board and the Tamil Nadu Police Housing Corporation.

It also sought to reopen a declaration that had earlier been accepted under the VCES. According to the Department, the declaration was a "substantially false" declaration under the Scheme.

SSS Constructions challenged the demand. It argued that once its VCES declaration had been accepted, the Department could not reopen it after the period prescribed under the Scheme. The company also contended that the projects were executed for educational institutions and State Government bodies such as the Tamil Nadu Housing Board and the Tamil Nadu Police Housing Corporation. It argued that the projects therefore could not be classified as commercial construction.

Examining the Scheme, the tribunal held that it was introduced as a one-time amnesty measure to encourage voluntary disclosure of past tax liabilities. It observed that the Scheme was intended to provide certainty and finality. The tribunal ruled that an accepted declaration cannot be reopened merely because the Department subsequently computes a higher tax liability or adopts a different view on taxability.

The tribunal observed, "A declaration cannot become substantially false merely because the Department later adopts a different view on taxability. If such interpretation is accepted, every tax dispute would become a ground for reopening concluded declarations under the Scheme, rendering the statutory immunity promised under VCES meaningless and wholly illusory."

The tribunal also found that the Department had not initiated any proceedings questioning the declaration within the time prescribed under the Scheme. Having allowed that period to lapse, it lacked the jurisdiction to reopen the declaration later.

On the taxability of the construction services, the tribunal held that SRM Medical College continued to be an educational institution even though it collected fees and generated incidental revenue. It also held that the projects executed for the Tamil Nadu Police Housing Corporation and the Tamil Nadu Housing Board were public welfare projects.

They could not be treated as commercial construction. In the case of the Police Housing Corporation project, the tribunal noted that shopping and canteen facilities provided for police personnel did not alter the dominant non-commercial character of the project.

However, the tribunal upheld the service tax demand to the limited extent admitted by the company in relation to manpower supply services provided to SRM Engineering Construction Corporation Ltd. under the reverse charge mechanism, subject to limitation.

For Assessee: Advocate J. Shankar Raman,

For Revenue: G. Krupa, Authorised Representative