In a recent ruling, the Delhi High Court dismissed the appeal filed by the revenue and held that an audit report is not an order of determination under Section 106 (1) of the Finance Act, 2013.
In this case, the revenue has appealed before the High Court against the order of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ). The respondent, M/S. Federal Mogul Goetze India Limited, is engaged in the trade of manufacturing and dealing in automobile parts.
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It was reported by the Service Tax Department after an audit that the respondent had wrongfully availed of a cenvat credit of Rs. 1,34,18,976 during the period from 2007-08 to 2011-12.
On 11.12.2013, the taxpayer submitted a declaration under Section 107 of the 2013 Act to avail the benefits of VCES, declaring service tax dues of Rs. 7,22,89,051/- for the period 2007-08 to 2011-12. In compliance with VCES terms, the taxpayer paid 50% of the declared liability, amounting to Rs. 3,61,44,524/-.
The Designated Authority partly rejected the taxpayer’s application, citing ineligibility under Section 106 of the Finance Act, 1994 Act. The Designated Authority found Rs. 3,14,73,211 of the declaration ineligible stating that Rs. 1,57,59,730 for intellectual property services (royalty) and Rs. 1,57,13,481 for imported services, both included in the audit report.
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The assessee appealed before the CESTAT. It was observed by the CESTAT that the audit report could not be considered as an order of determination under Sections 72 or 73 or 73A of the Finance Act 1994, and thus the fact that an audit report had been issued prior to the cutoff date will not make the tax payer ineligible for claiming the benefit of VCES.
The counsel on behalf of the revenue contended that the audit report determined the taxpayer’s service tax liability before the declaration under Section 107 of the 2013 Act, rendering the taxpayer ineligible for VCES benefits.
The bench observed that “ an audit report is not an order of determination under Section 72, Section 73, or Section 73A of the Finance Act 1994, as mentioned in the opening sentence of Section 106 (1) of the Finance Act, 2013.”
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The high court, comprising of Justice Vibhu Bakhru and Justice Swarna Kanta Sharma dismissed the appeal filed by the revenue and held that the taxpayer cannot be deprived of the benefit of VCES as the SCN did not cover any of the dues in respect of which the declaration was filed.
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