VCES Declaration Cannot Be Rejected If ‘Issue’ Differs Post Negative List Regime: CESTAT Allows BIS Appeal [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that a Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) declaration cannot be rejected if the “issue” involved in earlier show cause notices is different from the issue for the later period.

Bureau of Indian Standards (BIS) gives Hallmark certification for jewellery and collects royalty from assaying and hallmarking centres. Before 01 July 2012, the Department issued show cause notices saying BIS was providing Intellectual Property Service and had not paid service tax on royalty. Some of these demands were confirmed and appeals were pending.

For the period July 2012 to December 2012, BIS filed a declaration under VCES and admitted service tax liability. The Department rejected the declaration saying that notices were already issued earlier on the same issue, so declaration is barred under Section 106(1). The Commissioner (Appeals) also upheld the rejection.

The appellant’s counsel argued that the issue before 01 July 2012 was whether “Hallmark” amounted to intellectual property and whether BIS was providing Intellectual Property Service under Section 65(105)(zzr). After 01 July 2012, the law shifted to the negative list regime and service tax was levied underSection 66B on all services except those in the negative list.

The question for the later period was whether permitting hallmarking centres to operate under the BIS scheme on payment of royalty constituted “service” under Section 65B(44). They argued that these were legally different issues.

The revenue counsel argued that the main issue was always non-payment of service tax on royalty and the nature of activity had not changed.

The two-member bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) examined the statutory provisions of VCES and the changes brought by the negative list regime. The Tribunal observed that prior to 01 July 2012, taxability depended on whether the service fell under a specific taxable category.

In the earlier show cause notices, the dispute was whether BIS was rendering Intellectual Property Service. The tribunal also observed that in a later final order, it had already held that “Hallmark” is not an intellectual property right under the law.

For the period after 01 July 2012, the tribunal explained that the definition of service became wide and covered all activities for consideration unless specifically excluded. The issue for the later period was not about intellectual property classification but whether the activity itself constituted a service under the new regime.

The tribunal observed that the two issues were not identical. The second proviso to Section 106(1) could not be invoked to reject the declaration. The impugned order was set aside and the appeal was allowed with consequential relief.

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