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An Amnesty Scheme With A Difference

Published on Mon, Sep 30,2013 | 18:45, Updated at Mon, Sep 30 at 18:45Source : 

By: Rajeev Dimri, Partner - Indirect Tax, BMR Advisors

The year 2013 appears all set to be christened "The Year of Indirect Tax Amnesty Schemes". The Service Tax Voluntary Compliance Encouragement Scheme 2013 ("VCES") started this trend which was followed by the Karasamadhana Scheme 2013 announced by the Government of Karnataka. The latest entrant in this bandwagon is the Government of Delhi which has recently announced the Delhi Tax Compliance Achievement Scheme, 2013 ("Scheme").

Amnesty schemes can be broadly categorized as schemes that seek to extend the tax base and mop-up undisclosed tax arrears (eg VCES) and schemes that seek to mop-up disputed arrears pending in litigation (eg KarVivadSamadhan Scheme). This Scheme appears to be a combination of the two and offers a comprehensive solution to undeclared dues, assessed dues as well as dues pending in various stages of litigation.  

The Scheme offers taxpayers inter alia the opportunity of:

• Disclosing undetected tax dues as well as settling pending tax disputes under the current Delhi VAT law and central sales tax law; and

• Settling past period disputes under the central sales tax law as well as erstwhile Delhi sales tax, works contract tax, lease tax and motor vehicle entry tax laws. 

The dues could pertain to any past period as along it is unpaid (partly or wholly) as on August 31, 2013. 

The Scheme also covers works contract and works contract tax deduction at source ("TDS") liability under the Delhi VAT law by prescribing specific percentage of taxes to be discharged under the Scheme.

Upon a declarant opting under the Scheme and making payment of taxes and interest (to the extent the same has been quantified and demanded), immunity is offered inter alia against re-opening of assessment, demand of ongoing interest, payment of penalty as well as launch prosecution. The only exception to immunity is where the declarant makes a declaration that is false in material particulars. 

The Scheme is comprehensive inasmuch as it affords finality to tax disputes of the earlier era as well as emerging disputes under the current regime.  It offers taxpayers the opportunity to rectify honest mistakes without payment of any penalty or unquantified and accruing interest along with immunity from prosecution. It also enables settlement of long pending disputes under the by-gone era of sales tax levy. The Scheme would however not apply in cases where standalone penalty is levied without any reference or relation to a tax deficiency.  

Most amnesty schemes have failed to evoke the desired response largely on account of apprehensions on the part of the trade of repercussions on account of lack of immunity under allied tax and other laws. A unique feature of the Scheme is the confidentiality it seeks to offer as regards the information disclosed by the declarant. The Scheme provides that information gathered vide a declaration under the Scheme shall be kept confidential and shall not be used except under the Scheme and the same shall not be shared with any other person/ government department/ agency.  This, if implemented in its true essence and spirit, should offer some comfort to potential declarants opting under the Scheme against possible adverse impact on account of the details of declaration being shared with other tax and regulatory authorities.  Further, once a declaration is made, there is further comfort that the same is not liable to be rejected as such; the safeguard built for the Revenue is power to recover additional taxes in respect of the period commencing April 1, 2009, where a declarant makes a false declaration under the Scheme.  

There are aspects in the Scheme which are likely to be debated as regards their validity such as prescription of a specific rate for works contract tax as well as works contract TDS liability. There are other aspects of the Scheme which are unclear such as the ability to discharge the VAT liability declared through credit as well as ability of a purchaser to claim a credit of the VAT declared under the Scheme.  Notwithstanding these grey areas, the Scheme is robust in many respects and should offer succor to taxpayers seeking to rectify past errors.  

Overall, success of amnesty schemes typically hinges on the extent of coverage as well as level of assurance they offer taxpayers against potential repercussions brought on by a disclosure of undisclosed liability. Viewed from this angle, the Delhi Tax Compliance Achievement Scheme, 2013appears set to garner more success as compared to other amnesty schemes, subject of-course to its smooth and just implementation by authorities at the ground level. 

(Views are personal. With inputs from Jayashree Parthasarathy, Director)


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