FinMin cracks the whip on service tax defaulters

Eight, including directors, charged after amnesty scheme expired on December 31; drive to continue

After a massive campaign to collect dues of service tax defaulters through an amnesty scheme, the Union finance ministry has now turned the heat on by using the arrest powers given to its officers in the previous Budget.

Since January 1, the service tax administration has arrested eight defaulters for not paying dues totalling Rs 36 crore. In three such cases, the tip came evaders themselves — they made disclosures under the Voluntary Compliance Encouragement Scheme (VCES) but did not deposit the dues till December 31, the last day of the scheme.

With these, the total of  arrests by the tax authorities of company executives has risen to 28 in six months. The drive will continue. Revenue Secretary Sumit Bose had warned of stern action from January 1 against service tax evaders.

Under VCES, announced in Budget 2013-14, service tax defaulters had to pay half their dues by December 31 and rest by June 2014, to avoid interest, penalty and prosecution. A defaulter could avail of this after filing a truthful declaration of dues since October 2007 and making the payment in one or two instalments.

“In a few cases, the taxpayers had filed a declaration under VCES, but they did not pay up the amount. In some of those cases, we have taken action. In a majority of the cases, the tax was taken from the recipient but not deposited with the government,” said a finance ministry official, who did not wish to be identified.

The eight arrests in January were in Delhi, Mumbai, Surat, Ahmedabad and Bangalore, in the construction, building, fitness and health, site preparation, mining and security sectors. Those arrested included the executive director of a luxury hotel, managing director of a consultancy service, executive of a fitness company, director of a security company and chief financial officer of an aviation company which provides helicopter chartering services. If the charges are proved, the defaulters face imprisonment up to seven years. Evasion of service tax of Rs 50 lakh and above is a cognisable offence after passage of the Finance Act last year.

Officials said the data was still being compiled from field formations and there could be more instances where defaulters did not clear their dues despite applying for VCES. An officer said Finance Minister P Chidambaram had taken personal interest in popularising the scheme and the department would be tough on those who did not take the chance.

The service tax amnesty scheme has added around Rs 7,700 crore to the government coffers. Till December 29, the government had received a little over 40,000 declarations, involving about Rs 5,500 crore. This would broadly correspond to Rs 55,000 crore of services which escaped the tax net.

As some more defaulters applied in the final two days of the scheme, the government is learnt to have received about Rs 7,700 crore. The payments will help the finance ministry tide over the financial crunch in the wake of a lower than budgeted revenue intake.

At present, of the 1.7 million registered assessees under service tax, only 700,000 file returns. Some are exempted, with a turnover of less than Rs 10 lakh annually.