The amnesty scheme for Service Tax defaulters, christened Service Tax Voluntary Compliance Encouragement Scheme, has not taken off, as the trade and industry await more clarity. 

A major hurdle that precludes service tax defaulters from disclosing under the scheme is the fear that if their disclosures are rejected by service tax officials, the information in the disclosure could be used against them, in the form of a notice demanding interest and penalties on the basis of the undisclosed income offered in their disclosures. Sachin Menon who heads the Indirect Tax division atKPMG said: "There is an apprehension that if the disclosure is rejected by the service tax authorities, the amount paid can be forfeited by the authorities. So, there is great need for the government to revisit some of the provisions of the scheme to make it successful". 

Industry and trade fear that in its existing structure, the scheme provides vast discretionary powers to the service tax officials, in the matter of accepting or rejecting the disclosures. For example, the scheme makes it ineligible for those facing inquiry or served audit notice, from subscribing to the scheme but leaves it to the service tax officials to interpret what constitutes a "pending investigation " or "initiation of Audit". 

The scheme does not explain what constitutes a pending investigation. Routinely notices have been served to assessees, asking for information. Do such notices be construed as a pending investigation" or at what stage of a process it can be presumed that an audit has been initiated, an official affiliated to an industry association asked. 

"It needs to be appreciated that the service tax department routinely calls for information / documents from the assessees for various purposes. There is no mechanism in place either under the law or by practice to make the assessee aware whether or not an inquiry or investigation has been initiated against it on the basis of such information or documents having been provided to the department," Ficci in its memorandum to the Finance Ministrysaid. Service tax has become a major component of the government's tax collection exercise since 1994 when it brought under the service tax net four service sectors, from which it raised over Rs 4,000 crore. 

What began with a Rs 4,000 crore collection in the year of inception has now evolved into a Rs 1.8 trillion service tax collection projected for the current fiscal. 

A senior service tax official in Mumbai said: "We are expecting the ministry to clarify certain provisions in the scheme to encourage maximum disclosures. The ministry is expected to clarify soon what constitute a 'pending investigation' and 'initiation of audit'. These are the two issues trade and industry are wary about. (Economic Times)