In a bid to allay fears of taxpayers, the finance ministry on Thursday liberalised the Service Tax Voluntary Compliance Encouragement Scheme (VCES) that is aimed at promoting self-declaration of tax dues.

In a circular, as well as booklet on frequently asked questions about the scheme, the ministry clarified disclosures made by taxpayers would not be rejected by tax authorities if they meet eligibility criteria.

Finance Minister P Chidambaram on Thursday said of over one million defaulters identified, 1,400 had filed declarations amounting to Rs 650 crore.

The scheme announced in Budget 2013-14 had said a declaration could be rejected by the authorities if it was made by a person against whom an audit had been initiated and it was pending. As it got a lukewarm response from the industry, the Central Board of Excise and Customs has defined its scope.

The industry wanted clarity on what would be considered initiation of audit—the date on which letter is issued or when the auditors visit the taxpayer. Now, it has been clarified that the latter would be taken as the date of initiation of audit. Audit would be considered pending if initiated before March 1, 2013, but not culminated by that date. Another breather for the industry is that if the audit has happened but an issue was not picked up by the authorities, the taxpayer would be eligible for the scheme.

Under this scheme, service tax defaulters can pay half of their dues by December 2013 and the rest by June 2014 to avoid interest, penalty and prosecution. A defaulter can avail of the one-time scheme on the condition that he files a truthful declaration of service tax dues since October 2007 and makes the payment in one or two installments. The finance ministry is expecting the scheme to pick up once the clarification is issued and the deadline for making declaration inches closer.

Chidambaram expressed hope that the scheme would result in substantial disclosure by non-filers and exhorted the service tax assessees to make use of this “golden opportunity”.

The scheme said any person might declare his tax dues in respect of which no notice has been issued before March 1, 2013. Experts argued that since most large taxpayers have received a demand notice, the scheme, in the current form, can only be used by small taxpayers. Taxpayers raised doubt whether the general enquiry notice will also fall under it. The industry expressed concerns regarding Cenvat credit and acknowledgement of declaration. All these issues have been clarified in FAQs.

The service sector contributes about 65 per cent of the gross domestic product (GDP) but the number of service tax payers is quite less. The scheme was launched to bridge this gap and allow defaulting persons and companies to disclose their tax liabilities and file their service tax returns. While there are nearly 1.7 million registered assessees, only about 700,000 file returns.

Revenue Secretary Sumit Bose had earlier held a meeting with representatives of the industry to discuss and know their concerns and doubts with regard to the scheme. The industry had suggested that a negative list of all those categories not eligible under this scheme may be prepared so that the taxpayers know in advance whether they can avail the benefit under it or not. Another suggestion was to make a provision for an opportunity for review within the department rather than taking any other legal course which is time consuming and expensive. Another demand was to allow the taxpayer issue supplementary invoice and recover the service tax paid from the service recipient.