Composite VCES declaration fails in full when one covered return triggers statutory exclusion and the scheme bars splitting claims.

A composite declaration under the Voluntary Compliance Encouragement Scheme, 2013 was treated as defective where one half-yearly return covered by the declaration fell within the statutory exclusion for a person who had filed a return, disclosed the true liability, and failed to pay the disclosed service tax. The scheme contemplated only one composite declaration and did not permit severing accepted and rejected parts, so the exclusion operated return-wise and vitiated the declaration as a whole. The limitation in section 111 did not apply because the rejection was based on ineligibility under the first proviso to section 106(1), not on a substantially false declaration. The rejection and consequential demand were upheld.

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Issues: (i) Whether a declaration under the Voluntary Compliance Encouragement Scheme, 2013 could be rejected where the declarant had furnished returns and disclosed liability, but had short-paid the tax for one return period covered by the composite declaration. (ii) Whether the rejection of the declaration was barred by the time-limit in section 111 of the Finance Act, 2013.

Issue (i): Whether a declaration under the Voluntary Compliance Encouragement Scheme, 2013 could be rejected where the declarant had furnished returns and disclosed liability, but had short-paid the tax for one return period covered by the composite declaration.

Analysis: Section 106(1) of the Finance Act, 2013 permits a declaration of tax dues, but its first proviso excludes a person who has furnished a return under section 70, disclosed the true liability, and failed to pay the disclosed service tax. The exclusion was held to operate return-wise, because the proviso speaks of the return covered by the declaration, yet the Scheme contemplates only one composite declaration and not multiple declarations. The declaration could not be split into accepted and rejected fragments. Once one of the half-yearly returns covered by the composite declaration fell within the exclusion, the entire declaration became defective.

Conclusion: The declaration was validly rejected and the challenge to the rejection failed.

Issue (ii): Whether the rejection of the declaration was barred by the time-limit in section 111 of the Finance Act, 2013.

Analysis: Section 111 applies where a declarant's disclosure is found to be substantially false and action is taken for payment of tax dues. The impugned communication did not proceed on the basis of a false declaration; it proceeded on the ineligibility created by the first proviso to section 106(1). Therefore, the limitation in section 111(2) had no application.

Conclusion: The time-limit objection was rejected.

Final Conclusion: The Court upheld the rejection of the VCES declaration and declined interference with the consequential demand, resulting in dismissal of the writ petition.

Ratio Decidendi: Where a composite declaration under a voluntary compliance scheme covers multiple return periods, the declaration fails in its entirety if even one covered return attracts a statutory exclusion that is applied return-wise and the scheme does not permit splitting the declaration.

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