True liability under the compliance scheme allowed higher declaration where earlier returns did not disclose the full tax dues.

Under the Service Tax Voluntary Compliance Encouragement Scheme, the exclusion in the first proviso to section 106(1) applied only where an assessee had already disclosed the true liability in the ST-3 return and still not paid it. If the earlier return did not reflect the true liability, a higher declaration under section 107(1) could include the amount previously shown, and the scheme did not require splitting the liability for disqualification. The declared amount was therefore valid in full, and denial of the portion matching the earlier return was unsustainable.

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Issues: Whether, under the Service Tax Voluntary Compliance Encouragement Scheme, a declarant who had earlier filed ST-3 returns but claimed that the returns did not disclose the true liability could include the higher amount subsequently declared under section 107(1), or whether the first proviso to section 106(1) barred such declaration because the amount already stood disclosed in the return.

Analysis: The scheme permitted declaration of "tax dues" under section 106(1), while the first proviso disqualified only a person who had furnished a return under section 70 and disclosed his true liability but had not paid the disclosed tax. The decisive expression was "true liability". The exclusion operated only where the earlier return correctly reflected the liability and payment was still pending. Where the assessee asserted that the earlier return did not reflect the true liability and later made a higher declaration, the amount earlier shown in the return would necessarily be subsumed in the larger declaration. The scheme did not contemplate splitting the liability into separate amounts for the purpose of disqualification.

Conclusion: The declaration was valid for the entire amount disclosed under section 107(1), and the rejection of the portion corresponding to the amount shown in the earlier return was unsustainable. The assessee was entitled to the benefit of the scheme.

Ratio Decidendi: The first proviso to section 106(1) of the Finance Act, 1994 excludes only a declarant who had already disclosed the true liability in the return and failed to pay it; a person asserting that the earlier return did not disclose the true liability may declare the higher true liability under the scheme.

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