VCES bar applies only to the same legal issue, not merely the same underlying activity

The second proviso to section 106(1) of the Finance Act, 2013 bars a VCES declaration only where an earlier notice or determination and the declaration concern the same legal issue. Here, the earlier notices related to pre-1 July 2012 service taxability of intellectual property service, while the declaration concerned the post-1 July 2012 charge under section 66B and whether the activity was a taxable service outside the negative list. Because the legal basis of taxability was different, the earlier proceedings did not attract the statutory bar. The rejection of the declaration was therefore unsustainable, and the assessee was entitled to VCES relief.

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Issues: Whether the rejection of the declaration filed under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 was justified on the ground that a notice or order had already been issued on the same issue for an earlier period, so as to attract the second proviso to section 106(1) of the Finance Act, 2013.

Analysis: The Scheme permits declaration of tax dues only where no notice or order of determination had been issued before 1 March 2013, and its second proviso bars a declaration only for a subsequent period on the same issue. The earlier demands for the pre-1 July 2012 period proceeded on the footing that the appellant was rendering intellectual property service within section 65(105)(zzr) of the Finance Act, 1994, namely whether the appellant held an intellectual property right and rendered service in relation to that right. By contrast, the declaration related to the post-1 July 2012 regime, where the charge under section 66B of the Finance Act, 1994 turned on whether the activity constituted a service under section 65B(44) and was not covered by the negative list. The legal basis of taxability was therefore different, even though the factual activity involved royalty on the same underlying activity.

Conclusion: The earlier notices and the declaration did not concern the same issue. The second proviso to section 106(1) of the Finance Act, 2013 was inapplicable, and the rejection of the declaration was unsustainable.

Final Conclusion: The appellant was entitled to the benefit of the VCES declaration, and the impugned rejection order could not stand.

Ratio Decidendi: The bar under the second proviso to section 106(1) of the Finance Act, 2013 applies only when the earlier notice or determination and the later declaration relate to the same legal issue, not merely to the same underlying factual activity.

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