VCES discharge bars subsequent tax demands or proceedings when a declaration is accepted and overlaps with declared liability.

VCES discharge provides immunity from penalty, interest and further proceedings once a declaration is accepted and a discharge acknowledgement issued; where acceptance is without allegation of substantial falsity, subsequent demands or assessments that seek to recover an identical or overlapping liability for the same issue and period are barred. The phrase "same subject matter" includes proceedings with even slight overlap in tax liability, and therefore classification disputes need not be reopened for periods and issues already declared and discharged under VCES.

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Issues: Whether a discharge acknowledged under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) bars a subsequent demand or proceedings for the same issue and period.

Analysis: Section 106(1) and the second proviso thereto restrict declarations where a notice or order has been issued earlier on the same issue; Section 107(7) contemplates issuance of an acknowledgement of discharge on full payment of declared tax dues; and Section 108(1) provides immunity from penalty, interest and further proceedings upon payment and issuance of the discharge acknowledgement. Where a VCES declaration has been accepted and a discharge certificate issued without any allegation of substantial falsity, subsequent proceedings seeking to assess or recover a liability that overlaps with the declared and discharged dues fall within the bar created by Section 108(1). The concept of "same subject matter" or "same issue" encompasses proceedings that seek to assess or recover an identical liability or that have even a slightest overlap in tax liability or obligation. The legality of classifying the activity as site formation service or as GTA service is not required to be examined once the declared liability for the relevant issue and period has been discharged under VCES and accepted without dispute.

Conclusion: The discharge under VCES bars the subsequent demand and proceedings in respect of the same issue and period; the impugned demand is unsustainable and is set aside in favour of the assessee.

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