Service tax in gross receipts must be excluded; VCES settlement cannot be reopened for a later rate-difference claim.

Service tax embedded in gross service charges and labour charges had to be excluded when computing taxable value; on that basis, the demand raised from the closing balance of debtors was held unsustainable, with interest and penalty also set aside. A further service tax demand based on a rate difference could not be reopened after the assessee had declared and paid tax dues under the Voluntary Compliance Encouragement Scheme, as payment under the scheme entitled the declarant to immunity from further proceedings despite the absence of a discharge certificate. The impugned demands, interest and penalty were therefore not sustainable.

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Issues: (i) Whether the demand of service tax raised from the closing balance of debtors was sustainable without deducting the service tax element from the gross service charges and labour charges received. (ii) Whether the further demand of Rs. 10,488 arising from a service tax rate difference could be reopened after the assessee had availed the Voluntary Compliance Encouragement Scheme and paid the declared tax dues.

Issue (i): Whether the demand of service tax raised from the closing balance of debtors was sustainable without deducting the service tax element from the gross service charges and labour charges received.

Analysis: The demand was based on the closing balance of debtors reflected in the balance sheet. The liability was computed after deducting VAT from the gross figures, but the service tax element embedded in the gross service charges and labour charges was not excluded. Since the debtors balance represented gross receipts and service tax had to be excluded to arrive at the correct taxable value, the computation was held to be erroneous.

Conclusion: The demand on this count, along with interest and penalty, was set aside.

Issue (ii): Whether the further demand of Rs. 10,488 arising from a service tax rate difference could be reopened after the assessee had availed the Voluntary Compliance Encouragement Scheme and paid the declared tax dues.

Analysis: The assessee had already declared and paid the tax dues under the scheme, and the amount was appropriated by the department. The absence of a discharge certificate did not permit reopening of the settled declaration. On payment of the declared dues and interest, the declarant was entitled to immunity from penalty, interest, and other proceedings under the scheme.

Conclusion: The demand on this count, along with interest and penalty, was set aside.

Final Conclusion: The impugned service tax demands, together with the associated interest and penalty, were not sustainable and the appeal succeeded with consequential relief as permissible in law.

Ratio Decidendi: Where service tax is embedded in gross receipts, it must be excluded while computing taxable value, and a duly availed voluntary compliance scheme settlement cannot be reopened for the same period merely because of a subsequent rate-difference claim.

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