VCES Immunity Bars Fresh Service Tax Demand After Discharge Certificate Is Issued: CESTAT Chennai

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 12 March held that once a taxpayer declares dues under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) and obtains a discharge certificate, the Department cannot issue a fresh notice for the same period on the same issue.

A Bench of Technical Member M. Ajit Kumar and Judicial Member Ajayan T.V. held that a declaration accepted under the scheme attains finality and grants immunity from further proceedings.

The Tribunal observed:

"the second proviso to Section 106(1), a VCES declaration is barred if a notice or order has been issued for any period on the same issue. Hence the converse would also apply as per the immunity granted under the scheme, a demand would be barred where a tax demand is raised after a VCES declaration has been accepted on the same issue."

The case arose from proceedings initiated against ARS Transport (appellant), which provided site formation and transportation services to Madras Cements Ltd. during the period 2008–09 to 2012–13.

The Department alleged non-payment of service tax and non-filing of returns and issued a show cause notice demanding Rs. 88.71 lakh along with interest and penalties. The adjudicating authority confirmed part of the demand after adjusting amounts paid under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) and imposed penalties, leading to the present appeal.

ARS Transport contended that it had voluntarily declared its tax dues under VCES before adjudication, paid the entire amount within the prescribed time, and was issued a discharge certificate. It argued that once a discharge certificate is issued under VCES, no demand can be raised for the period covered by the declaration, namely June 2008 to December 2012.

The appellant further submitted that the activity in question involved transportation of limestone, classifiable as Goods Transport Agency service, for which the tax liability had been discharged by the recipient.

Examining the statutory framework, the Tribunal noted that VCES is a beneficial scheme that grants waiver of interest and penalty and immunity from prosecution upon truthful declaration and payment of tax dues. The Bench agreed with the appellant that once a discharge certificate is issued, the declaration becomes conclusive and the Department is barred from reopening the same issue for the same period.

Relying on the Supreme Court ruling in M/s Armour Security (India) Ltd. v. Commissioner, CGST Delhi [SLP (C) No. 6092 of 2025], the Tribunal noted that even a slight overlap in tax liability would attract the bar against parallel or subsequent proceedings on the same subject matter. It found that the Department's attempt to raise a further demand by recharacterising the activity effectively pertained to the same liability already settled under VCES.

Holding that such action is barred under Section 108 of the Finance Act, 2013, the Tribunal set aside the impugned demand along with interest and penalties. It observed:

“section 108(1) of the Act grants complete immunity from penalty, interest, and further proceedings once the declared tax dues and applicable interest under Section 107 are paid.”

The Bench further stated:

“the appellant's VCES declaration was accepted without dispute, and it was not alleged to be substantially false. Consequently, in the light of the immunity gained no further demand on the same issue can be sustained.”

Accordingly, the Tribunal allowed the appeal with consequential relief.

For Appellant: S. Venkatachalam, Advocate

For Respondent: N. Satyanarayanan, Authorised Representative