2013 (12) TMI 1639 - HC - Service Tax

Recovery of service tax due and payable by the service provider M/s. Ashish Enterprises - section 87 of FA - Held that - Considering the provision of Section 87 of the Act when any amount payable by a person to the credit of the Central Government is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned in Section 87 of the Act and as per Section 87(b)(i) of the Act, the Central Excise Officer may, by notice in writing, require any other person from whom money is due or may become due to such person, or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central Government either forthwith upon the money becoming due or being held or at or within the time specified in the notice, not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount. Thus, there can be a recovery of the amount due and payable by the service provider from the petitioner, out of the amount which is due and payable by the petitioner to the service provider and which is held by the petitioner - Therefore, when an amount of more than ₹ 2 crores is due and payable by the petitioner to the service provider, which is held by the petitioner to be paid to the service provider, out of which the petitioner is directed to make payment of ₹ 38,27,023/ towards the Service Tax due and payable by the service provider, it cannot be said that the impugned notice/communication is in anyway without jurisdiction and/or without authority under the law. The impugned demand is absolutely in consonance with Section 87 of the Act. It cannot be said that the impugned demand is illegal and/or arbitrary and/or without jurisdiction and authority under the law - appeal dismissed.

Summary

Issues Involved:
1. Legality of the impugned communication directing the petitioner to pay Service Tax due by the service provider.
2. Applicability of Section 87 of the Finance Act, 1994.
3. Impact of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on the recovery of Service Tax from the petitioner.

Detailed Analysis:

1. Legality of the Impugned Communication:
The petitioner challenged the communication dated 12-10-2012, which directed them to pay Service Tax of Rs. 38,27,023/- due by the service provider, arguing it was "absolutely illegal and most arbitrary." The petitioner emphasized that they were merely the recipient of the service, not the provider, and hence not liable to pay the Service Tax. The court, however, noted that the petitioner had not initially claimed any dispute with the service provider regarding the amount due and payable. The court found that the petitioner's claim of a dispute was an afterthought to avoid the provisions of Section 87 of the Finance Act, 1994.

2. Applicability of Section 87 of the Finance Act, 1994:
Section 87 of the Finance Act, 1994, allows the Central Excise Officer to recover unpaid Service Tax from any person who owes money to the defaulter. The court observed that the petitioner owed more than Rs. 2 crores to the service provider and that the impugned notice was in consonance with Section 87. The court held that the department had the authority to recover the Service Tax from the petitioner, who held money due to the service provider. The court also noted that the department had taken steps to recover the amount from the service provider, including booking an offense against them for non-payment of Service Tax.

3. Impact of Section 22 of SICA on the Recovery of Service Tax:
The petitioner argued that as a sick industrial company before the BIFR, Section 22 of SICA barred the recovery of Service Tax from them. The court rejected this argument, noting that the Service Tax liability was for services availed after the petitioner approached the BIFR. The court cited the Supreme Court decision in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals, which held that the bar under Section 22 of SICA does not apply to liabilities incurred after a company becomes sick. The court distinguished the cases cited by the petitioner, such as Raheja Universal Limited v. NRC Limited, finding them inapplicable to the facts at hand.

Conclusion:
The court concluded that the impugned demand was neither illegal nor arbitrary and was well within the jurisdiction and authority under the law. The petition was dismissed, upholding the department's right to recover the Service Tax from the petitioner under Section 87 of the Finance Act, 1994.