2013 (9) TMI 162 - HC - Service Tax

Defreezing Bank Account - since the petitioner is issued with a show cause notice dated 12.03.2013 extending 30 days time to file its explanation and therefore in the interregnum, the respondent was not justified in issuing the letter dated 15.03.2013, three days after issue of show cause notice to freeze the bank account of the petitioner for recovery of tax dues. - The petition was allowed.

Summary

Issues:
Freezing of bank account for recovery of service tax dues before determination of tax liability.

Analysis:
The judgment delivered by the High Court of Karnataka pertains to the freezing of a bank account for the recovery of service tax dues before the determination of tax liability. The petitioner, an organization, was issued a show cause notice and given 30 days to file an explanation. However, the respondent, the Revenue, froze the petitioner's bank account just three days after issuing the show cause notice, which was deemed unjustified by the court. The court highlighted that the provision of law allowing the freezing of bank accounts for tax recovery applies only after the tax liability is determined, as the term "due" is explicitly mentioned in the relevant section of the Finance Act, 1994.

The court emphasized that freezing a bank account for tax recovery before the tax liability is established is premature and not in accordance with the law. The respondent was directed to defreeze the petitioner's bank accounts immediately. The judgment clarifies that if, upon adjudication following the show cause notice, service tax is found to be due, the petitioner can challenge the decision and provide a bank guarantee for the determined amount at that stage. This decision underscores the importance of adhering to legal procedures and ensuring that actions such as freezing bank accounts for tax recovery are taken only after the tax liability is conclusively determined, safeguarding the rights of the taxpayers.