2015 (2) TMI 101 - HC - Service Tax

Exercise of power u/s 87 - Proceedings for recovery of service tax demand - adjudication for the final demand with penalty or without penalty is yet to be finalised by the competent authority - Held that - When the demand of tax is yet to be adjudicated, it cannot be said as tax payable, for which resort to section 87 of the Act may be available. - The competent authority before whom the proceedings under section 73 of the Act for adjudication of the tax and other demands are pending shall be finalised preferably within a period of three months from the receipt of the order of this Court and if either party is aggrieved by the adjudication proceedings, the remedy available shall be available before the competent authorities in accordance with law. - Henceforth, the operation of the impugned orders (AnnexureA) shall remain stayed and suspended with the further observation that the amount already recovered pursuant to the orders (AnnexureA) shall be subject to the final quantification of the demand of the tax, if any. - The question for applicability of section 87 of the Act before adjudication proceedings are finalised, shall not get concluded by the present order. - Petition disposed of.

Summary

Issues involved:
1. Validity of directions and orders issued under section 87 of the Finance Act, 1994 regarding service tax.
2. Dispute over the interpretation of a statement admitting nonpayment of service tax.
3. Timely finalization of adjudication proceedings under section 73 of the Act.
4. Stay on the operation of impugned orders and prospective effect of the same.
5. Applicability of section 87 of the Act before finalization of adjudication proceedings.

Analysis:
1. The petitioner sought to quash directions and orders issued under section 87 of the Finance Act, 1994, related to service tax. The court noted that the adjudication for the final demand with or without penalty was pending, and the respondents had utilized the power under section 87 to pass the impugned orders. The petitioner argued that section 87 cannot be invoked until the adjudication is finalized. The respondent contended that a statement during investigation admitted nonpayment of service tax amounting to Rs. 2.18 crore.

2. There was a disagreement over the interpretation of the statement admitting nonpayment of service tax. The petitioner clarified that the admitted amount did not consider an available credit of about Rs. 1 crore for adjustment. The court refrained from delving into the quantification of the demand or penalty as it was pending adjudication.

3. The court emphasized the need for timely finalization of adjudication proceedings under section 73 of the Act. It directed the competent authority to conclude the proceedings within three months from the court's order to ensure a swift resolution of the matter. Both parties agreed to not object to appropriate interim arrangements for finalization of adjudication proceedings.

4. The court stayed the operation of the impugned orders and suspended their effect. The amount already recovered was subject to final quantification of the tax demand. The prospective effect of the impugned orders was put on hold until the adjudication proceedings were finalized.

5. The court clarified that the question of the applicability of section 87 of the Act before the finalization of adjudication proceedings was not conclusively decided by the present order. The judgment disposed of the petition in line with the directions provided, ensuring a fair and timely resolution of the dispute.