2015 (7) TMI 595 - HC - Service Tax

Recovery of Service tax - Section 73 - Freezinf of bank account - Held that - The contention that Section 87(b )( iii) of the Act is applicable, in my considered opinion, is without merit, since it applies only after a proceeding under Section 73 is concluded by an order determining the amount due and payable by the petitioner. Such a situation having not arisen as there is no conclusion of the proceeding, Section 87 is inapplicable. - 2nd respondent was not justified in invoking Section 87(b )( iii) of the Act to direct the Banks not to permit withdrawal of monies from the Accounts of the petitioner maintained in ING Vysya Bank, Hyderabad and a Branch at Bangalore by the impugned communications. - Decided in favour of assessee.

Summary

Issues:
1. Whether the respondent's action of attaching the petitioner's bank accounts without concluding the proceeding under Section 73 of the Finance Act, 1994, was legal.
2. Whether Section 87(b)(iii) of the Act could be invoked by the respondent to attach the bank accounts of the petitioner.
3. Whether the impugned communications directing the banks to freeze the petitioner's accounts were justified.

Analysis:

Issue 1: The petitioner argued that the respondent, an Assistant Director, did not determine the amount of service tax payable by the petitioner as required under Section 73(2) of the Act before attaching the bank accounts. The petitioner contended that without such determination, no amount was payable to the government, and thus, the attachment was illegal. Additionally, the petitioner highlighted Section 73-C, which provides for provisional attachment subject to securing the Commissioner's approval. As the respondent did not follow the provisions of Section 73-C, the petitioner claimed that the attachment was unlawful.

Issue 2: The respondent, represented by learned counsel, sought to defend the attachment of the bank accounts as justified and warranted. However, the court analyzed Section 87(b)(iii) of the Act, which allows attachment only after a proceeding under Section 73 concludes with an order determining the amount due from the petitioner. Since the proceeding was still pending and no such determination had been made, the court held that Section 87(b)(iii) could not be invoked by the respondent to attach the accounts.

Issue 3: Considering the provisions of Section 73(1) of the Act, the court observed that the show cause notice had been issued to the petitioner, and a response had been submitted. However, as no order had been passed to conclude the proceeding as required under Section 73(2), the court found that Section 73-C came into play for provisional attachment. The court concluded that the respondent was not justified in invoking Section 87(b)(iii) to direct the banks to freeze the petitioner's accounts, as the proceeding had not been concluded.

In the final judgment, the court allowed the petitions and quashed the impugned communications addressed to the bank branches, thereby ruling in favor of the petitioner and declaring the attachment of the bank accounts as illegal.