2015 (12) TMI 419 - HC - Service Tax

Attachment of property and bank accounts - Violation of principle of natural justice - Held that - we find from a reading of the affidavits and impugned notice as well as the order directing attachment of the property and perusal of the satisfaction recorded in the original that without waiting for a reply to the show cause notice, and without giving any opportunity and without giving any notice, the bank accounts were attached in gross violation of Rule 3 of the Rules of 2008 read with paragraph 2 (iii) of the Circular dated 1st July, 2008. It is mandatory for the authority to issue a notice giving 15 days time to reply before attaching a property. In the instant case, we find that the proposal submitted by the Deputy Commissioner, Respondent No. 3 clearly indicated that first the property should be attached and thereafter notice should be issued. This proposal was approved by the Commissioner without any application of mind and without considering the provision of the Rules and the circular. No cogent reason has been given justifying the action for attaching the property. Only a cursory remark has been indicated namely that there is fair possibility of the funds getting dissipated. In our opinion, cogent and sufficient justification was found lacking in the satisfactory note. The attachment proceedings could not be initiated on such ground. - action of the respondents was not malafide and consequently considering this fact, we issue only a warning to respondents 2 and 3 that they need to be careful while resorting to exercise the powers contemplated under Rule 3 of the Rules of 2008. Such exercise of power has to be resorted to with utmost circumspection and with maximum care and caution. - impugned orders are quashed - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the provisional attachment of the petitioner's bank accounts.
2. Compliance with procedural requirements under the Service Tax (Provisional Attachment of Property) Rules, 2008.
3. Justification for the provisional attachment of property.
4. Disciplinary action against officers for improper exercise of provisional attachment powers.

Issue-wise Detailed Analysis:

1. Legality of the provisional attachment of the petitioner's bank accounts:
The petitioner contested the attachment of its bank accounts by the respondents without being given an opportunity to respond to the show cause notice. The court found that the attachment was done in gross violation of Rule 3 of the Service Tax (Provisional Attachment of Property) Rules, 2008, which mandates a 15-day notice period before any provisional attachment. The court noted that the Deputy Commissioner's proposal to attach the property first and then issue a notice was approved without proper application of mind by the Commissioner, making the action patently illegal and without jurisdiction.

2. Compliance with procedural requirements under the Service Tax (Provisional Attachment of Property) Rules, 2008:
The court examined Rules 3 and 4 of the Service Tax (Provisional Attachment of Property) Rules, 2008, which outline the procedure and types of property that can be attached. The rules require the Assistant Commissioner or Deputy Commissioner to be satisfied that attachment is necessary to protect the revenue's interest and to provide a notice with a 15-day response period. The court found that these procedural requirements were not followed, as the petitioner was not given the mandated notice period before the bank accounts were attached.

3. Justification for the provisional attachment of property:
The court referred to Circular No. 103 dated 1st July, 2008, which emphasizes that provisional attachment is an extraordinary measure that should be used with utmost circumspection and only when there is a reasonable belief that the assessee may dispose of or remove the property, thereby jeopardizing revenue interests. The court found that the Deputy Commissioner's satisfactory note lacked cogent reasons and only contained a cursory remark about the possibility of funds being dissipated. This lack of sufficient justification rendered the attachment proceedings invalid.

4. Disciplinary action against officers for improper exercise of provisional attachment powers:
The court issued a show cause notice to respondent nos. 2 and 3, asking why disciplinary proceedings should not be initiated against them for their actions. Upon reviewing their replies, the court found the reasons provided to be mere afterthoughts and not justifiable. However, considering the totality of the facts and determining that the actions were not malafide, the court decided to issue a warning to the officers to exercise their powers with more care and caution in the future.

Conclusion:
The court quashed the impugned orders and allowed the writ petition with costs of Rs. 25,000 to be paid by the respondents to the petitioner within four weeks. The court directed the petitioner to appear before the authority on the next scheduled date to file their reply and instructed the authority to complete the proceedings promptly. Additionally, the court ordered the Registry to send a certified copy of the order to the Central Board of Excise & Customs, instructing them to issue a circular to ensure that the powers under Rule 3 are exercised with utmost care and caution.