2015 (12) TMI 494 - HC - Service Tax

Recovery of service tax - Section 87 - freezing of bank accounts - adjudication of show cause notice is pending - Held that - taxes as assessed which are presently payable by the notified person are taxes which have been taken into account. It is in that context and carrying this principle further that the Division Bench of this Court applied it to recovery under Section 87 of the Finance Act, 1994. The reliance placed on the judgment of ICICI Bank(2015 (5) TMI 300 - BOMBAY HIGH COURT) is thus, apposite. The Division Bench has applied this very principle and though Mr Jetly would submit that on facts this judgment is distinguishable, we do not find any substance in that contention. Even in the case of ICICI Bank(2015 (5) TMI 300 - BOMBAY HIGH COURT), it was claimed that a taxable service was provided and that a communication was addressed by the revenue authorities but the payments have been made under protest. There was denial of liability to pay service tax but under duress and coercion, amount was paid. Thus, the settled principle that levy, assessment and valuation alone will enable the Revenue to recover the amount of taxes and recovery cannot precede prior important steps. Merely because there is incidence and charge of tax will not be of assistance as the charging section and machinery provisions all enable together, the Revenue to assess the tax. Unless and until in case before us there is a crystallization of a demand by proper adjudication order and on hearing the Petitioner, there was no question of any recovery. Even if the letters have been addressed to the bank and there has been a freezing of the account, yet, we find that till date there is no adjudication order passed. The show cause notice has been issued more than a year back. In the circumstances, allowing the Petitioner s account to be frozen would not be in accordance with law. - if there is a requirement of an adjudication and assessment of the tax and that is how the liability has to be ascertained then, we do not find any substance in the contentions raised before us on behalf of the Revenue. The Division Bench in paragraph 45 also relied upon the order passed in the case of Lawson Tours and Travels(2015 (7) TMI 347 - BOMBAY HIGH COURT). We, therefore, do not find any reason to sustain the impugned action. - Decided in favour of asssessee.

Summary

Issues:
Challenging bank account freeze due to service tax demand.

Analysis:
The petitioner challenged notices directing banks to freeze accounts due to alleged non-payment of service tax. The petitioner, a sole proprietor, engaged in fabrication and erection business, was served a show cause notice demanding service tax of Rs. 2,49,63,812. The petitioner denied the allegations and requested a personal hearing. However, recovery proceedings were initiated without passing an adjudication order, leading the petitioner to move the High Court under Article 226 of the Constitution of India.

The respondent argued that since admitted dues remained unpaid, there was no need to await adjudication. They justified the freeze based on investigations revealing non-remittance of service tax collected from service recipients. The court examined the show cause notice, which detailed the alleged contravention of the Finance Act, 1994, and intentional non-deposit of service tax collected. Despite some payment made by the petitioner, the demand was based on breach allegations. The court noted that the petitioner had refuted the demand in their reply to the notice, emphasizing that recovery actions should follow proper adjudication.

Referring to legal precedents, including the Harshad Mehta case, the court reiterated that recovery actions must be based on ascertained liabilities quantified in accordance with the law. The court emphasized that taxes assessed and presently payable should be the basis for recovery. It highlighted the necessity of adjudication to determine liability before initiating recovery measures. Quashing the notices freezing the accounts, the court clarified that it did not express an opinion on the demand's validity. The ruling allowed the Revenue to take recovery actions post a valid adjudication order, keeping all pleas open and making the rule absolute without costs.