2017 (11) TMI 1808 - HC - Service Tax

Garnishee order - recovery of amount of alleged service tax payable by the erstwhile proprietorship concern owned by the late father of the Managing Director of the writ petitioner company - refund of amount collected coercively from the clients of the petitioner company - invocation of provisions of Section 87 of the Finance Act, 1994 - issuance of notice u/s 73 of FA. Held that - The words person chargeable and the words the person to whom such tax refund has erroneously been made , means the actual assessee, on whom, after show cause notice, if assessment is made, would be the person liable to pay the chargeable amount of service tax. So, notice seeking to show cause should be issued under Section 73 only to the person chargeable. Admittedly, M/s. Service Care Chennai is a proprietorship concern of a sole proprietor who is no more. So if at all any show cause notice to be issued under Section 73 of the Act, the notice must be given only to the person chargeable i.e., M/s. Service Case, Chennai and not to anyone. Here in the case in hand, it is the specific assertion of the writ Court after getting necessary instructions from the Standing Counsel for the revenue that, no assessment order had been passed against the assessee i.e., M/s. Service care, which was the proprietorship concern. There was no facilitating answer from the Revenue before the writ Court as to whether the clients of the erstwhile proprietorship concern including the one L & T Valves Ltd. against whom the garnishee order had been issued, owe to pay any money to the proprietorship concern - When these two issues were made clear before the writ Court that there was no assessment order on the erstwhile proprietorship concern and there was no observation that there were clients of the proprietorship concern who had conducted their business subsequently with the petitioner company, of course with separate agreement in this regard, who had due of service tax payable to the erstwhile proprietorship concern, the provisions of Section 73(A) cannot be invoked against the petitioner company. Recovery of amount due to the Central Government as contemplated under Section 87 of the Act - Held that - Here in the case in hand, there is no assessment and no determination of tax liability about the erstwhile proprietorship concern namely, M/s. Service Care, Chennai in the manner known to law. When that being so, the very invocation of the Provisions of Section 87 of the Act is absolutely unjustifiable. Thus, the attempt made by the Revenue to issue garnishee orders for recovering the amount of alleged service tax payable by the erstwhile proprietorship concern owned by the late father of the Managing Director of the writ petitioner company, was bad in law, and for the said action absolutely there is no scope for the Revenue under the relevant provisions of the Finance Act, 1994 - Merely because the Managing Director of the present writ petitioner, who is none other than the daughter of the late proprietorship concern, who is the service tax assesee, was in due according to the Revenue, had knowledge about the impugned dues payable by the erstwhile proprietorship concern as on 31-3-2010, it cannot be presumed that the said person/writ petitioner company has inherited the assets and liabilities of the said proprietorship concern. Therefore, the Revenue, since has proceeded on a wrong premises, that too without making any assessment in the manner known to law against the said proprietorship concern, we have no hesitation to hold that, the said move on the side of the Revenue cannot be appreciated or accepted. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Liability of the petitioner company for service tax dues of the erstwhile proprietorship concern.
2. Validity of garnishee notices issued by the Revenue.
3. Legal assessment and recovery process under the Finance Act, 1994.

Issue-Wise Detailed Analysis:

1. Liability of the Petitioner Company for Service Tax Dues of the Erstwhile Proprietorship Concern:
The petitioner company, M/s. Service Care Pvt. Ltd., Bangalore, argued that it was a separate legal entity from the proprietorship concern, M/s. Service Care, Chennai, which was owned by the deceased father of the Managing Director. The petitioner contended that upon the death of the proprietor, the concern ceased to exist, and no liabilities were inherited by the petitioner company. The Revenue, however, claimed that the petitioner company continued the business of the proprietorship concern and thus was liable for its service tax dues.

2. Validity of Garnishee Notices Issued by the Revenue:
The Revenue issued garnishee notices to the clients of the petitioner company to recover service tax dues allegedly owed by the proprietorship concern. The petitioner challenged these notices, arguing that no assessment order had been made against the proprietorship concern, and thus, the garnishee notices were unlawful.

3. Legal Assessment and Recovery Process Under the Finance Act, 1994:
The court examined the relevant provisions of the Finance Act, 1994, particularly Sections 73, 73A, and 87. Section 73 requires a show cause notice to be issued to the person chargeable with service tax, and Section 87 allows for recovery of dues from any person holding money for the defaulter. The court noted that no assessment order had been passed against the proprietorship concern, and there was no evidence that the clients owed money to the concern.

Judgment:
The court held that the petitioner company and the proprietorship concern were distinct entities. The petitioner company did not inherit any liabilities from the proprietorship concern. The garnishee notices issued by the Revenue were set aside as they were based on an erroneous premise without proper assessment. The court emphasized that recovery under Section 87 can only be initiated after an adjudicated liability is established. The writ petitions were allowed, and the writ appeals filed by the Revenue were dismissed. The petitioner company was granted liberty to initiate appropriate proceedings for the refund of amounts collected coercively from its clients.