2017 (7) TMI 1368 - HC - Service Tax

Validity of Garnishee Notices - Freezing of amount payable to the petitioner-establishment - solitary ground of challenge by the Petitioners to these impugned orders is that there has been no determination made by the Respondents assessing the actual amount of default on the part of the petitioner-establishment upon which the recovery proceedings could have been initiated - HELD THAT - Before initiating proceeding under Section 87, the authorities ought to have initiated appropriate assessment proceeding and determination of the amount payable by the establishment and a demand notice also needs to be issued and only in the event of the demand notice not being satisfied, the proceedings under Section 87 can be initiated - In the instant case, when we look at the reply submitted by the Respondents, we do not find any such adjudication done under Section 73 of the Act. Neither from the reply nor from the submissions made by the Respondents, do we find any demand notice being raised against the Petitioners at any point of time and it is only the garnishee notices and a freezing order straightaway issued, Annexure P-1 to the management of SECL and Annexure P-2 to the Union Bank of India. This Court has no hesitation in reaching to the conclusion that the garnishee notices issued to the SECL and Union Bank of India were totally uncalled for and the authorities ought not to have issued such notices before a final determination is done - Petition allowed.

Summary

Issues:
1. Challenge to the orders quashing Annexure P-1 and P-2
2. Lack of determination by Respondents for recovery proceedings
3. Validity of show cause notice (Annexure P-3)
4. Interpretation of Sections 72, 73, and 87 of the Finance Act
5. Applicability of judicial pronouncements on recovery proceedings under Section 87

Issue 1: The petition sought to quash Annexure P-1 and P-2, dated 16-12-2016, issued by the Additional Commissioner (Preventive) to freeze payments to the petitioner-establishment. The challenge was also to Annexure P-3, a show cause notice dated 21-10-2016. The Petitioners argued that recovery proceedings could not be initiated without a determination by the Respondents.

Issue 2: The Petitioners contended that the impugned orders lacked a specific assessment of the default amount by the petitioner-establishment, which was essential for initiating recovery proceedings. They cited Sections 72, 73, and 87 of the Finance Act, emphasizing the need for a formal determination by the authorities before recovery actions.

Issue 3: The central ground of challenge was the absence of a formal assessment by the Respondents, leading to the issuance of Annexures P-1 and P-2. The Petitioners argued that Annexure P-3, the show cause notice, required adjudication before any recovery proceedings could be initiated.

Issue 4: The interpretation of Sections 72, 73, and 87 of the Finance Act was crucial in determining the legality of the recovery actions. The Petitioners highlighted the necessity of a formal determination under these sections before invoking Section 87 for recovery proceedings.

Issue 5: Referring to judicial pronouncements from various High Courts, the Petitioners argued that recovery under Section 87 could only occur after a formal adjudication of the amount due. The Gujarat High Court and the Bombay High Court emphasized the importance of a finalized assessment before resorting to recovery measures under Section 87.

The judgment ultimately quashed Annexures P-1 and P-2, directing the Respondents to finalize the assessment based on the show cause notice and issue a demand notice accordingly. The court highlighted the necessity of a formal determination before initiating recovery proceedings under Section 87, as outlined in the Finance Act and supported by judicial precedents. The decision was based on the principles of due process and the requirement for a clear assessment before taking coercive recovery actions.