2017 (7) TMI 1378 - HC - Service Tax

Non-payment of service tax - mining services - issuance of letter to the garnishee for recovery of the dues by collecting those money - allegation against the Petitioners is that they have not paid the service tax for quite some time including the year 2016-17 and therefore it has been necessitated for the department to issue a letter to the garnishee for recovery of the dues by collecting those money which the management of SECL was to pay to the Petitioners - HELD THAT - Undisputedly, in the year 2016-17, there has been no proceeding drawn against the petitioner-firm by the Respondents for assessment of the default in payment of service tax. It is also not in dispute that no show cause notice also has been issued to the Petitioners for the default, if any, for the year 2016-17. The show cause notice which is being referred to by the Respondents in their reply, is for the assessment year 2011-12 to 2015-16. This, in the opinion of this Court, is not proper, legal or justified. The Finance Act clearly envisages certain provisions of law which deal with the taxable service for charging the service tax. Section 72 deals with the provision for best judgment assessment, which a person or an establishment which is liable to pay service tax is supposed to do. A perusal of these two Sections would clearly reflect that there has to be a proper legal proceeding drawn so far as default of payment in service tax is concerned and an order has to be passed against the concerned and only then can the recovery proceeding or freezing proceeding or the order of freezing could have been passed - In the instant case, since no proceeding has been drawn, no show cause notice has been issued, no determination has been done, the impugned order (Annexure P-1) asking the SECL to detain the amount payable to the petitioner-firm until the amount is paid, is not sustainable and the same is accordingly set aside/quashed. Petition allowed - decided in favor of petitioner.

Summary

Issues: Quashment of garnishee notice for service tax payment for the assessment year 2016-17.

In this case, the petitioners sought to quash Annexure P-1, a garnishee notice issued by the Additional Commissioner (Preventive) to South Eastern Coalfields Limited (SECL) for depositing the amount due to the petitioners as service tax in the government exchequer under the head of mining service. The notice was issued under Section 87 and Section 87(b)(i) of the Finance Act, 1994, for the assessment year 2016-17. The petitioners argued that no show cause notice had been issued to them for the said assessment year, and no final adjudication had been done by the respondents to determine the dues payable. They contended that the initiation of proceedings against them for alleged default of service tax was bad in law and unsustainable. The respondents, on the other hand, claimed that the petitioners were continuous defaulters in paying service tax and justified the issuance of the impugned order as a means to recover the outstanding dues.

The court observed that for the year 2016-17, no proceeding had been initiated against the petitioners for the assessment of default in payment of service tax. It noted that no show cause notice had been issued to the petitioners for the said year. The court highlighted the provisions of the Finance Act, particularly Section 72 dealing with best judgment assessment and Section 87 dealing with recovery of amounts due to the Central Government. It emphasized the necessity of following proper legal procedures, including issuing show cause notices, conducting assessments, and allowing for participation in proceedings before passing orders for recovery or freezing of accounts. As no such procedures had been followed in this case, the court set aside/quashed the impugned order (Annexure P-1) asking SECL to detain the amount payable to the petitioners until the service tax amount was paid.

The court clarified that the quashment of Annexure P-1 was only to the extent of any order passed for the default of payment of service tax for the year 2016-17. It allowed the respondents to initiate appropriate proceedings under the Act after issuing show cause notices and permitting the petitioners to participate in assessment proceedings. The court emphasized the importance of following due process and legal requirements before taking recovery actions, ensuring fairness and adherence to the law. Ultimately, the writ petition was allowed and disposed of in favor of the petitioners.