2017 (2) TMI 577 - HC - Service Tax

Recovery of service tax dues - Extension of the period of provisional attachment - extension for a further period of one year - franchise agreement - natural justice - Held that - section 73(2) of the Finance Act, 1994 permits the Chief Commissioner to extend the period of provisional attachment. Under the statute, no hearing is provided before passing the order of extension of provisional attachment under section 73(C)(2) of the Finance Act, 1994, like while passing original order of provisional attachment by the Commissioner under section 73(C)(1) of the Finance Act, 1994 - Under the circumstances, on the ground that before passing the impugned orders of extension of provisional attachment by the Chief Commissioner, no opportunity of being heard were given to the respective petitioners, and therefore, the impugned orders of extension of provisional attachment are not required to be quashed and set aside, has no substance and cannot be accepted, more particularly considering the fact that before passing order under section 73(C)(1), fullest opportunity have been given to the respective petitioners and thereafter the orders under section 73(C)(1) have been passed. It cannot be said that the orders of extension of provisional attachment for a further period of one year, are non-speaking order - petition dismissed - decided against petitioner.

Issues Involved:

1. Legality of the provisional attachment orders under Section 73(C) of the Finance Act, 1994.
2. Validity of the extension of provisional attachment orders by the Chief Commissioner.
3. Alleged violation of principles of natural justice.
4. Adequacy of reasons provided in the extension orders.
5. Proportionality of the attached properties' value to the tax demand.

Detailed Analysis:

1. Legality of the Provisional Attachment Orders:

The petitioners challenged the provisional attachment of their properties under Section 73(C) of the Finance Act, 1994, and Service Tax (Provisional Attachment of Property) Rules, 2008. The court noted that the Commissioner issued Show Cause Notices demanding a total sum of ?34,08,47,693/- plus interest and penalty towards Service Tax. The Commissioner, after giving the petitioners the fullest opportunity to be heard, passed detailed, speaking, and reasoned orders for provisional attachment to protect the government's interest, as the petitioners were likely to dispose of the properties hurriedly. The court held that these orders were not illegal or beyond the statutory provisions, as Section 73(C) and the relevant rules provide for such provisional attachment.

2. Validity of the Extension of Provisional Attachment Orders:

The petitioners also challenged the extension of the provisional attachment orders for a further period of one year by the Chief Commissioner. The court observed that Section 73(C)(2) of the Finance Act, 1994, permits the Chief Commissioner to extend the period of provisional attachment. The statute does not require a hearing before passing an order of extension, unlike the original order of provisional attachment under Section 73(C)(1). Therefore, the court found no substance in the argument that the extension orders were illegal due to the lack of a hearing.

3. Alleged Violation of Principles of Natural Justice:

The petitioners argued that the extension orders were in violation of the principles of natural justice as no opportunity of being heard was provided. The court rejected this argument, noting that the statute does not mandate a hearing before extending the provisional attachment. The court emphasized that the petitioners had already been given a full opportunity to be heard before the original provisional attachment orders were passed under Section 73(C)(1).

4. Adequacy of Reasons Provided in the Extension Orders:

The petitioners contended that the extension orders were non-speaking and lacked reasons. The court examined the extension orders and found that the Chief Commissioner had considered the records of the case, relevant facts, details, and statutory provisions. The Chief Commissioner noted the substantial service tax dues and concluded that extending the provisional attachment was essential to protect the revenue's interest. The court held that the extension orders were not non-speaking and adequately reasoned.

5. Proportionality of the Attached Properties' Value to the Tax Demand:

The petitioners argued that the value of the attached properties exceeded the tax demand, making the attachment disproportionate. The court noted that the properties attached might not have a clear title, as some had constructions of row houses. Given the substantial amount of service tax dues, the court found that the provisional attachment orders were justified to protect the government's interest.

Conclusion:

The court dismissed both petitions, upholding the legality and validity of the provisional attachment orders and their extensions. The court found no violation of principles of natural justice and held that the extension orders were adequately reasoned. The court also rejected the argument of disproportionality, emphasizing the need to protect the government's substantial service tax dues.

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