2017 (5) TMI 1200 - AT - Service Tax

SEZ unit - Recovery of interest - adjustment with Refund claim - refund claim included the amount paid by assessee of duty and interest for delayed payment of duty - General Insurance Business - Banking and Financial Services - Chartered Accountant Services, etc. - N/N. 9/2009 as amended by N/N. 15/2009 - whether the Department can recover the interest amount of ₹ 30,05,219/- u/s 87 of the FA, 1994 without issuance of a SCN and without adjudication proceedings to determine the amount due and payable by the appellant? Held that - after introduction of sub-Section (1B) to Section 73, in case the appellant fails to pay the service tax or interest thereon, under the self assessment method, the amount can be recovered without service of notice. The said Section has come into force only w.e.f. 14.05.2015 - the period in the present case being prior to 14.05.2015 it was incumbent upon the Department to issue a SCN and initiate proceedings for the determination of the amount due and payable by the appellant before initiating recovery u/s 87 of FA, 1994. The Department cannot proceed to recover the interest u/s 87 without issuing a SCN and determination of the amount due and payable by the appellant as provided under sub-Section (1) of Section 73 of the FA, 1994 - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Recovery of interest amount under Section 87 of the Finance Act, 1994 without issuance of a Show Cause Notice.
2. Appropriation of refund amount towards alleged interest dues by the Department.

Issue-wise Detailed Analysis:

1. Recovery of Interest Amount under Section 87 of the Finance Act, 1994 without Issuance of a Show Cause Notice:

The primary issue in this case is whether the Department can recover the interest amount of ?30,05,219/- under Section 87 of the Finance Act, 1994 without issuing a Show Cause Notice and without adjudication proceedings to determine the amount due and payable by the appellant.

The appellant argued that the recovery of interest under Section 87 is against the law because there was no adjudication order passed under Section 73 of the Act. The appellant contended that the Department must first determine the liability to pay interest through adjudication proceedings before initiating recovery under Section 87. The appellant referred to Section 73, which deals with the determination of the amount due and payable, and pointed out that without such determination, the recovery under Section 87 is not justified.

The Department, on the other hand, argued that the liability to pay interest is automatic upon the delayed payment of service tax under Section 75 of the Finance Act, 1994. The Department contended that there is no necessity to issue a Show Cause Notice or determine the amount due under Section 73 because the service tax was paid under self-assessment, and the interest is automatically due.

The Tribunal examined the provisions of Sections 73 and 87 of the Finance Act, 1994, and noted that Section 73 deals with the recovery of service tax not levied or paid, short-levied or short-paid, or erroneously refunded. Section 87 provides for the recovery of any amount due to the Central Government. The Tribunal highlighted that a new sub-section (1B) was added to Section 73 w.e.f. 14.05.2015, which allows recovery of self-assessed service tax and interest without issuing a Show Cause Notice. However, this amendment was not applicable to the period in the present case, which was prior to 14.05.2015. Therefore, the Tribunal concluded that it was incumbent upon the Department to issue a Show Cause Notice and initiate proceedings for the determination of the amount due and payable by the appellant before initiating recovery under Section 87.

The Tribunal referred to the judgments in the cases of Prashanthi Vs. Union of India and ICICI Bank Ltd. Vs. Union of India, which supported the view that recovery under Section 87 can only be initiated after adjudication of the amount due. The Tribunal concluded that the Department's recovery of interest without issuing a Show Cause Notice and determination of the amount due was against the law and unjustified.

2. Appropriation of Refund Amount towards Alleged Interest Dues by the Department:

The appellant had initially filed a refund claim of ?3,54,65,218/-, which was sanctioned, including the refund of service tax paid under reverse charge mechanism. The Department later appropriated ?30,05,219/- towards alleged interest dues from a subsequent refund claim of ?1,70,0,844/-, resulting in the appellant receiving only ?1,39,99,625/-. The appellant disputed this appropriation and filed an appeal before the Commissioner (Appeals), who upheld the appropriation.

The Tribunal noted that the appellant had raised a dispute regarding their liability to pay interest in a letter dated 28.01.2011, and the Department had issued a letter dated 13.06.2011 stating that the appellant was liable to pay interest on delayed payment of tax. However, no Show Cause Notice or adjudication proceedings were initiated to determine the liability to pay interest.

The Tribunal held that the Department's appropriation of ?30,05,219/- towards alleged interest dues without issuing a Show Cause Notice and determination of the amount due was against the law. The Tribunal set aside the impugned order to the extent of appropriating ?30,05,219/- and allowed the appeal with consequential reliefs.

Conclusion:

The Tribunal concluded that the Department cannot proceed to recover the interest under Section 87 without issuing a Show Cause Notice and determination of the amount due and payable by the appellant as provided under Section 73 of the Finance Act, 1994. Consequently, the recovery of ?30,05,219/- was deemed against the law and unjustified. The impugned order to the extent of appropriating ?30,05,219/- was set aside, and the appeal was allowed with consequential reliefs.

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