2018 (9) TMI 1520 - HC - Service Tax

Attachment of Bank Account - recovery of amount pending adjudication - case of appellant is that this is without Jurisdiction as the impugned notice dated 30th August 2018 has been issued when there is no amount adjudicated as payable under the Act after issuing a show cause notice under Section 73 of the Act - Section 87 (b)(i) of the Finance Act 1994. Held that - At the stage of adjudication the Petitioner would have an opportunity to explain the meaning and significance of the alleged admission. Therefore till such time as the show cause notice is adjudicated it cannot be conclusively stated that any amount of service tax was paid by the Petitioner on the basis of forged/ fabricated/bogus challans. This would necessarily have to await adjudication order passed after following the principle of natural justice. Thus the invocation of Section 87 of the Act at this stage would in these facts be premature. Our Court has in Quality Fabricators & Erectors 2015 (12) TMI 494 - BOMBAY HIGH COURT has held that Section 87 of the Act can only be invoked for adopting coercive proceedings for recovery after the authorities determined the amount payable by an assesee on an adjudication order. Without adjudication no steps for coercive recovery under Section 87 of the Act can be taken by the authorities. The impugned notice dated 30th August 2018 is quashed and set aside. However the amount which have already been received by the Revenue consequent to the notice dated 30th August 2018 would be continued to be retained by the Respondent till the passing of on adjudication order on the show cause notice dated 8th September 2018 - petition allowed.

Summary

Issues involved:
Challenge to notice issued by Deputy Director of GST Intelligence for recovery of service tax without proper adjudication under the Finance Act, 1994.

Analysis:
1. The petitioner challenged a notice issued by the Deputy Director of GST Intelligence attaching their bank account for service tax recovery without proper adjudication under the Finance Act, 1994. The petitioner argued that the notice was without jurisdiction as no amount had been adjudicated as payable under the Act after issuing a show cause notice. The petitioner cited previous court decisions to support their claim that recovery under Section 87 of the Act requires a proper adjudication order. The petitioner requested the vacation of the account attachment and retention of the deposited amount until adjudication.

2. The respondent contended that the petitioner had previously declared and paid service tax liability under Section 73(3) of the Act, but during a search operation, it was found that the payments were based on false challans. The respondent argued that the invocation of Section 87(b)(i) was justified as it aimed to recover the due service tax liability. The respondent claimed that the court decisions cited by the petitioner were not applicable as there was an admission of liability in the present case.

3. The court analyzed the contentions and found that the declaration made by the petitioner under Section 73(3) was found incorrect, allowing the Revenue to recover the amount under Section 73(1) of the Act. The court emphasized that coercive recovery proceedings could only be initiated after adjudication of the show cause notice. The court noted that the show cause notice provided an opportunity for the petitioner to challenge the allegations of false challans, indicating the need for adjudication before any conclusive determination of the tax liability.

4. The court reiterated that Section 87 of the Act could only be invoked after the determination of the payable amount through an adjudication order. The court emphasized that without adjudication, coercive recovery steps could not be taken by the authorities. The court highlighted that the issue of crystallized tax liability would only arise post-adjudication. The court upheld the petitioner's argument that the impugned notice was premature and quashed it, allowing the retention of the deposited amount until adjudication.

5. The court concluded by setting aside the impugned notice dated 30th August, 2018, while allowing the Revenue to retain the already received amount until the adjudication of the show cause notice dated 8th September, 2018. The court clarified that the quashing of the notice would not prevent the Revenue from invoking Section 73C of the Act if necessary, provided the conditions were met. The writ petition was allowed in favor of the petitioner with no order as to costs.