2019 (3) TMI 421 - HC - Service Tax

Validity of rcovery/garnishee order - short payment of service tax - Section 87 of the Finance Act, 1994 - Held that - Section 87 of the Finance Act, 1994 contemplates for recovery of any amount payable due to the Central Government which the Central Government under any of the provisions of Chapter V or of the Rules made thereunder is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned therein. Amount payable by a person is sine qua non for initiating recovery proceedings under the Finance Act, 1994. The discrepancy pointed out by the Audit Wing under para.2 regarding the short payment of service tax amounting to ₹ 38,66,902/- was explained by the petitioner that the same was correctly declared in page.11 of the same return under the head CENVAT Credit details . A communication was issued to the petitioner indicating that the objections were not accepted by the audit group, show cause would be issued in respect of paras.1 to 5. The show cause notice issued on 29.02.2016 relates to paras.1,3,4 and 5 of the objections raised by the Audit Wing and the said notice is yet to be adjudicated. In such circumstances, without issuing the show cause notice to the short payment of service tax of ₹ 38,66,902/-, if the explanation of the petitioner is not accepted, initiating recovery proceedings by issuing garnishee order to the bankers cannot be substantiated and is not in conformity with Section 87 of the Finance Act, 1994. The garnishee orders impugned dated 29.03.2016 and 22.05.2018 at Annexures- M and Z respectively are quashed - petition allowed.

Summary

Issues:
Challenge to garnishee orders dated 29.03.2016 and 22.05.2018 issued by respondent No.1. Discrepancies in service tax payments, objections raised by Audit Wing, initiation of recovery proceedings, justification of garnishee orders under Section 87 of the Finance Act, 1994.

Analysis:
The petitioner, a private limited company providing taxable services, challenged garnishee orders issued by respondent No.1 regarding alleged short payment of service tax. The Audit Wing identified discrepancies in service tax payments amounting to ?38,66,902 during the period from April 2012 to March 2014. The petitioner contested these objections, explaining that the tax was correctly declared under CENVAT credit details. Although a show cause notice was issued for other objections, no demand was raised for the alleged short payment. Recovery proceedings were initiated based on this discrepancy, leading to the writ petition.

The petitioner argued that the garnishee orders were unjustifiable and lacked legal authority. The respondent-Revenue sought to justify the orders under Section 87 of the Finance Act, 1994, which allows for recovery of amounts due to the Central Government. However, the court noted that the objections raised by the Audit Wing were still pending adjudication, with a show cause notice issued for other discrepancies but not for the alleged short payment. Without resolving these objections or issuing a show cause notice for the specific amount in question, initiating recovery proceedings through garnishee orders was deemed improper and not in compliance with the Finance Act.

Consequently, the court quashed the impugned garnishee orders dated 29.03.2016 and 22.05.2018. The petitioner was directed to respond to the objections related to the alleged short payment of ?38,66,902 within two weeks, after which respondent No.1 would make a decision in accordance with the law. The writ petition was disposed of accordingly, emphasizing the need for proper procedure and adherence to legal requirements in recovery proceedings under the Finance Act, 1994.