2020 (10) TMI 59 - HC - Service Tax

Violation of Principles of Natural Justice - freezing of Bank Account of petitioner - contention of the Petitioner is that no show-cause notice was issued under Section 73 or 73A of the Finance Act, 1994 to the Petitioner and also noo assessment order has been passed before freezing the bank account of the Petitioner - HELD THAT - Where any amount payable by a person to the credit of the Central Government under service tax is not paid, the Central Excise Officer may recover the amount by issuing notice in writing requiring any other person from whom money is due or may become due to such person or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central Government. An analysis of the above provision would reveal that the crucial expressions to be noticed are any amount payable , is not paid and shall proceed to recover . A notice under Section 87(b)(i) is in the form of a garnishee notice. It is in that context that the above three expressions would have to be understood and applied - thus, before proceeding to recover the amount by issuing garnishee notice under Section 87(b)(i), the amount has to be first determined and quantified and thereafter not paid by the person required to make the payment as per law. Thus the garnishee notice has to be preceded by determination of the amount due and not paid. The amount payable has to first crystallize. In the present case, Respondents are relying on two statements made by officials of the Petitioner; one on 19.12.2019 and the other on 13.02.2020. Mere making of such statements by themselves cannot lead to any conclusion that certain amount has been determined as due from the Petitioner. Finance Act, 1994 provides for various provisions for making assessment for determining the amount of service tax required to be paid by the service provider, including best judgment assessment under Section 72 which provision can be invoked when there is failure to furnish the return or failure to assess the tax. Without there being an assessment, no conclusion can be reached that any amount has become due to be paid. In the absence of such determination of the tax due, recourse to Section 87 of the Finance Act, 1994 would certainly be premature and cannot be justified. The Respondents are directed to forthwith withdraw the restraint on the Petitioner s bank account so that Petitioner s account with the State Bank of India, Madam Cama Road, State Bank Bhavan, Mumbai can be made functional for the Petitioner - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Legality of freezing the Petitioner’s bank account.
2. Compliance with principles of natural justice.
3. Necessity of adjudication and crystallization of dues before garnishee notice.
4. Applicability of Section 87 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Legality of Freezing the Petitioner’s Bank Account:
The Petitioner challenged the freezing of its bank account by the Respondents, arguing that it was illegal and violated principles of natural justice. The Petitioner contended that no show-cause notice was issued under Section 73 or 73A of the Finance Act, 1994, and no assessment order was passed before freezing the account. The Respondents, however, argued that the freezing was justified under Section 87 of the Finance Act, 1994, as there was an admission of liability by the Petitioner’s representatives.

2. Compliance with Principles of Natural Justice:
The Petitioner argued that the freezing of the bank account was done without following the principles of natural justice, as no opportunity was given to present their case. The Respondents relied on statements made by the Petitioner’s representatives, which they claimed amounted to an admission of liability. The court noted that mere statements could not be construed as determined liability without proper adjudication.

3. Necessity of Adjudication and Crystallization of Dues Before Garnishee Notice:
The court emphasized that before issuing a garnishee notice under Section 87(b)(i) of the Finance Act, 1994, the amount due must be determined and quantified. The court referred to several precedents, including Lawson Tours and Travels (India) P. Ltd. Vs. Dy. Director, ICICI Bank Limited Vs. Union of India, and M. P. Enterprises Vs. Union of India, which established that coercive measures for recovery could only be taken after the dues were adjudicated and crystallized. The court found that in the present case, no such adjudication had taken place.

4. Applicability of Section 87 of the Finance Act, 1994:
The court analyzed Section 87 of the Finance Act, 1994, which allows recovery of any amount payable to the Central Government by issuing a garnishee notice. The court noted that the crucial expressions in the provision were “any amount payable,” “is not paid,” and “shall proceed to recover.” These expressions imply that the amount must first be determined and quantified before recovery proceedings can be initiated. The court found that in the present case, the amount had not been determined through any adjudication process, making the invocation of Section 87 premature.

Conclusion:
The court concluded that the freezing of the Petitioner’s bank account was premature and unjustified as it was not preceded by any adjudication or determination of the amount due. Consequently, the court directed the Respondents to withdraw the restraint on the Petitioner’s bank account and allowed the Writ Petition, with no order as to costs.