FREEZING OF BANK ACCOUNT FOR NON PAYMENT OF SERVICE TAX

[Mr. M. GOVINDARAJAN]

Section 87 of Chapter V of Finance Act, 1994 deals with recovery of any amount due to the Government.   The said section provides that where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made there under is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned below:—

The Central Excise Officer may deduct or may require any other Central Excise Officer or any officer of customs to deduct the amount so payable from any money owing to such person which may be under the control of the said Central Excise Officer or any officer of customs;

The Central Excise Officer may, by notice in writing, require 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 either forthwith upon the money becoming due or being held or at or within the time specified in the notice, not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount;

Every person to whom a notice is issued under this section shall be bound to comply with such notice, and in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary to produce any pass book, deposit receipt, policy or any other document for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary;

In a case where the person to whom a notice under this section is sent, fails to make the payment in pursuance thereof to the Central Government, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and all the consequences of this Chapter shall follow;

The Central Excise Officer may, on an authorization by the Commissioner of Central Excise, in accordance with the rules made in this behalf, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; and in case, any part of the said amount payable or of the cost of the distress or keeping of the property, remains unpaid for a period of thirty days next after any such distress, may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and shall render the surplus amount, if any, to such person;

The Central Excise Officer may prepare a certificate signed by him specifying the amount due from such person and send it to the Collector of the district in which such person owns any property or resides or carries on his business and the said Collector, on receipt of such certificate, shall proceed to recover from such person the amount specified there under as if it were an arrear of land revenue.

As per the provisions of Section 87 the Department is entitled to recover the amount for non payment of service tax as per the procedure stated above.

In ‘ODM Media Services India Private Limited V. The Commissioner of Service Tax, Bangalore’ [2013 (9) TMI 162 - KARNATAKA HIGH COURT], the Director of the petitioner company was to furnish a bank guarantee within sixty days from the date of notice for an amount equivalent to Rs.1,55,50,457/- or any such amount as determined by Commissioner, on adjudication, towards payment of service tax whichever is higher. The petitioner filed this writ petition against the notice. The Revenue contended that as per Section 87 of the Finance Act, 1994 to submit that the authority was well within its jurisdiction to direct the Co-operative Bank maintained by the petitioner for recovery of service tax dues.

The Karnataka High Court held that the provisions of Section 87 would apply only after the service tax is determined as dues payable since the word ‘due’ is found in the section. Admittedly, since the petitioner is issued with a show cause notice dated 12.03.2013 giving 30 days time to file its explanation and therefore, in the interregnum the Department was not justified in issuing the letter dated 15.3.2013, three days after the issue of show cause notice to freeze the bank account of the petitioner for recovery of tax dues.

While allowing the petition the High Court directed the Department to defreeze the bank accounts of the petitioner forthwith and if on adjudication pursuant to the show cause notice issued to the petitioner service tax due is demanded, it is for the petitioner to question the same, if agreed and furnish a bank guarantee at the stage for the amounts due.