2013 (4) TMI 294 - HC - Service Tax

Power to freeze account U/s 87 of the Finance Act, 1994 - Held that - Going by the language of Section 87 of the Finance Act that any amount payable means that amount adjudged after hearing the show cause notice and this provision of Section 87 is one of the methods of recovery of the amount due and payable after adjudication is done. Moreover, I find from the language of clause (b), there is no power to freeze the Bank accounts. At the most, if it is applied, the money can be claimed from the Bank itself. Such claim can be made only when the final adjudication has been done after quantifying the amount due and payable by the assessee. Under the circumstances, I hold that the impugned order freezing the Bank accounts is not sustainable in the eye of law as this has been passed without having any jurisdiction. The same is accordingly set aside. Taking totality of the fact of the case, I pass following order. I also make it clear in the event, no reply is submitted within the above time, appropriate authority may pass appropriate order in accordance with law after quantification of the amount due and payable. Of course, it would be open for the respondent authority, if so advised, to issue orders strictly in terms of Section 87 Clause (b) of the Finance Act 1994 for recovering the amount by issuing a fresh order after adjudication - The writ petition is allowed.

Summary

Issues involved:
1. Legality of freezing bank accounts under Section 87 of the Finance Act, 1994 pending final adjudication.

Detailed Analysis:
The petitioner challenged an order directing the freezing of their bank accounts due to alleged unpaid service tax. The respondent issued a show cause notice for the outstanding amounts, but final adjudication had not been completed. The petitioner argued that freezing accounts without final adjudication is not provided for in Section 87 of the Finance Act. The respondent claimed the tax had been recovered and was due, rendering adjudication a formality. The main issue was whether the freezing order was legally valid under Section 87 of the Finance Act.

The court examined Section 87(b) of the Finance Act, which allows recovery of amounts due to the government. The judge noted that the provision requires the amount to be adjudged after a show cause notice and hearing. The language of the clause did not empower freezing bank accounts; instead, it allowed for claiming the amount directly from the bank after final adjudication. The court concluded that the freezing order lacked jurisdiction and set it aside, ordering the petitioner to respond within fifteen days.

The court directed the appropriate authority to hear the matter within four weeks of receiving the reply. If the petitioner failed to respond, lawful procedures could be adopted. Failure to reply within the stipulated time would allow the authority to pass an order after quantifying the due amount. The respondent was permitted to issue fresh orders for recovery under Section 87(b) post-adjudication. The petitioner was restrained from disposing of assets until final adjudication, with a certified asset list to be provided to the revenue department within seven days.

In conclusion, the writ petition was allowed, with no costs imposed. The judgment highlighted the importance of final adjudication before resorting to extreme measures like freezing bank accounts, emphasizing adherence to legal procedures and principles of natural justice.