2015 (5) TMI 300 - HC - Service Tax

Recovery of service tax without making assessment - Whether, without there being any adjudication in any of the proceedings as provided under Chapter 5 of the Finance Act, 1994 coercive steps can be taken by the Revenue, for recovery of service tax or penalty or interest - Held that - The benefit that the assessee would get by voluntarily paying service tax under the scheme provided is that he would be saved from the rigours of penalty payable on account of non payment of service tax payable and interest thereon. Similarly, subsection 4A would deal with the situation wherein in the course of any audit, investigation or verification, it is found that service tax is not levied or paid or shortlevied or shortpaid or erroneously refunded. The said subsection would deal with an eventuality when true and complete details of transactions are available in the specified records. In this case, an assessee is again having an option to pay service tax in full or in part, as he may accept to be the amount of tax chargeable or erroneously refunded alongwith interest payable thereon under section 75 and penalty provided therein. It further appears that under the said provision the assessee would be entitled to the benefit, in as much as maximum penalty that would be leviable is only 25 per cent, whereas otherwise it would be 50 per cent. Again under the said provision, the Central Excise Officer is empowered to proceed as provided under subsection (1), if he is of the opinion that the amount so paid by the assessee has not been paid fully and more amount is due and payable by him. Scheme of the act is that the tax would be held to be payable only after adjudication either under Section 72 or subsection 2 of section 73 of the said Act. As already stated by us hereinabove that even when an assessee voluntarily pays tax under subsection (3) and 4A of section 73, even in that case, in so far as disputed amount is concerned, determination as required under subsection 2 of section 73 is required to be done. By now it is settled principle of law that when a law requires a particular things to be done, in a particular manner, it has to be done in that manner alone and not at all. If the Statute permits an authority to make a demand on the basis of the preliminary assessment made by it, even prior to there being adjudication, the matter would have been different. - The Statute vests ample power with the authorities to deal sternly with such of the assessee who either fraudulently or with intention to deprive revenue of its legitimate dues evades payment thereof. Not only that, but if the Central Excise Officer is of the opinion that for the purpose of protecting interest of the revenue, it is necessary to attach provisionally any property belonging to a person on whom notice is served under Section 73 or section 73 of the said Act, he is empowered to do so, however, with previous approval of the Commissioner of Central Excise. However, at the same time, the law enforcers cannot be permitted to do something which is not permissible within the four corners of law. Impugned communication which demands the Petitioner to make payment of the interest and also threatens them that in the event the said payment of interest is not made, coercive action under Section 87 would be taken against them, would not be sustainable in law. - impugned action is not sustainable in law. Rule is made absolute by quashing and setting aside the impugned communication dated 25/3/2015 - Decided in favour of assessee.

Issues Involved:
1. Whether coercive steps can be taken by the Revenue for recovery of service tax, penalty, or interest without adjudication under Chapter 5 of the Finance Act, 1994.
2. Whether the Petitioner is liable to pay service tax on interchange fees.
3. Whether the Petitioner can be coerced to pay interest on delayed payment of service tax without adjudication.
4. Applicability of Section 73 of the Finance Act, 1994 to the facts of the case.
5. Whether the Petitioner should have filed a refund application under Section 11B of the Central Excise Act, 1944.

Detailed Analysis:

1. Coercive Steps for Recovery Without Adjudication:
The court addressed the issue of whether the Revenue can take coercive steps for recovery of service tax, penalty, or interest without adjudication under Chapter 5 of the Finance Act, 1994. The court emphasized that the statutory scheme under the Finance Act requires a proper adjudication process before any amount can be said to be due. The court held that coercive actions under Section 87 of the Finance Act, 1994, cannot be taken without such adjudication. The court stated, "The amount which is payable by a person can be said to be payable only after there is determination as provided under Section 72 or Section 73 of the said Act."

2. Liability to Pay Service Tax on Interchange Fees:
The court noted that the issue of whether the Petitioner is liable to pay service tax on interchange fees was not determined by the original authority. The court refrained from adjudicating this issue in writ jurisdiction, stating, "We do not find it necessary to go into that aspect." The court emphasized that the liability of the Petitioner to pay service tax on interchange fees needs to be determined by the appropriate authority.

3. Coercion to Pay Interest Without Adjudication:
The court examined whether the Petitioner can be coerced to pay interest on delayed payment of service tax without adjudication. The court held that interest on delayed payment of service tax can only be demanded after the liability to pay service tax is adjudicated. The court observed, "The impugned communication which demands the Petitioner to make payment of the interest and also threatens them that in the event the said payment of interest is not made, coercive action under Section 87 would be taken against them, would not be sustainable in law."

4. Applicability of Section 73:
The court analyzed the applicability of Section 73 of the Finance Act, 1994, which deals with the recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. The court emphasized that Section 73 involves a complete adjudicatory process, including the issuance of a show cause notice and determination of the amount due after considering the representation of the assessee. The court stated, "The provisions of Section 73 would come into play when the service tax is not levied or paid or short-levied or short-paid or erroneously refunded."

5. Filing of Refund Application Under Section 11B:
The court addressed the contention that the Petitioner should have filed a refund application under Section 11B of the Central Excise Act, 1944. The court rejected this contention, noting that Sections 72 and 73 of the Finance Act, 1994, provide a complete inbuilt machinery for adjudication, which includes safeguards for the assessee. The court stated, "We are again at pains to say that the conduct of the revenue, firstly coercing the assessee to make payment and thereafter not deciding the returns under Section 72 or not taking recourse to section 73, and asking the assessee to take recourse to section 11B cannot be said to be just, fair and reasonable approach."

Conclusion:
The court concluded that the impugned communication demanding the Petitioner to pay interest and threatening coercive action under Section 87 without adjudication is not sustainable in law. The court quashed and set aside the impugned communication dated 25/3/2015, making the rule absolute. The court emphasized the need for proper adjudication under Sections 72 or 73 before any amount can be said to be due and recoverable.

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