2015 (7) TMI 593 - HC - Service Tax

Recovery of tax u/s 87 from successor of deceased proprietor - SCN was issued to the deceased but could not be adjudicated during his life time - garnishee notices - Whether respondents 2 to 4 could have initiated recovery proceedings under Section 87 of Finance Act when there is no adjudication or quantification of the amount due and payable by the registered service tax provider - Held that - the words amount payable by a person will have to be considered in the background of Section 73 of the Act inasmuch as, show cause notice issued under Section 73(1) of the Act is required to be adjudicated after considering representation of the person if filed and thereafter determine the amount payable. Undisputedly, in the instant case, show cause notices dated 05.08.2009, 19.10.2009 and 22.04.2015 having been issued to the service provider, has not yet been adjudicated and as such, respondents-2 to 4 could not have taken recourse to invoke Section 87 for recovering the amounts due from the service provider by issuance of garnishee notices to respondents-5 to 8. Though the respondents have sought to defend such action on the ground that these amounts had been collected by the service provider and same had not been remitted to the department or to the account of the Central Government, the course left open to respondents-2 to 4 is as provided under Section 73(1) namely, adjudicating the show cause notices and thereafter on such adjudication, resort to recover the amount so determined to be due from the service provider by taking steps as provided under Section 87. It cannot be gain said by the respondents that on the strength of the investigation conducted by them by enquiring with the service recipients, they are recovering the amounts reflected in the show cause notice dated 22.04.2015 by issuance of garnishee notices to respondents-5 to 8 and if such contention or plea is accepted, it would render the adjudication process itself otiose or nugatory, in as much as, in all cases the respondents can take a stand and contend that the investigation conducted by them is sufficient to recover tax even before adjudication is complete or even before the amount due is quantified. To put it differently, the adjudication of show cause notices after recovering alleged amounts due would be a post decisional hearing and would become an empty formality. Same not being the intention of the Parliament can be gathered from the scheme of the Act - In view of the recovery made by the respondent No.4 pursuant to the recovery notices Annexure L, N P and R respectively and same having been held to be illegal, consequential orders to direct the fourth respondent to remit the amount back to the respective accounts is required to be issued, since such recovery was without authority of law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of recovery notices issued under Section 87 of the Finance Act, 1994 without prior adjudication under Section 73.
2. Entitlement of the petitioner to a refund of the amounts recovered along with interest.

Detailed Analysis:

1. Legality of Recovery Notices Issued Under Section 87 of the Finance Act, 1994 Without Prior Adjudication Under Section 73:
The petitioner challenged the issuance of recovery notices under Section 87 of the Finance Act, 1994, arguing that no adjudication under Section 73 had been concluded. The petitioner contended that the recovery action was premature and contrary to the provisions of the Finance Act, 1994.

The court examined the relevant provisions of the Finance Act, 1994, particularly Sections 73 and 87. Section 73 outlines the procedure for the recovery of service tax not levied or paid, requiring the Central Excise Officer to issue a show cause notice and determine the amount payable after considering any representation made by the person. Section 87 provides for the recovery of any amount due to the Central Government by various modes, but it presupposes that the amount has been determined and is due.

The court noted that in the present case, show cause notices had been issued to the deceased proprietor of the firm, demanding service tax for various periods, but these notices had not been adjudicated. The court emphasized that recovery under Section 87 could only be initiated after the amount due had been determined through adjudication under Section 73. The court cited a previous judgment, GSP Infratech Development Ltd. vs. Union of India, which held that Section 87 applies only after a proceeding under Section 73 is concluded by an order determining the amount due and payable.

The court concluded that the recovery notices issued by the respondents were premature and contrary to the statutory provisions, as there had been no adjudication or quantification of the amount due. The court held that the recovery notices amounted to putting the cart before the horse and violated the principles of natural justice.

2. Entitlement of the Petitioner to a Refund of the Amounts Recovered Along With Interest:
The petitioner sought a refund of the amounts recovered from the bank accounts of her deceased husband and herself, along with interest. The court noted that the amounts had been recovered based on the impugned recovery notices, which were found to be illegal and without authority of law.

Given the quashing of the recovery notices, the court issued a writ of mandamus directing the respondents to remit the recovered amounts back to the respective bank accounts. The court held that the petitioner was entitled to the refund of the amounts recovered, as the recovery was without legal basis.

Conclusion:
The court allowed the writ petition, quashing the recovery notices issued under Section 87 of the Finance Act, 1994, and directed the respondents to refund the amounts recovered to the respective bank accounts. The court emphasized that recovery proceedings under Section 87 could only be initiated after the amount due had been determined through proper adjudication under Section 73.