2019 (12) TMI 1129 - HC - Service Tax

Service of garnishee notice u/s 87 - Section 73 of the Finance Act, 1994 - case of assessee is that without issuing such show-cause notice under Section 73, impugned garnishee notices could not have been issued under Section 87 (b) of the Finance Act, 1994 - Non-payment of service tax - permission to allow payment of service tax dues in installments - HELD THAT - A reading of Section 73, would go to show that in the circumstances enumerated in Sub-Section (1) thereof the competent authority may within 18 months (and since 01.04.2017, 30 months), serve a show cause notice upon the assessee as to why he should not pay the amount specified in the notice. However, in a case of fraud the period for issuance of such notice would stand extended to 5 years. After service of show cause notice, if any representation is made by the assessee the same shall be considered and thereafter, the service tax dues may be determined. Further, in a case of self-assessment, the quantum of service tax dues along with interest shall be recovered under Section 87 - A conjoint reading of Sections 73 and 87 of the Finance Act, 1994 would go to show that in case of non-payment of service tax dues covered by the situations enumerated, the competent authority is empowered to issue show cause notice within the time frame provided for payment of service tax dues specified in the notice, the period of notice would stand extended in a case of fraud. The petitioner has not disputed the quantum of service tax dues quantified in the garnishee notices. Petitioner has only highlighted the need and necessity to allow it to pay the dues in installments. Therefore, in a case where the assessee admits to the service tax dues as specified in the show cause notice or in the garnishee notice, no adjudication would be necessary. Demand of Interest - HELD THAT - Section 75 of the Finance Act, 1994, deals with levy of interest on delayed payment of service tax. It provides for payment of simple interest at such rate not below 10 % and not exceeding 36% per annum for the period of delay. It is thus clear that the interest that may be imposed in case of delayed payment of service tax is not a fixed percentage but ranges between 10% to 36% indicating an element of flexibility - In the instant case, what is seen is that respondent No. 2 has imposed the maximum percentage of interest i.e., 36 % without any exercise of discretion which indicates non-application of mind. Thus, the exercise is arbitrary. Payment of service tax dues in installments - circular dated 28.02.2015 - HELD THAT - As per the said circular, Commissioners have been given the discretion for granting sanction to pay arrears in installments upto a maximum of 24 monthly installments and Chief Commissioners more than 24 and upto a maximum of 36 monthly installments. It has been emphasized that approval to pay in installments and the number of installments should be fixed in such a way so that an appropriate balance is maintained between recovery of arrears and survival of business. - Allowed to paid in 48 equated monthly installments Petition disposed off.

Summary

Issues Involved:
1. Quashing of garnishee notices.
2. Payment of service tax dues in installments.
3. Adjudication of service tax liability and interest.
4. Issuance of recovery notices without adjudication.
5. Imposition of interest rate.

Detailed Analysis:

1. Quashing of Garnishee Notices:
The petitioner sought quashing of garnishee notices issued by respondent No. 2 to respondent No. 1 under Section 87(b) of the Finance Act, 1994. These notices required the State Bank of India to remit funds from the petitioner's account to the Central Government for outstanding service tax dues amounting to ?6,27,45,124.00 for the period from April 2013 to September 2016. The petitioner argued that these notices were issued without adjudicating the service tax liability and mechanically levied interest. The court noted that the petitioner had not disputed the quantum of service tax dues but highlighted the need to pay in installments. Therefore, no adjudication was necessary, distinguishing it from the Karnataka High Court's decision in Prashanthi vs. Union of India, which required adjudication before issuing garnishee notices.

2. Payment of Service Tax Dues in Installments:
The petitioner requested to pay the outstanding service tax dues in installments due to financial constraints. The court considered the petitioner's financial situation and the circular dated 28.02.2015, issued by the Central Board of Excise and Customs, which allows recovery of arrears in installments. The court directed that the arrear service tax dues, excluding the interest amount, be paid in 48 equated monthly installments commencing from 15.09.2019.

3. Adjudication of Service Tax Liability and Interest:
The petitioner contended that the garnishee notices were issued without adjudicating the service tax liability and interest, as required under Section 73 of the Finance Act, 1994. The court noted that Section 73 mandates issuing a show cause notice within 30 months (extendable to 5 years in cases of fraud) and considering any representation before determining the service tax dues. The court found that the petitioner had admitted the service tax dues, and thus, no further adjudication was necessary for the garnishee notices.

4. Issuance of Recovery Notices Without Adjudication:
The petitioner argued that recovery notices under Section 87 of the Finance Act, 1994, were issued without prior adjudication, violating the requirement of adjudication under Section 73. The court distinguished this case from the Karnataka High Court's decision in Prashanthi, noting that the petitioner had admitted the dues, and therefore, adjudication was not required.

5. Imposition of Interest Rate:
The petitioner challenged the automatic imposition of the highest interest rate (36%) by respondent No. 2 without exercising discretion. The court observed that Section 75 of the Finance Act, 1994, provides for a flexible interest rate ranging from 10% to 36%, requiring discretion and fair adjudication. The court found that respondent No. 2 had imposed the maximum interest rate mechanically, indicating non-application of mind and arbitrariness. Consequently, the court set aside the interest portion covered by the garnishee notices and remanded the matter to respondent No. 2 for appropriate decision-making regarding the interest rate after giving the petitioner an opportunity of hearing.

Conclusion:
The court issued the following orders:
1. The interest portion covered by the garnishee notices was set aside.
2. The matter of interest imposition was remanded to respondent No. 2 for appropriate decision-making after hearing the petitioner.
3. The arrear service tax dues, excluding the interest amount, were to be paid by the petitioner in 48 equated monthly installments starting from 15.09.2019.

The writ petition was disposed of with no costs.