2010 (2) TMI 388 - HC - Service Tax

Demand- On the date of the search and seizure operation the petitioner was compelled to hand over a cheque amounting to Rs. 15 lakhs drawn on the State Bank of India Kolkata Main Branch and this was forcibly collected by the raiding officers and the said cheque was also encashed later on. Refund sought on the ground that amount taken under threat and coercion. No provision for compulsory payment of service tax in advance. Liability to pay tax arises only when the same ascertained and not before. Held that- department directed to return impugned amount. Interest payable by revenue if action not taken within 3 months.

Issues:
1. Whether the payment made by the petitioner can be realized by the department?
2. Can the department retain the amount under the provisions of law?
3. Is the payment made voluntarily or under threat and coercion?
4. Is the department legally empowered to collect any amount at the time of raid?
5. What steps should be taken by the revenue department in case of lawful tax liability?
6. How should the seized records and documents be handled?

Analysis:
1. The writ petition sought various reliefs, including the refund of Rs. 15,00,000 and the return of seized records. The petitioner claimed the search and seizure operation by DGCIE officers was illegal as they had never defaulted in paying service tax. The petitioner alleged that the amount was collected forcibly during the raid without informing about any tax liability. The respondent contested, stating there was a tax liability based on the seized documents and no returns were filed as required by law.

2. The Trial Judge found the petition premature and did not grant any relief. The appellant argued that the judgment was erroneous and failed to address the issue correctly. The department contended that the payment was voluntary and would be adjusted against any tax liability found after adjudication. The High Court found that the Trial Judge did not ask the right question, and the key issue was whether the payment, even if voluntary, could be retained by the department.

3. The Court analyzed the letters exchanged between the petitioner and the department, concluding that the payment was made to meet potential tax liability, not voluntarily. The department argued that the service provider must pay tax at specific intervals, but the Court held that payment is only required once the tax liability is ascertained. As no show cause notice was issued to determine the tax liability, the department had no legal authority to collect the amount during the raid.

4. Based on legal precedents cited, the High Court ruled that the revenue department had no right to withhold the amount and ordered the return of Rs. 15 lakhs to the appellant within a month. The appellant was directed to deposit the amount in a fixed deposit account and not encash it for three months. If no action was taken within three months, the appellant could appropriate the amount with interest. The seized records were to be returned within 15 days for photocopying.

5. The judgment disposed of the appeal with no costs, instructing both parties to act on the operative portion of the order. The Court clarified that if the appellant did not cooperate during further actions by the department, the respondents could proceed in accordance with the law.

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