By TIOL News Service

HYDERABAD, MAR 26, 2018: THE petitioners are engaged in providing taxable services in assisting the prospective customers in processing of loans from different banks and financial institutions. The banks gave certain amount as consideration to the petitioners under the head Commission and these amounts were received for rendering the said services, which are liable to service tax.

Information was received by DGGSTI that the petitioners collected the service tax from the service recipients but did not pay the same to the credit of the Central Government.

It appeared that during the period October 2012 to March 2017 the petitioners collected service tax to the tune of Rs.4,05,77,984/- and Rs.2,16,89,832/- respectively from different service recipients but did not pay the same to the credit of the Central Government. Hence, the petitioners were held liable for the offence under Section 89 of the Finance Act, 1994.

The petitioners moved the Court of Special Judge for Economic Offences, Hyderabad seeking bail. The Court, while ordering bail, imposed the condition of furnishing bank guarantee for the remaining amount, after part payment made by the petitioners.

This condition, that the petitioners shall furnish bank guarantee for the remaining due amount, within ten days from the date of order of the Court, imposed, while granting bail to the petitioners, is what is brought into question in the present criminal petitions before the High Court of Hyderabad.

The petitioner inter alia contends that the conditions of Section 73A(3) of the FA, 1994 were not fulfilled by the prosecution and unless those conditions are fulfilled, the due time for payment of the tax does not arise and hence, the payment does not become due, in order to invoke Section 89 of the Act.

The Special Public Prosecutor while agreeing that no such notice was served submitted that the time given for furnishing the bank guarantee has expired; the contention of the petitioners that they are not avoiding the payment of service tax is false and misleading; the issue is not just a case of service tax evasion but a serious fraud of collecting service tax and failing to credit the same to the Central Exchequer beyond the period of six months from the date on which the said payment became due.

The High Court noted that the submissions by the Special Public Prosecutor does not really answer the submission made by the counsel for the petitioners that the due time for payment has not arisen, as no notice was served, as required by the Act. Further, the contention that the time permitted for furnishing bank guarantee has expired was not correct inasmuch as the time given was ten days from the date of order; that the order was passed on 16.02.2018 and the petition was filed on 22.02.2018 and the order was stayed on 26.02.2018.

The next issue was whether the undertaking that was given by the petitioners, allegedly, the counsel for the petitioners is binding on the petitioners.

The petitioner relied on the decision of the Supreme Court in HIMALAYAN COOP. GROUP HOUSING SOCIETY v. BALWAN SINGH (2015) 7 SCC 373 11 to submit that mere engagement of lawyer by client gives no implied or ostensible authority to lawyer to bind his client to a compromise/settlement entered into by him in court; they should seek appropriate instructions from client or his authorized agent before making any concession, statement, admission, settlement, compromise before court which may, directly or remotely, affect the rightful legal right of the client; lawyers should follow the clients instructions rather than substitute their judgment for that of the client.

The High Court adverted to the decisions of the Delhi High Court in eBIZ.COM PVT. LTD v. UNION OF INDIA - 2016-TIOL-2896-HC-DEL-ST (para 79) and MAKEMYTRIP (INDIA) PVT. LTD. v. UNION OF INDIA - 2016-TIOL-1957-HC-DEL-ST (para 116) wherein it is held that without issuance of SCN and determination of the service tax arrears, resorting to extreme coercive measure of arrest followed by detention of the accused therein was impermissible in law.

The petitioner also emphasised that no individual can barter away the freedoms conferred upon him by the Constitution and there can be no estoppel against the Constitution and Statutes in view of the decisions in -

++ OLGA TELLIS v. BOMBAY MUNICIPAL CORPORATION (1985) 3 SCC 545.

++ STATE OF UTTAR PRADESH v. UTTAR PRADESH RAJYA KHANIJ VIKAS NIGAM SANGHARSH SAMITI (2008) 12 SCC 675

The High Court, therefore, observed –

“15. The Court, on the basis of the undertaking given by a party, cannot convert itself into an executing Court to execute the terms agreed by the party, while deciding the bail application. Hence, with the above legal scenario, in the background, the condition imposed by the Court below to the extent of directing the petitioners to furnish bank guarantee for the remaining amount cannot be sustained and is set aside."

The criminal petitions were allowed.

In passing : Also see –

Illegal Search and Arrest - DGCEI lambasted by Delhi High Court - Make Your Trip within framework of Law - Cost Imposed

Arresting Guidelines in Service Tax

(See 2018-TIOL-518-HC-AP-ST)