Recovery proceedings in Service Tax without assessment or adjudication
FEBRUARY 26, 2015
By G Jayaprakash, Advocate
MANY men of letters have written on the subject, undue and unlawful actions by Revenue to extract amount of taxes under litigation to achieve the target. The deafening silence of the industry bosses on the subject was aptly narrated by Shri. B.N.Gururaj, Advocate in TIOL (4 th April, 2013). However it appears appropriate to examine the legitimacy of the actions of authorities in invoking provisions of Section 87 of Finance Act, 1994 during the investigation stage where there is no selfassessment, best judgment assessment or orders issued under Section(s) 73(2) or 73A(4) of the Act.
Section 87 of the Act empowers a Central Excise Officer to recover amount due to Central Government by coercive actions spelt out in the Section. Till 18.04.2006, the provisions of Section 11 of Central Excise Act were applicable for recovery of sums due to the Central Government. Of late it is seen that the authorities issue directions to different persons to part with the money due to a person against whom investigations are initiated for alleged non payment/ short payment of Service tax.
Section 87 : Where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made there under is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes. mentioned below:—
(a) the Central Excise Officer may deduct or may require any other Central Excise Officer or any officer of customs to deduct the amount so payable from any money owing to such person which may be under the control of the said Central Excise Officer or any officer of customs;
(b) (i) the Central Excise Officer may, by notice in writing, require any other person from whom money is due or may become due to such person, or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central Government either forthwith upon the money becoming due or being held or at or within the time specified in the notice, not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount;
(ii) every person to whom a notice is issued under this section shall be bound to comply with such notice, and in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary to produce any pass book, deposit receipt, policy or any other document for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary;
(iii) in a case where the person to whom a notice under this section is sent, fails to make the payment in pursuance thereof to the Central Government, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and all the consequences of this Chapter shall follow;
(c) the Central Excise Officer may, on an authorisation by the Commissioner of Central Excise, in accordance with the rules made in this behalf, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; and in case, any part of the said amount payable or of the cost of the distress or keeping of the property, remains unpaid for a period of thirty days next after any such distress, may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and shall render the surplus amount, if any, to such person;
(d) the Central Excise Officer may prepare a certificate signed by him specifying the amount due from such person and send it to the Collector of the district in which such person owns any property or resides or carries on his business and the said Collector, on receipt of such certificate, shall proceed to recover from such person the amount specified there under as if it were an arrear of land revenue.]
The pertinent question is whether the term "Where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made there under" denotes the understanding of the officer of Central Excise about the "Payable" amount or whether it denotes a legally determined amount as "Payable". In Service Tax an amount is legally payable to the Central Government when such amount is determined as per self assessment or by best judgment assessment or by way orders issued as per Section(s) 73(2) and 73A(4) of the Act. Prior to such determination, no amount is payable by any one. The default, if any, noticed during audit, or during search and seizure are only inferences for an allegation to pay the tax based on a notice to be issued. Hence issuing directions to a third party to pay or to withhold amount payable to a person by the third party is ab initio illegal and an actionable act. At least, the industrial giants may ask for the pre-determined amount as per law before withholding payments as per a mere letter from a Superintendent or a Deputy Commissioner.
The statute aptly address the necessary precautions to be taken vide Section 73C of the Act for provisional attachment to protect revenue in certain cases. This can be done immediately after issuing a Show Cause Notice. This will become redundant if Section 87 is invoked at the investigation/Audit stage by the Central Excise Officer.
Because being tax officials, law of the land is not alien to them. Is it necessary that statements from CEOs and their Chartered accountants are a must for determining Service Tax Liability?The 2011 or 2013 Finance Acts did not convert the Chapter V of Finance Act, 1994 into a criminal law. The prosecution and arrests are exceptions and not the rule in administering Service Tax law.The field officers should make it a point to go through the instructions brought out by the Board on 20 th January, 2015.
Hope the man who vociferously stated so in the Upper house of the Parliament in 2013 will remember it without giving an opportunity to the people to remind him/his party.
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