By TIOL News Service

MUMBAI, DEC 03, 2015: THE Petitioner has challenged the notices by which the Respondent Banks have been directed not to allow the Petitioner to operate the bank accounts. These bank accounts have been frozen pursuant to the communications from the Directorate General of Central Excise Intelligence, Mumbai Zonal Unit.

The Petitioner is carrying on business of fabrication and erection of plants, structures etc. and is registered as an assessee with the Service Tax Department since 2008. The Petitioner undertakes the projects on turnkey basis as well as on Works contract basis.

Pursuant to investigation by the DGCEI, a SCN dated 15th October, 2014 demanding service tax of Rs.2,49,63,812/- came to be issued.

A reply was submitted on 17th July 2015 denying all the allegations and asserting that the service tax due and payable in law has been paid.

It is the case of the petitioner that without any personal hearing in the matter or adjudication, the banks have been intimated to freeze the accounts.

Moreover, once the Petitioner came to know that the notices have been issued under Section 87 of the Finance Act, 1994, then, the Petitioner got in touch with the department and arranged to make payment of Rs.55,84,005/- in cash and Rs.42,34,507/- through CENVAT credit totaling to Rs.98,18,512/.

The Petitioner submits that the show cause notice ought to have been taken to its logical end and conclusion and without any personal hearing or passing of any adjudication order, there is no question of any recovery by addressing such communications to the bank.

The petitioner adverted to section 87 of the FA, 1994 and submitted that the word 'payable' has definite legal connotation. Inasmuch as it presupposes that there is a determination and adjudication so also crystallization of the dues and it is only upon such an exercise that the modes of recovery can be resorted to.

Reliance is placed on the decisions in Harshad Shantilal Mehta v/s Custodian and Others (1998) 5 SCC 1,ICICI Bank Ltd - 2015-TIOL-1164-HC-MUM-ST and Tata Teleservices Maharashtra Ltd - 2014-TIOL-147-HC-MUM-ST.

The counsel for the Revenue strenuously urged that it is not necessary in the facts and circumstances of the present case to wait for any adjudication because the dues which are admitted, remain unpaid and, therefore, it is not a fit case for interference in writ jurisdiction and equally the judgments relied upon do not have any application to the peculiar facts and circumstances of this case.

The High Court inter alia observed -

++ Admittedly, in this show cause notice, there is reference to several invoices which demonstrate as to how the service tax has been charged from the recipients of the service. Then, there are statements referred to from which the amounts recovered but not remitted to the Government, are set out. Pertinently, all this is after some payment made by the Petitioner. Thus, what we have on record is the demand based on the allegations of breach and intentional violation of the provisions of the Finance Act, 1994 and Chapter-V thereof. It is common ground that on this show cause notice and which was duly served, the Petitioner had filed the reply. It may be that the reply is filed in the month of July 2015 and after the requisite action under Section 87 of the Finance Act but the fact remains that the Petitioner has denied the allegations and refuted the demand. It is in these peculiar circumstances that we are of the opinion that there was no occasion for the authority to have issued the notices under Section 87 to the banks and to the Petitioner's debtor straightaway.

++ The Hon'ble Supreme Court (in Harshad Shantilal Mehta) has held that the amount tax due means ascertained liability for taxes and unascertained and unassessed tax which is not legally binding on the assessee cannot be recovered by the mode found to be applicable in that case. The word 'due' has been interpreted to mean something which is payable and recoverable. The Hon'ble Supreme Court held that it does not refer merely to a liability created by the charging sections to pay the tax under the relevant law. It refers to an ascertained liability for payment of tax quantified in accordance with law.

++ In other words, the taxes as assessed which are presently payable by the notified person are taxes which have been taken into account. It is in that context and carrying this principle further that the Division Bench of this Court applied it to recovery under Section 87 of the Finance Act, 1994. The reliance placed on the judgment of ICICI Bank(supra) is thus, apposite.

++ Thus, the settled principle that levy, assessment and valuation alone will enable the Revenue to recover the amount of taxes and recovery cannot precede prior important steps. Merely because there is incidence and charge of tax will not be of assistance as the charging section and machinery provisions all enable together, the Revenue to assess the tax. Unless and until in case before us there is a crystallization of a demand by proper adjudication order and on hearing the Petitioner, there was no question of any recovery.

++ Even if the letters have been addressed to the bank and there has been a freezing of the account, yet, we find that till date there is no adjudication order passed. The show cause notice has been issued more than a year back. In the circumstances, allowing the Petitioner's account to be frozen would not be in accordance with law.

++ Thus, if there is a requirement of an adjudication and assessment of the tax and that is how the liability has to be ascertained then, we do not find any substance in the contentions raised before us on behalf of the Revenue.

The notices issued to the bank for freezing the current accounts of the petitioner were quashed and set aside.

(See 2015-TIOL-2710-HC-ST-MUM)