By TIOL News Service:

BANGALORE, JUNE 13, 2016: QUESTIONING the action of issuance of recovery notices and contending inter alia that without there being any adjudication u/s 73 of the Finance Act, 1994 recovery notices u/s 87 of the FA, 1994 could not have been issued,the legal heir of the Proprietor of M/s Rapid Marine Suppliers had filed a WP 14054/2015 befoe the Karnataka High Court.

The respondent department justified the action by contending that in order to safeguard the interest of revenue, the admitted service tax which had been collected by the proprietor of the Firm, namely, husband of the petitioner which had not been remitted to the Government as required under the FA, 1994 had resulted in investigation being conducted and after verification of the invoices and ledgers submitted by the service receivers, quantification has been done and since the service tax amounts have been recovered, there is no infirmity in the action initiated u/s 87.

While allowing the petition, the Single Judge had held thus -

+ The words "amount payable by a person" used in Section 87 will have to be considered in the background of Section 73 of the Act inasmuch as, show cause notice issued under Section 73(1) of the Act is required to be adjudicated after considering representation of the person if filed and thereafter determine the amount payable. Any deviation in this regard would be in violation of principles of natural justice - doctrine of Audi Alteram Partem would be attracted - Thus, jurisdictional Central Excise Officer would be entitled to recover the amount from the person payable and payable would by such person after adjudication has been done as otherwise, it would amount to putting the cart before horse. ( para 16)

+ Regard being had to the scheme of the Finance Act, 1994 it does not leave any doubt that until and unless there is determination and adjudication either under Section 72 or under Section 73 of the Act, respondents cannot resort to invoke Section 87 of the Finance Act. (para 18)

+ Impugned notices under Section 87 are illegal and quashed - Respondents directed to remit the amounts recovered back in respective accounts. (Para 21 & 22).

We carried this order as 2015-TIOL-1596-HC-KAR-ST .

Revenue is unhappy with this Single Judge order and is in Writ Appeal.

After considering the submissions made by both sides, the Division Bench of the High Court observed thus -

++ The pertinent aspect is that Section 73 of the Finance Act is wide enough to cover recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. Such would include the amount of service tax not paid by the assessee with the Government. Not only that, the language of Section 73 of the Finance Act is wide enough to cover all contingencies which would include a case where the amount of tax is collected but not paid with the Government.

++ Further Section 87 of the Finance Act provides for the recovery of the amount due to the Central Government. The language is that where the amount payable by the person under the provisions of this chapter or the Rules made thereunder is not paid. If both Sections are read conjointly, it would mean that the payability of the amount is an aspect which may be adjudicated under Section 73 of the Finance Act and thereafter the recovery may be effected under Section 87 of the Finance Act .

++ We are not impressed by the submission of the appellants that the power under Section 87 of the Finance Act is independent and irrespective of the procedure under Section 73 nor can we accept the contention that when the power under Section 87 of the Finance Act is to be invoked, no procedure under Section 73 is to be undertaken. If we entertain the contention, the resultant situation would be that the power under Section 87 of the Finance Act would be without an adjudication mechanism under Section 73 of the Finance Act which is neither conceived by the legislature nor can be the accepted position.

Holding that there is no case made out for interfering with the order of the Single Judge, the appeals were held to be meritless and, therefore, dismissed.

In passing: Please also see 2015-TIOL-1164-HC-MUM-ST.

(See 2016-TIOL-1127-HC-KAR-ST)