By TIOL News Service

AHMEDABAD, JULY 19, 2016: FOOD Corporation of India filed a Writ Petition in High Court, challenging various letters issued by the Service Tax authorities, seeking to recover service tax of Rs.5.37 crores from the petitioner.

FCI had engaged one Kailash Enterprise for handling of wheat cargo during the year 2006-07. Case of the petitioner is that such service provided by Kailash Enterprise was exempt from payment of service tax, despite which, under mistaken belief, FCI was made to pay service tax of Rs.5.37 crores which Kailash Enterprise recovered from FCI. However, Kailash Enterprise had not deposited such service tax with the service tax authorities. Proceedings were therefore, instituted against Kailash Enterprise for recovery of such service tax so collected.

It appears that between FCI and Kailash Enterprise there were multiple disputes of deficiency in service provided by the service provider. The FCI by the year 2011-12 had also realized that the service tax collected by Kailash Enterprise was not deposited in the government revenue. Inter alia, on such grounds, sometime in the year 2011, FCI utilized the performance bank guarantees issued by Kailash Enterprise to FCI and recovered a sum of Rs.3,52,45,420/-

The Government seeks to recover from FCI said sum of Rs.3,52,45,420/- under section 87 of the Finance Act, 1994.

After hearing both sides, the High Court held:

+ perusal of Sec 87 would show that the powers vested with the Central Government are in the nature of garnishee enabling Central Government to recover unpaid dues of a person liable to pay the sum to the Government from any other person or requiring any other person from whom money is due or may become due to such defaulting person. The fundamental question is when the Government of India wrote letters to the FCI in the year 2015 and onwards, was there any due of Kailash Enterprise from FCI? The answer is obviously in the negative. Section 87 of the Finance Act, 1997 was therefore wrongly invoked.

Accordingly, the High Court quashed the impugned notices issued under Sec 87.

(See 2016-TIOL-1426-HC-AHM-ST)