FEBRUARY 27, 2019

By Vijay Kumar

MakeMyTrip gets refund of deposits willingly made during ST investigation.

ON 25.2.2019, MakeMyTrip has informed the 'United States Securities and Exchange Commission':

Refund of tax deposits from the Directorate General of Central Excise Intelligence (DGCEI)

During the year ended March 31, 2016, MakeMyTrip (India) Private Limited ("MMT India") and ibibo Group Private Limited ("ibibo India") had deposited a total amount of INR 739 million (approx. USD 10.4 million) as tax under protest pursuant to an ongoing investigation by the DGCEI that began during that fiscal year for matters related to service tax on hotel bookings facilitated by MMT India and ibibo India during certain previous periods. The Delhi High Court thereafter directed the DGCEI to refund these tax amounts, while allowing DGCEI to continue with the adjudication proceedings. The Delhi High Court's order was further upheld by the Supreme Court of India in the appellate proceedings initiated by the DGCEI, and consequently the DGCEI processed a full refund of the aforementioned tax amount, and the funds have been received by MMT India and ibibo India as on February 25, 2019.

This is a rather long story. The following extracts from the judgement of the Delhi High Court in MakeMyTrip's case - 2016-TIOL-1957-HC-DEL-ST will tell that story most graphically.

MMT states that it is carrying on the business of a 'tour operator' primarily operating through its website www.makemytrip.com. As a 'tour operator', MMT has been offering the service of booking rooms in hotels for its customers for more than a decade.

It is stated that the officers of the DGCEI visited the office premises of MMT and issued summons dated 20th November, 2015. Thereafter summons dated 23rd November, 2015, 9th, 10th and 14th December, 2015 and 13th January, 2016 were issued to MMT for tendering statements and providing information. Two of the summons dated 9th December 2015 and 8th January 2016 were issued to Mr. M.K. Pallai, Vice President (Finance), MMT for tendering his statement under Section 14 of the CE Act as made applicable to service tax in terms of Section 83 of the FA. It is further stated that Mr. Pallai duly appeared before the SIO along with other officials and also met the ADG.

The case of MMT is that on 8th January, 2016 the officers of DGCEI compelled MMT to immediately deposit the service tax collected by it from its customers failing which its officers would be arrested. It is stated that in the absence of any SCN, MMT did not deposit the amount demanded.

On 8th January, 2016, the officers of DGCEI arrested Mr. Pallai at the office of the ADG at R.K. Puram, New Delhi. It is stated that MMT was orally directed to immediately deposit Rs. 25 crores failing which the directors/officials of MMT would be arrested. After his arrest, Mr. Pallai was produced before the CMM. The CMM on 9th January, 2016 remanded Mr. Pallai to judicial custody.

Out of the total alleged service tax dues of Rs. 67.44 crores, more than Rs. 40 crores has already been paid and yet an SCN had not been issued under Section 73A(3) of the FA.

In the present case, both Petitioners have been regularly filing service tax returns and have been paying service tax. It is the admitted case of the Respondents themselves. None of the Petitioners fall under the category of a person not filing a return under Section 70 of the FA as envisaged under Section 72 (a) of the FA. Under Section 72 (b) of the FA, the return filed by the Assessee can be scrutinized by the Central Excise Officer who has been assigned his functions in terms of the provisions of the FA read with CE Act.

It is perhaps a peculiar feature of the FA that there is no power of reopening the assessment like for instance under Sections 147 and 148 of the Income Tax Act, 1961 ('IT Act').

In the present case, the DGCEI fails to make out even a prima facie case that some portion of the service tax collected by the Petitioners from the customers 'as representing service tax' or otherwise has been 'retained' by them. Without such prima facie conclusion, it cannot be inferred that the Petitioners have violated Section 73A (1) of the FA.

It is difficult to conceive of the DGCEI or for that matter the ST Department being able to by-pass the procedure as set out in Section 73A (3) and (4) of the FA before going ahead with the arrest of a person under Section 90 and 91 of the FA. The power of arrest is, therefore, to be used with great circumspection and not casually. It is not to be straightway presumed by the DGCEI, without following the procedure under Section 73A (3) and (4) of the FA, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government.

It is sought to be suggested by the DGCEI that, for the purposes of arrest, it is not necessary for the adjudication proceedings to have concluded. However, when the scheme of the provisions in the FA is carefully analysed, the said submission appears to be legally untenable.

It is, therefore, plain that the decision to arrest a person must not be taken on whimsical grounds. In these circumstances, to go in for extreme step of launching prosecution and going for arrest without issuing an SCN under Section 73 or 73-A (3) of the FA, appears to be totally unwarranted.

The Court, therefore, finds that the search of the premises of the two Petitioners in the instant case was contrary to law and, therefore, legally unsustainable.

In the first place, the Court is unable to accept that when an offer is made in the circumstances outlined before a criminal court for payment of alleged service tax arrears without even a show cause notice in this regard being issued, it is plain that the offer is made only to avoid the further consequences of continued detention. Such a statement can hardly be said to be voluntary even though it may be made before a Court. Secondly, there appears a contradiction because the DGCEI did not decline to receive the offer of payment of alleged service tax arrears.

Without even an SCN being issued and without there being any determination of the amount of service tax arrears, the resort to the extreme coercive measure of arrest followed by detention was impermissible in law. Consequently, the amount that was paid by the Petitioners as a result of the search of their premises by the DGCEI, without an adjudication much less an SCN, is required to be returned to them forthwith.

The Court was not a little surprised that the DGCEI did not think it appropriate to check with the ST Department whether the Petitioners were regular in filing their returns and whether such returns had been assessed.

The Court is satisfied that in the present case the action of the DGCEI in proceeding to arrest Mr. Pallai was contrary to law and that Mr. Pallai's constitutional and fundamental rights under Article 21 of the Constitution have been violated.

To summarise the conclusions in this judgment:

(i) The scheme of the provisions of the Finance Act 1994 (FA), do not permit the DGCEI or for that matter the Service Tax Department (ST Department) to by-pass the procedure as set out in Section 73A (3) and (4) of the FA before going ahead with the arrest of a person under Sections 90 and 91 of the FA. The power of arrest is to be used with great circumspection and not casually.

(ii) The decision to arrest a person must not be taken on whimsical grounds; it must be based on 'credible material'.

(iii) In the case of MMT, without even an SCN being issued and without there being any determination of the amount of service tax arrears, the resort to the extreme coercive measure of arrest followed by the detention of Mr. Pallai was impermissible in law.

(iv) The Court is unable to accept that payment by the two Petitioners of alleged service tax arrears was voluntary. Consequently, the amount that was paid by the Petitioners as a result of the search of their premises by the DGCEI, without an adjudication much less an SCN, is required to be returned to them forthwith.

(v) It was imperative for the DGCEI to first check whether the entity whose employees are sought to be arrested has regularly been filing service tax returns or is a habitual offender in that regard.

(vi) The Court is satisfied that in the present case the action of the DGCEI in proceeding to arrest Mr. Pallai, Vice-President of MMT, was contrary to law and that Mr. Pallai's constitutional and fundamental rights under Article 21 of the Constitution have been violated.

(vii) The Court is satisfied that in the present case the action of the DGCEI in proceeding to arrest Mr. Pallai, Vice-President of MMT, was contrary to law and that Mr. Pallai's constitutional and fundamental rights under Article 21 of the Constitution have been violated.

It is directed that the DGCEI will refund to each of the Petitioners forthwith the respective amounts deposited by them towards alleged dues of service tax forthwith and in any event not later than four weeks from today.

The writ petitions are disposed of in the above terms with costs of Rs. 1 lakh in each petition which will be paid by the DGCEI to each Petitioner within four weeks.

This judgement was delivered on 1st September 2016. The Government took the matter in appeal to the Supreme Court, which dismissed the appeal on 23rd January 2019 - 2019-TIOL-65-SC-ST

That is how MakeMyTrip became eligible for refund of the amounts willingly paid by them during investigation by DGCEI. They are apparently happy to report to the US Securities and Exchange Commission that the DGCEI has refunded to them the total amount of Rs. 73.9 Crores.

The Delhi High Court clarified the legal position so that future errors and exercise of such powers of the officers of the DGCEI or, as the case may be, the ST Department can be prevented. Let us hope these things don't happen in GST.

The Supreme Court in the case of Dabur India observed,

We would not like to hear from a litigant in this country that the government is coercing citizens of this country to make payment of duties which the litigant is contending not to be leviable. Government, of course, is entitled to enforce payment and for that purpose to take all legal steps but the government, Central or State, cannot be permitted to play dirty games with the citizens of this country to coerce them in making payments which the citizen were not legally obliged to make. If any money is due to the government, the government should take steps but not take extra legal steps or manoeuvre.

GST Over-reach: A GST Superintendent in Indore sent an email to an assessee:

Subject:- TAXPYERS SHOWING NEGATIVE GROWTH (MORE THAN 50%) IN TAX FOR 2017-18 VIS-A-  VIS 2016-17-regarding.

On going through the return filed by you under the GST regime and it has been noticed that taxpayers showing negative growth (more then 50%) in tax liability in 2017-18 in compared period 2016-17. 

It is there fore requested to please explain the main reason for the negative growth alongwith documents evidance provide to this office within 03 days of the received this letter.

Since the matter is most urgent early action in the matter is solicited.

The assessee replied:

this is really strange!

with which figures your good office is comparing the figures of 17-18, when gst was not there and vat and service tax was there this is highly disgusting.

please note carefully that....

the total taxes paid were 2.06.cr 5.79 cr respectively.

so ours is not a case of shortfall in tax payment in 17-18 if compared with 16-17 rather its a case of increase that too significant one.

Another Superintendent from Pune shot off mails to assessees:

Service Tax - Apparent Non-Payment/Short payment -reg.

Gentlemen,

Please find attached letter in view of the above subject, you are directed to make necessary submission in this regards within two days of receipt of this letter.

An assessee replied:

From the letter sent by you through mail Dt. 19/02/2019, it is not understood that form which sources and on the basis of what documents your good office has reason to believe that there is mismatch in the Income earned and reported in Service Tax Returns.

Another Superintendent in Bengaluru sent mails to all his assessees:

Gentlemen,

SUB: - Verification of Service Tax / Central Excise returns -reg

*****

In connection with the verification of Service Tax returns / Central Excise returns, the following details may please be submitted to this office within weeks' time.

1. Copies of Balance sheet/Profit & Loss account for the year 2015-16, 2016-17 & 2017-18,

2. Sales ledger abstract for the year 2015-16, 2016-17 & 2017-18,

3. Copies of the Service Tax (ST-3) returns/Central Excise returns for the year 2015-16, 2016-17 & 2017-18.

Disclaimer: I am not responsible for their language.

Revenue officers are known for their funny behaviour in March.

Until next week