Revenue challenged a lower court order dismissing writs seeking quashing of garnishee notices and refund enforcement. The Supreme Court held that Section 87 recovery without a prior assessment order is legally unsustainable and unsupported by statutory provisions.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 09.11.2017
CORAM
THE HONOURABLE MR.JUSTICE S.MANIKUMAR
AND
THE HONOURABLE MR.JUSTICE R.SURESH KUMAR
W.A.Nos.1187 & 1188 of 2017
1 The Deputy Commissioner (SIR-II) Service Tax Commissionerate- II No. 2054 Newry Towers second Avenue 12th Main Road Anna Nagar Chennai-600040. 2 The Commissioner of Service Tax No.2054 Newry Towers Second Avenue 12th Main Road Anna Nagar Chennai600040 3 The Superintendent (SIR-II GR.III) Service Tax II Commissionerate No.2054 Newry Towers Second Avenue 12th Main Road Anna Nagar Chennai-600040 4 Union of India rep by its Secretary Ministry of Finance Department of Revenue Government of India North Block New Delhi ... Appellants in both W.As./ Respondents Vs 1 M/s.Service Care Pvt Ltd Rep by National Head Payroll Services NO. 125 10th Cross Indira Nagar 1st Stage Bangalore- 560 038 ... Respondent in both W.As./ Petitioner
Prayer : The appeal filed under Clause 15 of the Letters Patent Act, to set aside the order of the learned Judge dated 31.01.2017, passed in W.P.Nos.1468 & 1469 of 2017.
Prayer in W.P.No.1468 of 2017 : Writ Petition filed under Article 226 of the Constitution of India praying for the issuance of a writ of Prohibition or any other appropriate writ, order or direction prohibiting respondents from proceeding with issuance of recovery notices under Section 87 of the Finance Act, 1994, to the petitioner's clients and to pass such further or other orders as deemed fit in the facts and circumstances of the case.
Prayer in W.P.No.1469 of 2017 : Writ Petition filed under Article 226 of the Constitution of India praying for the issuance of a writ of Mandamus directing the respondents 1 to 3 to refund the amounts collected coercively from the clients of the petitioner being amounts belonging to the petitioner or to issue any other appropriate writ or order as this Hon'ble High Court may deem fit and proper to the facts and circumstances of the case.
For Appellant in both W.As. : Mrs. Hema Muralikrishnan For Respondent in both W.As. : Ms.Radhika Chandra Sekar JUDGEMENT (Judgment of the Court was delivered by R.SURESH KUMAR,J.)
These two writ appeals were preferred by the appellants/Revenue as against the orders passed by the learned Judge made in W.P.Nos.1468 and 1469 of 2017 dated 31.01.2017.
2.The writ petitioner is the respondent herein and the respondents in the writ petitions/Revenue are the appellants herein. The appellants for the sake of brevity will be called as 'Revenue' and the respondent will be called as 'writ petitioner'/petitioner.
5.While that being so, on behalf of the Revenue, the third appellant herein, had issued a letter on 23.09.2016 demanding service tax due payable by the proprietorship concern at Chennai, from the petitioner company. In reply to the same, the petitioner company had filed an affidavit on 07.02.2015 informing the Revenue that the M/s.Service Care, Chennai was a proprietorship concern of the late father of the Managing Director of the petitioner company and once the proprietor died, the concern was closed and nothing was inherited by the petitioner company from the proprietorship concern and there was no liability on the part of the petitioner company to pay anything to the Revenue since the petitioner company from inception and after having registered with the Revenue for the purpose of service tax, had been discharging the service tax liability without fail.
Bangalore and the Service Care Chennai are two different entity. M/s.Service Care Chennai was a sole proprietorship concern, owned by the late father of the Managing Director of the M/s.Service Care Pvt. Ltd., Bangalore which is a company incorporated under the provisions of the Companies Act, 1956. The Managing Director of the Company was having a share of 75% at the petitioner company and the proprietorship concern of her father and the petitioner company has no connection whatsoever and neither the property nor the liability was inherited by the Managing Director of the petitioner company from the proprietorship concern and therefore, there was absolutely no due on the part of the petitioner company by way of service tax payable to the Revenue.
to initiate appropriate proceedings against the Revenue, for recovery of the said amount. Accordingly, the two writ petitions were ordered by the writ Court, by order dated 31.01.2017. Aggrieved over the said order passed by the writ court, the Revenue preferred these two instant writ appeals.
Chennai is undertaken by the petitioner company at Bangalore and therefore, for the service tax due demanded from the Managing Director of the petitioner company in so far as the proprietorship concern as on 31.03.2010, no separate assessment need to be made.
recovering the alleged service tax due of the said erstwhile proprietorship concern from the petitioner company.
(i) 2015 (40) STR 463 Jharkhand (ii) 2016 (41) STR 11 Bombay (iii) 2015 (40) STR 888 Gujarat (iv) 2015(38) STR 907 Bombay (v) 2015 322 ELT 372 SC
chargeable with the service tax which has not been levied or paid or which has been shortlevied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : Provided that where any service tax has not been levied or paid or has been short-levied or shortpaid or erroneously refunded by reason of— (a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words [thirty months] the words “five years” had been substituted. Explanation.—Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of [thirty months] or five years, as the case may be. Section 73A reads thus: (1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made thereunder from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government.
....... ...... ..... Section 87 reads thus: Section 87 – Recovery of any amount due to Central Government.
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 thereunder is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned below:—
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;
(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;
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;
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;
the Central Excise Officer may, on an authorisation by the [Principal Commissioner of Central Excise or] 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 :
[Provided that where the person (hereinafter referred to as predecessor) from whom the service tax or any other sums of any kind, as specified in this section, is recoverable or due, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in such business or trade by any other person, all goods, in the custody or possession of the person so succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs, after obtaining the written approval of the Commissioner of Central Excise, for the purposes of recovering such service tax or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change.] 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 thereunder as if it were an arrear of land revenue.]
(1) If service tax has not been levied or has been short levied or short paid or even erroneously refunded, within a period of 30 months form the relevant date, the Revenue could serve a notice to the assessee requiring him to show cause why he should not pay the amount specified in the notice.
(2) In Section 73(1) as has been extracted above, certain words are very important from the context of the issue raised herein. The first one is 'person chargeable' the second one is
'person to whom such tax refund has erroneously been made'.
"any person is liable to pay service tax". The word 'any person is liable to pay services tax', means, the person who had rendered service and has collected the amount in cases of the services tax assessment determined under the provisions of the concerned Sections of the Act or rules made thereunder, shall forthwith pay the amount so collected to the credit of the Central Government.
So, if any person from whom money became due, only against such person, Section 87 proceedings can be initiated. Here in the case in hand, there is no assessment and no determination of tax liability about the erstwhile proprietorship concern namely, M/s. Service Care, Chennai in the manner known to law. When that being so, the very invocation of the Provisions of Section 87 of the Act, as referred to above, is absolutely unjustifiable.
(iii) Now the question before this Court is whether merely because a letter dated 23.04.2014 is written, whereby calculation is given by the petitioner of his letter at Rs. 4,45,97,399/- whether straightway notice under Section 87 of the Act, 1994 can be issued by the respondents. The answer is in negative mainly for the reason that:
has been dealt with on several occasions by the Hon'ble Supreme Court and equally by this Court in the case of Harshad Shantilal Mehta (supra). The Hon'ble Supreme Court 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. ..................."
" 11. This court is in agreement with the aforesaid view expressed by the Uttarakhand High Court, namely, that recovery under Section 87 of the Finance Act can be resorted to only after an amount is adjudicated to be due to the Central Government. Under the circumstances, at the stage of show cause notice when the liability of the petitioner is yet to be crystallized, it was not permissible for the respondents to resort to the drastic provisions of Section 87 of the Act.
" 35 It would thus clearly reveal that provisions of section 72 and 73 involve complete adjudicatory process. Under section 72 the Central Excise Officer is required to assess value of taxable services to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.
The said power can be exercised by the Central Excise Officer in Talwalkar 43/64 44 2.wp3246.15.sxw either of the eventualities, i.e. when the return is filed under Section 70 or even it is not filed as required in the
said section. The said provision specifically provides for giving an opportunity of being heard to the assessee before final orders are passed by the authority.
The provisions of Section 73, specifically sub-section 1 and 2 would also show that where in opinion of Central Excise Officer, service tax has not been levied, paid or short-levied or short paid or erroneously refunded, the Central Excise Officer is empowered to serve notice on the person chargeable with the service tax, requiring him to show-
cause why he should not pay the amount specified in the notice. Sub-
section 2 thereof empowers the Central Excise Officer to determine the amount of service tax due from or erroneously refunded to such person and thereupon requiring such person to pay the amount so determined. However, prior to that, the Central Excise Officer is required to consider representation, if any, made by the assessee.
Provisions of sub-section 3 and 4A appears to have enacted so as to enable the assessee to voluntarily pay the service tax in two eventualities (1) when in the opinion of Central Excise Officer, the service tax is payable and (2) in the course of any audit, investigation Talwalkar 44/64 45 2.wp3246.15.sxw or verification, it is found that any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded.
If an assessee voluntarily pays service tax in either of these provisions, he saves himself from the rigours of penalty. In the first case, no penalty is leviable whereas in the second case penalty is leviable only to the maximum extent of 25 per cent as against 50 per cent in the normal case. Again in either of these eventualities, if the Central Excise Officer is of the opinion that the service tax has not been paid as per the liability which is cast upon such an assessee, again the said Central Excise Officer is empowered to conduct an enquiry as provided under sub-section 2 of section 73 of the Act and is further required to determine the amount payable by an assessee, upon which the assessee will be liable to pay the said amount. It can thus be
seen that though in the aforesaid two eventualities, assessee voluntarily accepts the liability and makes the payment, proceedings under Section 73(1) and (2) cannot be initiated against such assessee, atleast in so far as the duty which is admitted by him and paid.
However, even in these eventualities, in respect of service tax, which is disputed by him and not paid is the procedure as required under Talwalkar 45/64 46 2.wp3246.15.sxw subsection 1 and 2 is required to be followed. It could thus be seen that prior to determination of the amount of service tax due from assessee or erroneously refunded to such person, an enquiry as contemplated either under the provisions of Section 72 or sub-section 1 and sub-section 2 of section 73 is required to be conducted. The amount of tax shall be payable, only after the determination by authority either under Section 72or section 73. Not only that, even in case of voluntary option to pay the service tax as is available under subsection 3 or 4A of section 73, except the admitted liability the amount payable would be required to be determined by an authority under sub-section 2 of section 73. 36..... 37..... 38..... 39. In the present case also, as could be seen from aforesaid discussion that the scheme of the act is that the tax would be held to be payable only after adjudication either under Section 72 or sub-section 2 of section 73 of the said Act. As already stated by us hereinabove that even when an assessee voluntarily pays tax under sub-section (3) and 4A of section 73, even in that case, in so far as disputed amount is concerned, determination as required under subsection 2 of section 73 is required to be done. By now it is settled principle of law that when a law requires a particular things to be done, in a particular manner, it has to be done in that manner alone and not at all. Reference could be made to the Judgment of the Apex Court in
the case of Dhanajaya Reddy v/s. State of Karnataka reported in (2001) 4 SCC 9.
"2. One Shri George Varghese was the sole proprietor of Kerala Tyre and Rubber Company Limited. By October 1985, this proprietorship concern had stopped manufacture and production of tread rubber. By a show cause notice dated 12.6.1987, for the period January 1983 to December 1985, it was alleged that the assessee had manufactured and cleared tread rubber from the factory premises by suppressing the fact of such production and removal with an intent to evade payment of excise duty. The provisions of Section 11A, as they then stood, of the Central Excises and Salt Act were invoked and duty amounting to Rs.74,35,242/- was sought to be recovered from the assessee together with imposition of penalty for clandestine removal.
the said proprietorship concern. Therefore, the Revenue, since has proceeded on a wrong premises, that too without making any assessment in the manner known to law against the said proprietorship concern, we have no hesitation to hold that, the said move on the side of the Revenue cannot be appreciated or accepted.
Sd/-
Assistant Registrar(CS-IV)
//True Copy//
Sub Assistant Registrar
smi
To
1. The Deputy Commissioner (SIR-II),
Service Tax Commissionerate-II,
No.2054, Newry Towers,
Second Avenue, 12th Main Road,
Anna Nagar, Chennai-600 040.
2. The Commissioner of Service Tax,
No.2054, Newry Towers,
Second Avenue, 12th Main Road,
Anna Nagar, Chennai-600 040.
3. The Superintendent (SIR-II, GR.III),
Service Tax II Commissionerate,
No.2054, Newry Towers,
Second Avenue, 12th Main Road,
Anna Nagar, Chennai-600 040.
+1cc to Mr.K.Vaitheeswaran, Advocate, S.R.No.79584 +1cc to Ms.Hema Muralikrishnan, Advocate, S.R.No.79846
Judgment in W.A.Nos.1187 & 1188 of 2017
SR(CO) TR(01/08/2018)
3 issues framed by the court
Whether garnishee orders under Section 87 of the Finance Act, 1994 can be issued without making an assessment order against the alleged debtor proprietorship.
Whether a private limited company can be held liable for the service tax dues of its founder's defunct proprietorship concern in the absence of any assessment.
Whether merits of unassessed tax liability can be recovered directly by issuing garnishee notices to a successor entity's clients.
Colour shows how this judgement treated each authority
Exman Security Services Pvt. Ltd. vs. Union of IndiaFollowed¶74
2015 (40) STR 463
Quality Fabricators & Erectors vs. Deputy DGCEIFollowed¶77
2016 (41) STR 11
Gopala Builders vs. Directorate General of Central Excise IntelligenceFollowed¶84
2015 (40) STR 888
ICICI Bank Ltd., vs. Union of IndiaFollowed¶85
2015 (38) STR 907
Shabina Abraham vs. Collectorate of Central Excise and CustomsDistinguished¶100
2015 (322) ELT SC
4 provisions across 2 enactments
Deputy Commissioner (SIR-II), Service Tax Commissionerate- II
Commissioner of Service Tax
Union of India rep by its Secretary Ministry of Finance
M/s. Service Care Pvt Ltd
S. MANIKUMAR
R. SURESH KUMAR
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
