Sec. 68 of the Finance Act, 1994 provides that every person providing taxable service to any person shall pay service tax at the rate specified in Sec. 66 in such manner and within such period as may be prescribed. Rule 6(1) of Service Tax Rules prescribed the period within which the service tax is to be paid to the credit of the Central Government. Service tax received from the subscribers/clients is alone payable to the credit of the Central Government
Rule 6(1A) inserted by Notification No. 4/2008-ST, dated 01.03.208 provides that the service provider may on his own volition pay an amount as advance to the credit of Central Government and adjust the amount so paid against the service tax which he is liable to pay for the subsequent period. Except there is no provision in the Finance Act, 1994 for the payment of service tax in advance or recovery of the service tax by the department from the service provider in advance.
In 'Naresh Kumar & Company V. Union of India' - [2010 -TMI - 77634 - HIGH COURT AT CALCUTTA] the Kolkatta High Court held that there is no provision that one has to pay compulsorily pay the tax in advance. In this case the Officers from DGCIE, Kolkatta Zonal Unit on April 18, 2006 conducted a search and seizure operation and seized various records and documents relating to the business of the petitioner. The petitioner was compelled to hand over a cheque amounting to Rs.15 lakhs and was forcibly collected by the raiding officers and the same was also encashed later on.
The petitioner company immediately thereafter, by letter, protested against collection of this amount without informing the tax liability or failure to discharge the obligation in terms of return of the said Act and the Rules framed there under. Repeated demands were made for return of the said cheque collected illegally and also the documents and records seized.
The petitioner contended before the Trial Judge that the petitioner had not received any show cause notice in connection with the search and seizure. The Trial Judge after observing all the facts and having noted the relevant authorities on the proposition of the law relating to refund of the amount paid by mistake on account of tax, ultimately did not grant any relief and held that the writ petition was premature.
The Department contended that the raiding officers did not extract the aforesaid amount, rather, it was the voluntary payment on account of tax liability and the same has been duly encahsed. Necessary adjudication will be done for fixing up of the tax liability and it is found that there has been any excess deposit, then the balance amount would be refunded.
The Court held that the learned Trial Judge did not put the right question to render the decision. In this case, according to the Court, the issue involved is whether the payment made by the petitioner, even if for argument's sake voluntarily, can be realized by the department or not ? The Court found the two letters placed by the petitioner, addressed to the Department appears that the payment was not made voluntarily but of course with the intention to meet the tax liability, if found to be due. Some times the payment is made to mitigate adverse and harsh situation which befall consequent upon raid, search and seizure.
It is the duty of the service provider to pay tax and to file a return. The Court did not find any provision that one has to pay compulsorily the tax in advance. According to the Court, this payment in this case is not required to be paid under the law compulsorily. Here there is no ascertainment of tax liability and it is the case of the respondent that show cause notice is to be issued for determination of tax liability. The authority concerned has no jurisdiction or authority to collect any amount at the time of raid simply it is not empowered legally to do so. At the stage of recovery proceedings, all sorts of legitimate coercive measures can be taken, namely attachment of property etc.,
The Court further held that the revenue department has no right to withhold the said amount and it is bound to return the same. It directed the petitioner on receipt of the said amount to keep the same in a short term fixed deposit account with any nationalized bank and shall not encash the same for a period of three months from the date of receipt of the amount. In the meantime the Department is to take steps in accordance with the law and in the event of any lawful tax liability is ascertained upon giving hearing to the petitioner, then it would be open for both the parties to take steps in according with law. However in course of taking action by the Department, if the petitioner does not cooperate then it will be open for the respondents to proceed in accordance with law.