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Mrs Prashanthi (Legal Heir And W/O. Late Sri PS Harsha, Proprietor, of M/s Rapid Marine Suppliers) Versus THE UNION OF INDIA And 8 Others

2015 (7) TMI 593 - KARNATAKA HIGH COURT

Recovery of tax u/s 87 from successor of deceased proprietor - SCN was issued to the deceased but could not be adjudicated during his life time - garnishee notices - Whether respondents 2 to 4 could have initiated recovery proceedings under Section 87 of Finance Act when there is no adjudication or quantification of the amount due and payable by the registered service tax provider - Held that:- the words "amount payable by a person" will have to be considered in the background of Section 73 of t .....

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due from the service provider by issuance of garnishee notices to respondents-5 to 8.

Though the respondents have sought to defend such action on the ground that these amounts had been collected by the service provider and same had not been remitted to the department or to the account of the Central Government, the course left open to respondents-2 to 4 is as provided under Section 73(1) namely, adjudicating the show cause notices and thereafter on such adjudication, resort to recover .....

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or nugatory, in as much as, in all cases the respondents can take a stand and contend that the investigation conducted by them is sufficient to recover tax even before adjudication is complete or even before the amount due is quantified. To put it differently, the adjudication of show cause notices after recovering alleged amounts due would be a post decisional hearing and would become an empty formality. Same not being the intention of the Parliament can be gathered from the scheme of the Act .....

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A/w Sri R Dakshina Murthy, Advs. For the Respondent : Sri N R Bhaskar, Adv., For R1 To R4, Sri P L Vijay Kumar, Adv., For R5 R6 And R8 Are Served ORDER Petitioner is seeking for the following reliefs; "(a) Issue a writ of certiorari or such other Writ, Order or direction as this Hon'ble Court may deem fit, quashing the following four recovery notices: (a). Recovery Notice in C No.IV/06219/2013-14 SIV-I dt.12.3.2015 in Annexure L, issued to M/s. Alvares & Thomas, Mangalore (b) Recov .....

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ure of a writ of certiorari/mandamus, quashing the investigation proceedings mentioned in the above Annexure L, N, P and R against the petitioner's husband Late Sri. P.S. Harsha under the provisions of the Finance Act, 1994; (c) Issue a writ of mandamus, or such other writ, order or direction, as this Hon'ble Court may deem fit and proper, to Respondent No.3 and 4, to grant refund of Rs,39,86,126/- already recovered from the bank accounts of Petitioner's husband held with Respondent .....

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red with the Service Tax Department under section 69 of the Finance Act, 1994, under the category of "Port services" and "Supply of Tangible Goods for use Service". The said Sri. P.S. Harsha namely, petitioner's husband is stated to have expired on 05.01.2015 leaving behind the petitioner and two children to succeed to his estate. On the death of her husband, petitioner is said to have approached the bank which her husband was conducting business, namely, the fifth respon .....

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4. However, on 12.03,2015, respondent No.4 is said to have issued a letter to respondent No.6 calling for certain particulars and also intimating respondent No,6 by communication dated 12.03.2015, Annexure-K to divert amounts outstanding in the petitioner's husband account by drawing a demand draft in favour of third respondent. A recovery notice under Section 87 of the Finance Act, 1994 also came to be issued by fourth respondent to sixth respondent calling upon them to divert the funds wh .....

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contending interalia that without there being any adjudication under Section 73 of the Finance Act, 1994 recovery notices under Section 87 of the Finance Act could not have been issued petitioners are before this court. 3. Respondents on being put on notice have entered appearance, filed their statement of objections defending the action of the respondents 1 to 4 by contending interalia that Firm M/s.RMS which was a proprietary concern of deceased Sri.P.S.Harsha namely the husband of the petitio .....

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s of ledgers submitted by the service receivers from the Firm. It is contended that to safeguard the Government revenue, recovery proceedings in terms of Section 87 of the Finance Act, 1994 and Rule 6(1) of Service Tax Rules, 1994 came to be initiated and amount of ₹ 39,96,157/- has been recovered towards service tax and interest liability of M/s. RMS amounting to ₹ 47,50,000/-. It is also stated that fifth respondent-Union Bank of India, Hunnur Branch, has paid the amount which was .....

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ed in the statement of objections and except to the extent expressly admitted in the statement of objections, all other averments made in the writ petition has been denied. Respondents have sought for dismissal of the writ petition. 4. I have heard the learned Advocates appearing for parties and perused the records. 5. It is the contention of Sri K.S. Naveen Kumar, learned counsel appearing for the petitioner that recovery action initiated by fourth respondent and his subordinates is contrary to .....

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notice is required to be issued in writing that any other person from whom money is due or may become due to such person or holds or subsequently may hold money on account of such person is credited to the Central Government either forthwith, either money becoming due or being held or at or within the time specified in the notice and not being before the money becoming due and said provision would be applicable where only when such person who was supposed to pay tax, failed to pay and as such i .....

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TARAKHAND): R.V.MANPOWER SOLUTION VS. CC & CE, 2014 3) 1987 (28) ELT 53 (SC); GOKAK PATEL VOLKART LTD VS. CCE 4) 1991 (55) ELT 295: DAVANAGERE COTTON MILLS LTD VS. CHAIRMAN, CBEC. 5) 2013 31 STR 515 (MAD)CHITRA BUILDERS P. LTD VS. ADDL COMMR. OF C, C.E. & S.T., COIMBATORE. 8. Per contra, Sri N.R. Bhaskar, learned panel counsel appearing for respondents 2 and 4 whose action have been called in question in this writ petition would defend the recoveries already made and contends that in ord .....

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f Finance Act, 1994 and particularly Section 87 and there is no infirmity what so ever committed by the respondents as such he prays for dismissal of the writ petition. 9. Having heard the learned advocates appearing for the parties and on perusal of the case papers as well as the case laws cited at the bar, this Court is of the considered view that only point that arises for consideration in this writ petition; "Whether respondents 2 to 4 could have initiated recovery proceedings under Sec .....

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ed - (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within eighteen months from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied 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 .....

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;eighteen 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 eighteen months or five years, as the case may be. [(1A) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or cont .....

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ed by such person within thirty days of the receipt of the notice.] (2) The [Central Excise Officer] shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined: PROVIDED that where such person has paid the service tax in full togeth .....

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en levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer .....

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; referred to in sub-section (1) shall be counted from the date of receipt of such information of payment. Explanation. - For the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the [Central Excise Officer], but for this sub-section, (4) Nothing contained in sub-section (3) .....

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been paid before the 14th day of May, 2003. (6) For the purposes of this section, "relevant date" means, - (i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid - (a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed; (b) where .....

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been refunded, the date of such refund. [87. Recovery of any amount due to Central Government - Where any amount payable by 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:- (a) the Central Excise Officer may deduct or may require any other Central Excise Officer or any officer of customs to deduct the .....

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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; (ii) 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 post office, banking company or an insurer, it shall not be necessary to produce any pass book, deposit receipt, p .....

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ral Excise Officer may, on an authorization by the 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 .....

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rom such person the amount specified thereunder as if it were an arrear of land revenue.] 10. A perusal of Section 70 of the Finance Act would indicate that every person liable to pay service tax is required to assess the tax himself due on the services provided by him and is required to furnish to the jurisdictional Superintendent, written in such form and such manner with a late fee if necessary for delayed furnishing of the returns. Section 71 provide for scheme of submission of return throug .....

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amounts. 11. In the aforestated analysis, case on hand is to be examined. It is not in dispute that M/s. RMS which is a proprietary concern is the holder of the Registration Certificate issued by respondents 2 to 4 as per Section 69 of the Finance Act. It would emerge that on account of non-payment of service taxes by M/s.RMS the respondents had issued show cause notices on 05.08.2009 and 19.10.2009 demanding service tax of ₹ 71,48,987/- for the period 2004-05 to 2007-08 and demanding ser .....

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provider to pay the tax demanded thereunder relating to the period 01.07.2012 to 30.09.2014 and also the CESS for the period 01.10.2009 to 30.09.2014. The noticee, namely the service provider has also been notified that nonpayment of said amount demanded would result in interest and penalty being imposed/levied. 13. Much prior to the issuance of the said show cause notice, the proprietor of the said Firm Mr. P.S.Harsha expired on 05.01.2015 as is evident from the Survivorship Certificate produce .....

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-R to respondents 6, 7, 8 and 5 respectively, which is in exercise of the power under Section 87(b) of the Finance Act, 1994. On perusal of the said provision which is already extracted hereinabove, it would clearly indicate that Central Excise Officer may, by notice in writing, require or call upon every 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 any such person, to pay to the credit of the Central Government e .....

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and Others in W.P.Nos.13781 & 14061/2013 (T-TAR) and held that Section 87 applies only after a proceeding under Section 73 is concluded by an order determining the amount due and payable by the petitioner. In the facts obtained in the said case it came to be held that such a situation had not arisen and there is no conclusion of the proceedings and as such Section 87 was held to be inapplicable. It has been held as under:- "4 - Regarding being had to Section 73(1) of the Act, whereunde .....

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without merit, since it applies only after a proceeding under Section 73 is concluded by an order determining the amount due and payable by the petitioner. Such a situation having not arisen as there is no conclusion of the proceeding, Section 87 is inapplicable." 16. Perusal of Section 87 of the Act would clearly indicate that any amount due to the Central Government can be recovered by any one or more of the modes provided under Clauses (a) to (d) of Section 87 of the Act. The language e .....

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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 or in other words, 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 wou .....

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r in the instant case namely, M/s RMS had been assessed under Section 72 of the Finance Act, 1994, It is also not in dispute that show cause notice dated 22.04.2015 under Section 73 had been issued to M/s. Rapid Marine Suppliers, A perusal of the said show cause notice which is appended to the statement of objections filed by respondents would clearly indicate that even earlier show cause notice dated 05.08,2009 demanding service tax of ₹ 71,48,987/- payable for the period 2004-05 to 2007- .....

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evy penalty which is also yet to be adjudicated. In other words, there is no determination or quantification of the amount due and payable by M/s. RMS. As such the recovery notices issued by respondent No.4 dated 12.03.2015/16.03.2015 Annexure-L, N, P and R would amount to putting the horse before the cart or in other words, even before the adjudication or quantification of the tax amount is being done or concluded, fourth respondent has attempted to recover the amounts from the petitioner throu .....

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nt No.4 having issued a show cause notice to the service provider M/s.Rapid Marine Suppliers as contemplated under Section 73(1) of the Act for adjudicating the show cause notice by calling upon the service provider to show cause as to why the amounts as indicated in the show cause notice should not be recovered from it, has simultaneously proceeded to issue recovery notice to respondents 6 and 7 by calling upon them to remit the amounts held by them on behalf of the service provider. 19. The ga .....

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ch attachment had been made. The perusal of the said garnishee notices would clearly indicates that respondents-5 to 8 have been called upon to divert the funds held by them on behalf of the service provider namely, M/s.RMS. The said garnishee notices would also indicate that in exercise of the power vested under Section 87(b) of the Finance Act, 1994 the monies are called for from the garnishees. This Court is of the considered view that power vested under Section 87(b)(i) & (ii) of the Fin .....

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otice is served under sub-section (1) of Section 73 or sub-section (3) of Section 73A as the case may be, during the pendency of any proceedings under Section 73. Undisputedly, in the instant case, show cause notices dated 05.08.2009, 19.10.2009 and 22.04.2015 having been issued to the service provider, has not yet been adjudicated and as such, respondents-2 to 4 could not have taken recourse to invoke Section 87 for recovering the amounts due from the service provider by issuance of garnishee n .....

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y taking steps as provided under Section 87. It cannot be gain said by the respondents that on the strength of the investigation conducted by them by enquiring with the service recipients, they are recovering the amounts reflected in the show cause notice dated 22.04.2015 by issuance of garnishee notices to respondents-5 to 8 and if such contention or plea is accepted, it would render the adjudication process itself otiose or nugatory, in as much as, in all cases the respondents can take a stand .....

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