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2016 (9) TMI 52 - DELHI HIGH COURT

2016 (9) TMI 52 - DELHI HIGH COURT - 2016 (44) S.T.R. 481 (Del.) , [2016] 96 VST 37 (Del) - Coercive action including threat of arrest against officials for recovery of alleged service tax dues - power and jurisdiction of DGCEI - it was submitted that, once the Petitioners admit that they collect the service tax, even on behalf of the hotels whose rooms are booked online, it is incumbent on the Petitioners to themselves deposit the entire service tax collected. - The failure to do so, according .....

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rrest 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. 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. - Where an assessee has been regularly filing service tax returns which have been accepted by the ST Department .....

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he first place a determination that a person is "liable to a penalty", which cannot happen till there is in the first place a determination in terms of Section 72 or 73 or 73 A of the FA. - For a Central Excise officer or an officer of the DGCEI duly empowered and authorised in that behalf to be satisfied that a person has committed an offence under Section 89 (1) (d) of the FA, it would require an enquiry to be conducted by giving an opportunity to the person sought to be arrested to expla .....

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rore). - 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. - Decided in favor of petitioners. - W.P.(C) 525/2016 & CM 2153/2016 & W.P.(C) 1283/2016 & CM 5642/2016 - Dated:- 1-9-2016 - S. MURALIDHAR & VIBHU BAKHRU JJ. Peti .....

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irectorate General of Central Excise Intelligence (DGCEI) of arrest, investigation and assessment of service tax under the provisions of the Finance Act, 1994 ( FA ). 2. Writ Petition (Civil) No. 525 of 2016 is by MakeMyTrip (India) Private Limited ( MMT ) against Union of India ( UOI ) through the Secretary, Ministry of Finance, [Respondent No. 1], the Director, DGCEI, [Respondent No. 2], The Additional Director General ( ADG ), DGCEI [Respondent No. 3] and The Senior Intelligence Officer, DGCE .....

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is filed by IBIBO Group Private Limited ( IBIBO ) against the UOI through the Secretary, Ministry of Finance [Respondent No. 1], the Director and the Senior Intelligence Officer, DGCEI [Respondent Nos. 2 and 3 respectively]. The prayer in this writ petition by IBIBO is identical to the prayers in Writ Petition (Civil) No. 525 of 2016 filed by MMT. 4. In both writ petitions, applications were filed for interim directions to restrain the DGCEI from taking any coercive steps against the entities an .....

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t ), have regularly been filing returns, have been assessed and are paying the corresponding service tax under the FA. They state that they collect the room charges inclusive of taxes on the basis of the invoices raised by the concerned hotel and pass on the amount so collected to the concerned hotel which in turn pays service tax and other taxes. What is retained by the Petitioners is only the service tax component corresponding to the booking service rendered and this is paid by each Petitione .....

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tioners and deliberate evasion of service tax on their part, warranting initiation of the coercive measure of arrest of their respective officials. 7. The note on the file prepared on 7th January, 2016 by the officer of the DGCEI in the case of MMT mentions that there could be other similar online providers viz., (i) M/s. Cleartrip Private Limited ('Cleartrip') at Mumbai, (ii) IBIBO, and (iii) M/s. Yatra Online Private Limited ( Yatra ) at Gurgaon which were also alleged to be involved i .....

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searches were also undertaken in the premises of Cleartrip at Mumbai. Thus, there is a common pattern emerging in both cases and it is in that background that the scope of powers of DGCEI under Section 91 read with Section 90 and 89 of the FA require to be examined. 9. Another aspect which is required to be adverted to at the outset is that the arrest of Mr. Pallai, Vice President (Finance) of MMT on 8th January, 2016 led to his subsequent release on bail by the Court of Chief Metropolitan Magi .....

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Court in the present petition by MMT only proposes to interpret the scope of the provisions of the FA. 10. As far IBIBO is concerned, this Court by its order dated 16th February, 2016 directed that no coercive steps be taken against it and its officers. 11. It also requires to be noted that as far as Cleartrip is concerned, it filed Writ Petition No. 1088 of 2016 in the High Court of Bombay and by an order dated 26th April, 2016, the High Court of Bombay came to the conclusion that coercive mea .....

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ions 73 or 73A of the FA, requires to be examined. Averments in MMT's writ petition 13. 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. The business of MMT is described as providing an online platform (website) whereby it makes available hotel accommodation services to its customers. It is sta .....

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of the room charges in advance (inclusive of room tariff, tax and fees) and this amount is remitted by MMT to the concerned hotel after retaining its commission. The other option is for the customer to directly make payment to the hotel in which case the customer is issued a voucher by MMT mentioning room tariff, taxes and fees. MMT subsequently receives commission from the hotel. MMT discharges its service tax liability on gross amount paid by the customer to it in terms of the first option or .....

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ss amount. It states that prior to 1st July, 2012, it was claiming abatement under Notification No. 1/2006-ST dated 1st March, 2006. 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 .....

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GCEI to MMT officials was that the services provided by MMT are not in the nature of tour operator but are in the nature of hotel services and, therefore, the Petitioner should have paid service tax on the gross amount as a hotel service. The further allegation was that since MMT had collected the service tax from the customers, it was in terms of Section 73A of the FA bound to deposit the amount with the government exchequer. 16. It is stated that Mr. Pallai received a telephone call on 7th Jan .....

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cted 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. Arrest of Mr. Pallai 18. On 8th January, 2016, the officers of DGCEI arrested Mr. Pallai at the office of the ADG at R.K. Puram, New Delhi. The grounds of arrest dated 8th January, 2016 as communicated to MMT by the DGCEI has been enclosed as Annexure-3 to the Writ Petition (Civil) No. 525 of 2016. Therein it is stated that MMT had coll .....

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67.44 crore approximately. By failing to deposit the said amount of service tax collected by MMT with the Central Government, MMT appeared to have contravened the provisions of Section 68 of the FA, rendering themselves liable to punishment under Section 89 (1) (d) read with Section 89 (1) (ii) of the FA. 19. The DGCEI rejected the stand of MMT that it was only a tour operator and that it was the obligation of the concerned hotels to pay the service tax to the government account. According to th .....

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cember, 2015 and 8th January, 2016, had stated that he and Mr. Mohit Kabra, Director and CFO of MMT were responsible for taking service tax related decisions in MMT. The grounds stated that Mr. Pallai further admitted that they had collected service tax but instead of paying it to the government account, had remitted such service tax to the hotels. In the grounds of arrest dated 8th January, 2016 communicated to MMT, the liability of MMT for payment of service tax worked out to ₹ 82.78 cro .....

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) read with Section 89 (1) (ii) of the FA read with Section 9AA of the CE Act as made applicable to service tax matters under Section 83 of the FA on 8th January, 2016. Proceedings before the CMM 21. After his arrest, Mr. Pallai was produced before the CMM. The DGCEI tendered an application seeking remand to judicial custody. The CMM on 9th January, 2016 remanded Mr. Pallai to judicial custody. The application for judicial remand submitted by the DGCEI to the CMM on 9th January, 2016 stated inte .....

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012 which defines the intermediary as a broker or an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the main service) or a supply of goods between two or more persons, but does not include a person who provides the main service or supplies the goods on his account. A reference was made to para 5.9.6 of the Taxation of Services: An Education Guide by CBEC to determine whether a person is acting as an intermediary or not .....

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d to hotels. Instead, hotels were given Hotelier s Vouchers on which the amount charged for booking a hotel room was different from what was charged by MMT from its customers. It was concluded that in terms of the agreements with the hotels and customers, MMT was not acting as the agent of hotels. Since it had further rented the hotel rooms at the price negotiated with the customers, MMT was also providing the services of renting of hotel rooms to the customers and the hotels were merely input s .....

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,760 and had only arbitrarily paid ₹ 15,33,84,593 (approximately). Thus, MMT had not paid service tax which they had collected from its customers to the tune of ₹ 67,44,19,167. It was further mentioned that Mr. M.K. Pallai, Vice President (Finance) was one of the main persons responsible for MMT's non-payment of service tax thereby committing a cognizable and non-bailable offence. It is mentioned in the judicial remand application that Mr. Pallai along with others, who were/are i .....

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ces on its account but merely acted as a travel agent/tour operator between the hotels/airlines/other services and customers for bookings the hotel accommodation/air tickets only. It was mentioned that MMT did not have or own any aircraft/property for provision of air transportation or hotel accommodation services. It was stated that customers accessing MMT s website themselves made a conscious decision as to which flight/hotel as well as other preferences of dates of booking, class of booking, .....

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r Travel Agents Association and had won several travel agency awards. 23. Mr. Pallai in his bail application further explained that MMT was allowed to book rooms for the customers through MMT s website. It is legally bound to remit the room rent along with the taxes charged by the hotels, which is accordingly remitted to these hotels. To the best of knowledge of Mr. Pallai, the said hotels had already discharged their service tax liability on the said amount. It is also pointed out that since Ma .....

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. On 11th January, 2016, a detailed order was passed by the learned CMM granting bail to Mr. Pallai. The learned CMM recorded inter alia that out of ₹ 82.78 crores, a sum of ₹ 15.34 crore had already been deposited and subsequently a further sum of ₹ 15 crores had also been deposited on that date itself thus making total deposit of ₹ 30.34 crores. It is noted that the same amount was deposited without prejudice to the rights and remedies available to MMT. Directions were .....

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e additional time to make further payment. The CMM noted that no purpose would be served in keeping Mr. Pallai behind bars. Mr. Pallai was admitted to interim bail on furnishing a personal bond in the sum of ₹ 5 lakhs with one surety for the same amount till 11th February, 2016 subject to the condition that he would not leave the country without the permission of the CMM. He was directed to neither directly or indirectly induce or threaten the prosecution witnesses nor tamper with the evid .....

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and yet an SCN had not been issued under Section 73A(3) of the FA. In was in those circumstances, this Court by its order dated 20th January 2016 passed an interim order directing that no further coercive steps shall be taken against MMT or any of its officers by the DGCEI. It was clarified that this order should not be read as relieving Mr. M.K. Pallai from complying with the conditions of the bail order dated 11th January, 2016 passed by the learned CMM. 27. It is contended by MMT that with th .....

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amount remitted by MMT. It is asserted that MMT has merely received the gross amount and remitted the same to the hotels. It is further asserted that MMT has not collected and retained any amount in any manner as representing service tax. It is asserted that the failure to consider the above factors, the arrest of Mr. Pallai without issuance of an SCN and issuance of threats of further coercive action were all in violation of the requirement of due process under Sections 73/73A of the FA. Counte .....

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Rule 5A of the Service Tax Rules, 1994 ( ST Rules ). It is stated that the investigation conducted till then revealed that MMT had entered into agreements with several hotels on a principal-to-principal basis for purchase of hotel rooms for further renting to the ultimate customers. In terms of the said agreements, MMT purchased the hotel rooms at the rate negotiated with the hotels on which MMT was free to add a mark up or offer a discount on the published tariff. Subsequently, the pre-purchas .....

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the hotels were referred to as 'partners/vendors' of MMT. 29. The counter affidavit of the DGCEI further states that during the visits undertaken by the officials of the DGCEI to the premises of MMT in November/December 2015, MMT supplied the data in respect of the hotel bookings (India Only) for the period October 2010 to September 2015. The analysis of the data so supplied revealed that the service tax collected by MMT had two components; (i) service tax on 60% of the rate negotiated .....

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of hotel rooms on the plea that as agents of the hotels, they had remitted the same to the hotels by Hotelier Vouchers and that it was the responsibility of the hotels to deposit the service tax remitted by MMT." It is then stated that in order to verify the plea of MMT that they were the agents of the hotels, certain follow-up enquiries were conducted and it was noticed that hotels had not appointed MMT as their agents and they were providing services to MMT on the basis of the rates nego .....

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t of such taxable service. It is further stated that there is no statutory provision which allowed MMT to shift their service tax liability in respect of service tax collected from customers and that any service tax collected from the customer by MMT had to be deposited in the government exchequer by MMT only. It is stated that MMT's claim that it had entered into agreements with more than 30,000 hotels in terms of which it was the responsibility of the hotels to pay the service tax which MM .....

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h they were registered with the ST department, they were not paying service tax on the plea that since MMT had collected service tax, it was the responsibility of MMT to deposit the same. During the further enquires with some hotels, it had been found that they were not even registered with the ST Department but MMT was collecting service tax from the customers against renting of rooms in such hotels. 31. Further, while the FA was not applicable to the state of Jammu & Kashmir, MMT had colle .....

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tory was shown in the Hotelier s Voucher and it was taken as purchase in its financial accounts. According to the DGCEI, this fact was also admitted by Mr. Pallai in his statement on 3rd February, 2016. A reference was made to Note 19 titled Revenue from Operations in the statutorily audited Annual Report for the Financial Year (FY) 2013-14 of MMT which revealed that MMT had earned revenue from two major heads i.e., Sale of Services and Other Operating Income . The revenue earned under the head .....

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o the Financial Accounts, and service costs towards procurement cost of hotel and package services was shown as ₹ 85,655 lakh in Note 22 of the said Notes. Similes figures were shown for the FY 2012-13. According to the DGCEI, all these entries of booking of revenue and expenses in relation to sale and purchase of hotel rooms by MMT clearly showed that MMT had been selling or providing services of booking of hotel rooms after procuring the same from the hotels against which they had booked .....

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d Section 90(1) of the FA and Section 9AA of the CE Act as was made applicable to the service tax matters under Section 83 of the FA. It is asserted that the sums paid by MMT prior to and subsequent to the appellate order were all made voluntarily. 33. It is pointed out by the DGCEI that Mr. Pallai filed Writ Petition (Criminal) No. 357 of 2016 in this Court which was listed on 3rd February, 2016 and the next date of hearing was 28th March, 2016. In para 23 of the counter affidavit it is stated .....

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e to the above counteraffidavit where the assertions in the writ petition are reiterated. It is submitted that the amount shown in the Hotelier s Voucher is after reduction of MMT s commission that can be either by way of fixed percentage or mark-up. Therefore, there would always be a difference between the amount shown on the Customer s voucher and Hotelier s voucher. The said mark-up or discount would not change the nature of the relationship between MMT and the hotel and would not make MMT a .....

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stance had in fact been stated in the counter affidavit. It is further pointed out that 1039 out of 2278 hotels which are not registered with the ST Department may have been enjoying the benefit of Notification No. 26/2012-ST dated 20th June, 2012 (Serial No. 18). Further, on an inquiry conducted of the 2278 hotels, only one hotel was enquired and they are supposed to have said that they were not discharging service tax liability. MMT asserts its right to crossexamine the officers of the DGCEI w .....

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tax and further there was no collection of service tax. It is pointed out that DGCEI had wrongly construed hotel taxes as including service tax. The affidavits from the hotels situated in the State of Jammu & Kashmir, copies of which are enclosed as Annexure-2 to the rejoinder affidavit, confirmed that they were not charging service tax from their customers and further that the 'hotel taxes' did not contain any service tax element. As regards the hotels having tariffs at less than & .....

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no statutory basis and is, therefore, not binding. A reference is made to the CBEC clarification issued under Notification F.No. 354/311/2015-TRU dated 20th January, 2016 in this regard. It is submitted that even assuming that MMT was providing hotel services, it would be eligible to claim Cenvat Credit of service tax paid by the hotels in terms of Serial No. 6 of the Notification No. 26/2012-ST dated 20th June, 2012 and therefore, MMT would be liable to pay service tax only on the net income. .....

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erring to the service income and service costs of MMT, it has set out under Note 2 (iv) of MMT s revenue recognition policy which states that as regards airline and hotel bookings, MMT was acting as an agent and did not assume any risk of performance of services. A reference was also made to Note 32 which gives the break-up of gross money received by MMT and the amount paid to the hotels. Only the service fee or commission earned by MMT on such booking transactions forms part of the service inco .....

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ty as a tour operator by claiming an abatement of 90% in terms of Notification No. 1/2006-ST dated 1st March, 2006 which has since been replaced by Notification No. 26/2012-ST dated 20th June, 2012. MMT has been audited twice by the ST Department - first in 2007-08 and for a second time in 2012-13. It is pointed out that every time the ST Department conducted an audit, MMT had provided a detailed note of its activities, including the activities of hotel booking. A copy of one such Note has been .....

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r, 2011, it is noted that MMT had been availing benefit of abatement from paying service tax on packaged tour (inbound) and booking of hotel accommodation in India under Notification No. 1/2006 dated 1st March, 2006, as amended. Thus, the ST Department was aware of the activities undertaken by MMT and the service tax position followed by it. It is further pointed out that the SCN issued on 18th October, 2011 was after the introduction of service tax on hotel services. However, the ST Department .....

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MMT s operations twice, once in 2010 and second in 2013 but no dispute with regard to the classification as tour operator services was raised. Therefore, it is denied that ST Department was not aware of the activities of MMT. 40. It is pointed out that there was no occasion to arrest Mr. Pallai, since MMT and its officials were cooperating with DGCEI in its investigation by supplying all the necessary information whenever demanded. It is submitted that the reason mentioned in the arrest memo da .....

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aring for MMT in which it was stated that the officers of the DGCEI had on more than one occasion, compelled, forced and threatened the officers of the MMT into depositing the alleged service tax dues under the threat of facing arrest. Mr. Lakshmikumaran then stated that responsible officers of both MMT and IBIBO, whose petition was also being heard, would file affidavits giving the names of the officers of the DGCEI as well as the date and place of making such threats. The Court then directed t .....

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vits in response to the above affidavits. Supplementary affidavits have been filed by Mr. Pallai and Mr. Kataria to which replies were again filed by the aforementioned officers. The above affidavits will be discussed further in examining the contention of MMT and IBIBO that their officers had been threatened by the officers of the DGCEI during interrogation. Averments in the petition by IBIBO 42. Turning to the facts of W.P. (C) No.1283/2016 by IBIBO, it is stated that IBIBO acts as an online t .....

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ter the details required for booking a room upon which the website would display the list of hotels along with its tariff (including hotel taxes), location, facilities etc. Depending on their preference, the customers book the room and get a hotel confirmation voucher showing the amount paid, inclusive of taxes. 43. Identical to the system being followed by MMT, an option is available to the customers to either directly make the payment to the hotels in which case the hotels make payment of comm .....

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ing a statement under Section 14 of the CE Act. Summons dated 13th January, 2016, was also issued to Mr. Sanjay Bhasin, CEO of IBIBO. It is stated that on 14th January, 2016, Mr. Sanjay Bhasin, appeared at 12 noon and was continuously interrogated. It is further alleged that during such interrogation he was orally threatened that they (IBIBO) should either compute and deposit the service tax or face arrest. He was again called on 15th January, 2016 and compelled to deposit ₹ 5 crores (Rs. .....

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res was paid. It is in the above circumstances that the writ petition was filed in this Court in which, as already noted, an order was passed on 16th February, 2016, restraining the DGCEI from taking coercive steps and this order continued. 45. With its writ petition, IBIBO enclosed a copy of an order dated 25th January, 2016, passed by the High Court of Bombay in Writ Petition No.1088/2016 titled Cleartrip Private Limited v. The Union of India where an ad interim order was passed restraining th .....

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n a Principal-to-Principal basis . It is stated that the service tax could not have been collected on behalf of the hotels and was required to be deposited with the Central Government. The allegations of threat and coercion are denied. It is stated that all the deposits were made voluntarily by IBIBO. IBIBO's rejoinder 47. In the rejoinder filed by IBIBO it is again pointed out that since 200 hotels have already given confirmation to IBIBO that they were discharging the liability of service .....

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artment for the period up to March, 2013 in the erstwhile company IBIBO Web (i.e., prior to demerger of the business). It is accordingly denied that the ST Department was not aware of the activities of IBIBO. The allegation that IBIBO was collecting amounts inclusive of service tax, from customers for providing hotel rooms is not correct. It is asserted that IBIBO is discharging its service tax liability on the commission retained by it, which is inclusive of service tax and the remaining amount .....

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nd Mr. Jain to which further replies have been filed by the said officers. Analysis of the relevant provisions for assessment of service tax 49. The relevant provisions for assessment and recovery of service tax are Sections 72 and 73 of the FA, which read as under: 72. Best judgment assessment If any person, liable to pay service tax, - (a) fails to furnish the return under Section 70; (b) having made a return, fails to assess the tax in accordance with the provisions of this Chapter or rules m .....

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of such assessment. 73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded (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 er .....

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e with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words 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) Notwithstanding anything contained in sub-Section (1) (except the period of eighteen months of serving the notice .....

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ame as are mentioned in the earlier notices. (1B). Notwithstanding anything contained in sub-section (1), in a case where the amount of service tax payable has been self-assessed in the return furnished under sub-section (1) of Section 70, but not paid either in full or in part, the same shall be recovered along with interest thereon in any of the modes specified in Section 87, without service of notice under sub-Section (1). (2) The Central Excise Officer shall, after considering the representa .....

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r (c) wilful misstatement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or the rules made thereunder with intent to evade payment of service tax, has not been established against the person chargeable with the service tax, to whom the notice was issued, the Central Excise Officer shall determine the service tax payable by such person for the period of eighteen months, as if the notice was issued for the offences for which limitation of eighteen month .....

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respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid. PROVIDED that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner .....

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his subsection. Explanation 2: For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made there under shall be imposed in respect of payment of service-tax under this sub-section and interest thereon. (4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of- (a) fraud; or (b) collusion; or (c) wilful mi .....

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it is possible to do so, in respect of cases falling under the proviso to sub-section (1) or the proviso to sub-section (4A); (5) The provisions of sub-section (3) shall not apply to any case where the service tax had become payable or ought to have 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 .....

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service tax is provisionally assessed under this Chapter or the rules made thereunder, the date of adjustment of the service tax after the final assessment thereof; (iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund. 50. 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 catego .....

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assessment has been and is continued to be exercised by the concerned designated offices of the ST Commissionerate in respect of each of the Petitioners. If in terms of Section 72 of the FA, the Assessing Officer (AO) was of the view that any of these Petitioners acted in violation of any of the provisions of the FA, then it was open to the said AO to require the person to produce documents and other evidence and therefore to make an assessment of the value of the taxable service to the best of .....

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x not levied or paid, or short-levied or short-paid or erroneously refunded can be initiated under in Section 73 of the FA Act. Section 73 (1) stipulates the time limit of eighteen months within the time SCN should be served on the person who is stated to be liable to service tax which has been not levied or paid or has been short-levied, or short-paid or to whom the said tax has been erroneously refunded. Where the failure to levy or short-levy or payment or short-paid or erroneously refunded h .....

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termine beforehand the extent of evasion of service tax. Analysis of Section 73A of the FA 53. Next, it is necessary to examine in some depth Section 73A of the FA particularly since the case of the DGCEI is that both Petitioners have collected service tax from their customers and have not deposited it with the Central Government. Section 73A of the FA reads thus: 73A. Service Tax collected from any person to be deposited with Central Government: (1) Any person who is liable to pay service tax u .....

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, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government. (3) Where any amount is required to be paid to the credit of the Central Government under sub-section (1) or sub-section (2) and the same has not been so paid, the Central Excise Officer shall serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should n .....

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hall be adjusted against the service tax payable by the person on finalisation of assessment or any other proceeding for determination of service tax relating to the taxable service referred to in sub-section (1). (6) Where any surplus amount is left after the adjustment under subsection (5), such amount shall either be credited to the Consumer Welfare Fund referred to in section 12C of the Central Excise Act, 1944 or, as the case may be, refunded to the person who has borne the incidence of suc .....

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pter or the rules made thereunder from the recipient of taxable service in any manner as representing service tax" to forthwith pay the amount so collected to the credit of the Central Government. The crucial words are collected any amount in excess of the service tax assessed or determined. The other expression which has significance is: in any manner as representing service tax. The case of the DGCEI is that service tax is being collected by the Petitioners from the recipient of taxable s .....

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ers who book the hotel room using the portal of the Petitioners, and pass it on to the hotels who in turn pay it to the credit of the Central Government. Therefore, the Petitioners contend that they have not collected any amount from the recipient of taxable service in any manner as representing service tax and have not retained such amount without passing it on to the Central Government. 56. The case of the DGCEI on the other hand is that irrespective of whether the hotels have paid the service .....

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retained such service tax and have passed it on to the hotels appears to have not been considered by the DGCEI in the correct perspective. The understanding of the DGCEI of the transaction of online booking of hotel rooms using the web portals of the Petitioners appears to be prima facie incorrect. 58. In the context of Section 73-A (2) of the FA, the person against whom the proceedings are initiated should be shown to have "collected any amount, which is not required to be collected, from .....

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urt has construed the expression as in the beginning of the sub-clause as significant. Penalty is leviable for excess realisation of tax, therefore, realisation of the amount should be as tax and not in any other manner. Then excess should be over and above the amount of tax legally payable. This expression obviously means tax payable under the Act, rules or notification. Therefore, realisation by the assessee from customers should not be of only sales or purchases but it should be of the tax le .....

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quasi-criminal and unless strictly proved the assessee is not liable for the same." (emphasis in original) 59. In R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited (1977) 4 SCC 98, the Supreme Court was analysing what the expression "collected' meant in the context of the sales tax legislation of Gujarat. It observed as under: Section 37 (1) uses the expressions, in relation to forfeiture, any sum collected by the person - shall be forfeited . What does collected mean he .....

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y Griffth C.J., not to include money deposited under an agreement that if it was not legally payable it will be returned (Words & Phrases p. 274). We therefore, semanticise Collected not to cover amounts gathered tentatively to be given back if found non-exigible from the dealer. (emphasis supplied) 60. 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& .....

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nation in clear terms, it would not be permissible for the Department to straightway presume that Section 89 (1) (d) read with Section 73A (1) of the FA is attracted. That brings us to a discussion of the provisions concerning offences and penalties. Offences and penalties 62. There are two kinds of penalties envisaged. Sections 78 of the FA speaks of imposition of penalty for failure to pay service tax for reasons of fraud etc. This is as a consequence of proceedings under Section 73 of the FA. .....

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the FA Act prescribes offences and penalties therefor as 'punishment' and is therefore in the criminal jurisdiction. Section 89 reads as under: 89. Offences and penalties (1) Whoever commits any of the following offences, namely, - (a) knowingly evades the payment of service tax under this Chapter; or (b) avails and utilizes credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions o .....

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ich such payment becomes due. shall be punishable, - (i) in the case of an offence specified in clause (a), (b) or (c) where the amount exceeds fifty lakh rupees, with imprisonment for a term which may extend to three years: Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for a terms of less than six months; (ii) In the case of the offence specified in clause (d), where the amount exceeds fif .....

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e second and for every subsequent offence with imprisonment for a term which may extend to three years; (b) clause (ii), then, he shall be punished for the second and for every subsequence offence, with imprisonment for a term which may extend to seven years. (3) For the purposes of sub-sections (1) and (2), the following shall not be considered as special and adequate reasons for awarding a sentence of imprisonment for a term of less than six months, namely: - (i) the fact that the accused has .....

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ence under this section except with the previous sanction of the Chief Commissioner of Central Excise. 64. A plain reading of Section 89 reveals that a distinction is sought to be made in the first instance between the offence where the amount exceeds ₹ 50 lakhs (raised to ₹ 1 crore by a Circular dated 23rd October, 2015 and now ₹ 2 crore by the 2016 amendment) and where it is less than ₹ 50 lakhs. In the case of the offences under Section 89 (1) (a), (b) and (c), which a .....

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to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, then in terms of Section 89 (1) (d), that person is punishable in the manner indicated in sub-clause (ii) of Section 89 (1) of the FA Act. Where the amount exceeds ₹ 50 lakh, the punishment is of imprisonment for a period which may extend to seven years and not less than six months unless the special and adequate reasons are recorded by the Court which convicts the person .....

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89 of the FA. 65. It is important to note that determination of the commission of an offence for the purposes of Section 89 has to be made by the Court. Prior thereto, there can only be prima facie determination of such commission of offence. It may also be noted that by the amendments of 2013 the structure of Section 89 underwent a change. A distinction was drawn between the offences of the type described under Section 89 (1) (a), (b) and (c) on the one hand and Section 89 (1) (d) of the FA on .....

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specified in the notice, should not be paid by him to the credit of the Central Government. Therefore, under Section 73A (4), the Central Excise Officer concerned shall, after considering the representation made by such person, determine the amount due from such person, not being in excess of the amount specified in the notice. Those two steps are essential before it can be concluded that a person has collected service tax which is payable to the Central Government and has not paid it. 67. The .....

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s ₹ 50 lakhs, is imprisonment for a term which may extend to seven years. The proviso thereto suggests that for special and adequate reasons, the imprisonment can be lesser than six months in such cases. Where the amount does not exceed ₹ 50 lakhs, the imprisonment is for a term which may extend to one year. Where the person is again convicted for the subsequent offence, then the imprisonment is for a term which may extend to seven years. The above analysis is relevant for considerin .....

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contained in the Code of Criminal Procedure, 1973 all offences, except the offences specified in subsection (1), shall be non-cognizable and bailable. 91. Power to arrest (1) If the Commissioner of Central Excise has reason to believe that any person has committed an offence specified in clause (i) or clause (ii) of sub-section (1) of Section 89, he may, by general or special order, authorize any officer of Central Excise, not below the rank of Superintendent of Central Excise, to arrest such p .....

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ficer in charge of a police station has, and is subject to, under Section 436 of the Code of Criminal Procedure, 1973 (2 of 1974). (4) All arrests under this Section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to arrests. 69. Section 90 (1) makes it clear that only an offence which is punishable in terms of Section 89 (1) (ii) would be cognizable. Section 89 (1) (ii) in turn refers to Section 89 (1) (d) which refers to a cas .....

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FA, shall be non-cognizable and bailable , notwithstanding anything contained in the Code of Criminal Procedure 1973 ( Cr PC ). It is only when the offence is cognizable that, in terms of Cr PC, the power of arrest is attracted. In Om Prakash v. Union of India (2011) 14 SCC 1, the Supreme Court was considering the very expression as used in the Cr PC and observed as under: 41. In our view, the definition of non-cognizable offence in Section 2(1) of the Code makes it clear that a non-cognizable o .....

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f a non-cognizable offence, a police officer, and, in the instant case an excise officer, will have no authority to make an arrest without obtaining a warrant for the said purpose. The same provision is contained in Section 4 of the Code which specifies when a police officer may arrest without order from a Magistrate or without warrant. 70. Consistent with this understanding, Section 91(1) of the FA provides that where the offence has been committed under Section 89 (1) (ii) of the FA, the Commi .....

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nces under Section 89 (1) (d) read with Section 89 (1) (ii) of the FA as being cognizable and the commission of offences other than that under Section 89 (1) (d) read with Section 89 (1) (ii) of the FA as being non-cognizable. 71. Under Section 91 (2), where a person is arrested for any cognizable offence i.e., the offence prescribed under Section 89 (1)(ii), the officer making arrest has to inform such person of the grounds of arrest and produce him before a Magistrate within twenty four hours. .....

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saged under the Cr PC. 72. 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 h .....

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direct tax statute. The Customs Act, 1962 and the Central Excise Act, 1944 are two of the many indirect tax statutes. These statutes have specific provisions which describe offences and the corresponding punishments. However, the scheme of the Income Tax Act, 1961, in regard to offences and penalties, is distinct from the scheme under the Central Excise Act, 1944 or the Customs Act, 1962. Under the Income Tax Act, 1961 there is a detailed procedure for assessment and it is only at the conclusion .....

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er XVI thereof describes with specificity the types of offences and the procedure adopted in prosecuting such offences. Section 138A enables the court to draw a presumption, which is rebuttable, of the culpable mental state of the person charged with an offence under the Customs Act, 1962 which requires such culpable mental state. Even for the purposes of confiscation of smuggled goods, Section 123 of the Customs Act, 1962 shifts the burden of proof in the case of 'smuggling', to the per .....

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nder the Customs Act or the Central Excise Act. Each of those statutes has a different and distinct scheme which does not bear comparison with the FA. For example, the FA envisages filing of periodic returns which is comparable to the Income Tax Act, whereas the assessment under the Customs Act is of individual bills of entry. AS noticed earlier, the scheme of the FA provisions points to an assessment, followed by an adjudication of penalty under Section 83 A of the FA. There are a separate set .....

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y; (ii) Decision in adjudication proceedings is not necessary before initiating criminal prosecution and (iii) Adjudication proceedings and criminal proceedings are independent in nature to each other. 77. In the context of the provisions of the FA where an assessee has been regularly filing service tax returns which have been accepted by the ST Department or which in any event have been examined by it, as in the case of the two Petitioners, it is difficult to imagine that without the commenceme .....

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the FA, it would require an enquiry to be conducted by giving an opportunity to the person sought to be arrested to explain the materials and circumstances gathered against such person, which according to the officer points to the commission of an offence. Specific to Section 89 (1) (d) of the FA, it has to be determined with some degree of certainty that a person has collected service tax but has failed to pay the amount so collected to the Central Government beyond the period of six months fr .....

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ination, to straightaway conclude that the Petitioners had collected and not deposited service tax in excess of ₹ 50 lakhs and thereby had committed a cognizable offence would be putting the cart before the horse. This is all the more so because one consequence of such determination is the triggering of the power to arrest under Section 90 (1) of the FA. 79. The Court notes that the Bombay High Court in ICICI Bank Ltd. v. Union of India 2015 (38) S.T.R. 907 (Bom) answered in the negative t .....

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premises, attachment of bank accounts and so on. The Court held that "the amount payable by a person can be said to be payable only after there is determination as provided under Section 72 or Section 73 of the Act." It further held, "the conduct of the Revenue, firstly coercing the Assessee to make payment and thereafter not deciding the returns under Section 72 or not taking recourse to Section 73, and asking the Assessee to take recourse to Section 11-B cannot be said to be jus .....

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coercive provisions straightaway. But then the notes on file must offer a convincing justification for resorting to that extreme a measure. What, however, requires reiteration is that the potent power of arrest should not be lightly and casually exercised to induce fear into an assessee and the consequential submission to the unreasonable demands made by officers of the investigating agency during the interrogation and while in custody. To again quote the Bombay High Court in ICICI Bank Ltd. v. .....

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th the previous approval of the Commissioner of Central Excise. However, at the same time, law enforcers cannot be permitted to do something that is not permitted within the four corners of law." 81. In Technomaint Contractors Ltd. v. Union of India 2014 (36) S.T.R. 488 (Guj), the Gujarat High Court held that Section 73 C of the FA cannot be activated for making a recovery even before adjudication. 82. In the context of the provisions for arrest under the Central Excise Act, 1944, the DGCEI .....

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es if left at large. Arrest at the investigation stage should be resorted to only when it is unavoidable." (emphasis supplied) 83. At this stage it also requires to be recalled that since the provisions of the Cr PC stand attracted in terms of Section 90(2) as well as Section 91(4) of the FA, all the safeguards that are available to a person under Chapter V of the Cr PC are also available to a person sought to be arrested by Central Excise Officer under the provisions of the FA. These safeg .....

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ngal (1997) 1 SCC 416. The directions issued by the Supreme Court included setting out in the arrest memo - (i) the brief facts of the case, (ii) the details of the persons arrested, (iii) the gist of evidence against the person, and (iv) relevant sections of the statute under which the action is proposed to be taken. The Court mandated that the grounds of arrest must be explained to the person arrested and this fact be noted in the arrest memo. Further the nominated person, as per details provi .....

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in the decision in D.K. Basu (supra), the Supreme Court did not confine itself to the actions of police officers taken in terms of powers vested in them under Cr PC but also of the officers of the Enforcement Directorate including the Directorate of Revenue Intelligence ( DRI ). This also included officers exercising powers under the Customs Act, 1962 the Central Excise Act, 1944 and the Foreign Exchange Regulation Act, 1973 ( FERA ) now replaced by the Foreign Exchange Management Act, 1999 ( F .....

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o detain a person and to interrogated him in connection with the investigation of economic offences, offences under the Essential Commodities Act, Excise and Customs Act. Foreign Exchange Regulation Act etc. There are instances of torture and death in custody of these authorities as well, In re Death of Sawinder Singh Grover [1995 Supp (4) SCC 450], (to which Kuldip Singh, J. was a party) this Court took suo moto notice of the death of Sawinder Singh Grover during his custody with the Directorat .....

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otect the interest of arrested persons in such cases too is a genuine need. ......... 33. There can be no gainsaying that freedom of an individual must yield to the security of the State. The right of preventive detention of individuals in the interest of security of the State in various situations prescribed under different statures has been upheld by the Courts. The right to interrogate the detenues, culprits or arrestees in the interest of the nation, must take precedence over an individual&# .....

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uld neither be 'right nor just nor fair' and, therefore, would be impermissible, being offensive to Article 21. Such a crime-suspect must be interrogated - indeed subjected to sustained and scientific interrogation determined in accordance with the provisions of law. He cannot, however, be tortured or subjected to third degree methods or eliminated with a view to elicit information, extract confession or drive knowledge about his accomplices, weapons etc. His Constitutional right cannot .....

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he Central Excise department or another agency like the DGCEI, authorised to exercise powers under the CE Act and/or the FA will have to be conscious of the constitutional limitations on the exercise of such power. This has been implicitly acknowledged in the circulars issued from time to time by the Central Board of Excise and Customs ( CBEC ). Insofar as officers of the Central Excise are concerned, the Service Tax Wing of the CBEC initially issued Circular No. 171/6/2013-Service Tax dated 17t .....

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be exercised carefully . It has been mandated that an officer of the Central Excise not below the rank of the Superintendent can carry out an arrest on being authorised by the Commissioner of Central Excise. It is further stated that to authorise the arrest, the Commissioner should have reason to believe that the person proposed to be arrested has committed an offence specified in clause (i) or clause (ii) of sub-section (1) of Section 89 of the FA. Importantly, it states the reason to believe m .....

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aken on whimsical grounds. To recapitulate, reasons to believe must be based on credible material . The decision must also be conveyed at the earliest to a superior officer who will constantly monitor the progress in the investigations. He will ensure that there is no tampering of the evidence gathered and at the same time ensure that there is no intimidation or coercion of the suspects and/or witnesses. The notings on file 86. The Court has perused the records produced in both the petitions in .....

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on revealed that MMT generated revenues through two lines of business; air ticketing and hotel business. Under the subheading Hotel Business in para 2.2 of this note, it is mentioned that in terms of the agreements entered into with the hotels, MMT blocks a certain number of rooms at a certain price but MMT is free to use any mark-up on the net rate or discount the published tariff. 88. The agreement between MMT and Hotel Maharaja Regency (P) Ltd. has been referred to in the said note. It is sta .....

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of renting hotel rooms. Thus, it is stated that they were liable to pay service tax on the renting of hotel rooms at a value of 60% of the amount charged. Para 2.2.4 then states that MMT is not paying service tax to the government which they have collected for the service provided by them. The reference is made with the help of the data provided by MMT for the period from October 2010 to September 2015 and the calculations showed that they had not paid service tax amounting to ₹ 82,78,03, .....

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sponsible for non-payment of service tax by MMT to the tune of ₹ 67 crores for the period from October 2010 to September 2015, which a cognizable and non-bailable offence under Section 89 (1) (d) of the FA read with Section 89 (1) (ii) and Section 90 (1) of the FA and Section 9AA of the CE Act. Para 4 is interesting inasmuch as it states as under: 4. Further, it is also apprehended that some of other similar online service providers namely (1) M/s. Cleartrip Private Limited, Unit No. 001, .....

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coercive step of arrest of the key persons of MMT as well as two others viz., Cleartrip and Yatra Online were more or less taken at the same time and for the same reasons. This is also why separate teams were constituted around the same time and took the same action. What is significant in this note for arrest is that there is no reference whatsoever to the circular dated 17th September, 2013. 91. In the said note, Mr. Samanjasa Das, Additional Director General, DGCEI made a further note on 8th .....

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h September, 2013 or the further amendment brought out to the said circular by the Circular No. 1010/17/2015 dated 23rd October, 2015, there was a clear non-application of mind. The circular dated 23rd October, 2015 prescribes the revised monetary limit in Central Excise and Service Tax cases. This is issued by the CBEC and refers in turn to Circular No. 1009/16/2015-CX of the same date where monetary limits have been prescribed for launching prosecution. It has been decided that prosecution sho .....

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ion taken to arrest a person. The decision to launch prosecution must be informed by the safeguards spelt out in Circular No. 1009/16/2015-CX dated 23rd October, 2015. This circular, apart from raising monetary limit, also talks of habitual evaders . Para 4.2 of this circular states that prosecution can be launched in the case of a company/assessee habitually evading tax/duty or misusing Cenvat Credit facility. A company/assessee would be treated as habitually evading tax/duty or misusing Cenvat .....

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duty. 94. The circular also acknowledges at para 4.3 that sanction of prosecution has serious repercussions for the assessee and therefore along with the above monetary limits the nature of evidence collected during the investigation should be carefully assessed. The evidences collected should be adequate to establish beyond reasonable doubt that the person, company or individual had guilty mind, knowledge of the offence, or had fraudulent intention or in any manner possessed mens-rea (guilty mi .....

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e person, company or individual had guilty knowledge of the offence, or had fraudulent intention to commit the offence, or in any manner possessed mens rea (guilty mind) which would indicate his guilt. It follows, therefore, that in the case of public limited companies, prosecution should not be launched indiscriminately against all the Directors of the company but it should be restricted to only against persons who were in charge of day-to-day operations of the factory and have taken active par .....

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nable doubt whereas the adjudication proceedings are decided on the basis of preponderance of probability. Therefore, even cases where demand is confirmed in adjudication proceedings, evidence collected should be weighed so as to likely meet the test of being beyond reasonable doubt for recommending prosecution. Decision should be taken on case-to-case basis considering various factors, such as, nature and gravity of offence, quantum of duty/tax evaded or Cenvat credit wrongly availed and the na .....

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ion proceedings and criminal proceedings are independent in nature to each other and (iv) the findings against the person facing prosecution in the adjudication proceedings is not binding on the proceeding for criminal prosecution. Therefore, prosecution may even be launched before the adjudication of the case, especially where offence involved is grave, qualitative evidences are available and it is also apprehended that party may delay completion of adjudication proceedings. 96. What this circu .....

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taken only immediately upon completion of adjudication proceedings . 97. There is a reason behind this stipulation that prosecution should normally be launched only after the adjudication is complete. The 'adjudication' in this context is the adjudication of the penalty under Section 83 A of the FA. That provision mandates that there must be in the first place a determination that a person is "liable to a penalty", which cannot happen till there is in the first place a determi .....

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ven before the adjudication of the penalty it has to be shown that (a) the offence involved is grave (b) qualitative evidence is available and (c) it is apprehended that the Assessee may delay the completion of adjudication proceedings. This underscores the importance of obtaining sanction for prosecution both in cases of MMT and IBIBO. A reference will be made to that shortly. 98. Turning to the grounds of the arrest that were communicated to Mr. Samanjasa Das, it appears that Mr. Jatinder Sing .....

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e Tax to the Government account, does not appear acceptable in view of the fact that as the provider of renting of hotel room service/short-term accommodation service, it is the statutory obligation of M/s MMT to discharge their due Service Tax liability. The hotels are mere input service providers to M/s MMT and M/s MMT s Service Tax liability cannot be fastened on the hotels. Besides, a large number of such hotels are not even registered Service Tax assesses and do not appear to have deposited .....

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Pallai at that stage. It now transpires from the pleading that the DGCEI officers were perhaps mistaken about the large number of hotels that were not found registered because the reasons why they may have failed to have been registered have been examined. 100. In terms of CBEC's own procedures, for the launch of prosecution there has to be a determination that a person is a habitual offender. There is no such determination in any of these cases. There cannot be a habitual offender if there .....

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ords of these entities has led to a totally erroneous conclusion that they are habitual offenders. In fact, both these Assessees have been regularly paying service tax. It is also not that the ST Department was not aware that rebate may be availed by these Assessees in their respective returns. It is also not as if the ST Department has not been examining the books of accounts or records of these Assessees. In the case of MMT, there were SCNs issued in the past which were adjudicated. 101. In th .....

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other Central Excise Officer as may be notified by the Board has reasons to believe that any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Chapter, are secreted in any place, he may authorise in writing any Central Excise Officer to search for and seize or may himself search and seize such documents or books or things. (2) The provisions of the Code of Criminal Procedure, 1973, relating to searches, shall, so far as may be, apply .....

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specify the above requirement of the law. In Mapsa Tapes Pvt. Ltd. v. Union of India 2006 (201) E.L.T. 7 (P&H) It was held in the context of the power of search under Section 105 of the Customs Act 1962, which is similar to Section 82 of the FA, is that: " while existence power of seizure may be justified but its exercise will be liable to be struck down unless 'reasons to believe' were duly recorded before action of search and seizure is taken." In none of the present case .....

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violation of the mandate of Section 82 of the FA, but is also unconstitutional since it impinges on the life and liberty of the employees of the entities involved. 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. Payments were not 'Voluntary' 104. It is repeatedly urged by Mr. Satish Aggarwala that in the bail proceedings before the Magistrate, the Senior counsel representing .....

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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 a .....

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an assessment. The same principle would apply here as well. 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. It is clarified that .....

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cord of the filing of returns and the corresponding assessments. Whatever may be the secret nature of the operation, 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. It is only after checking the entire records and seeking clarification where necessary, that the investigating agency can possibly come to a conclusion that Section 89 (1) (d) is attracte .....

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n the present case the DGCEI acted with undue haste and in a reckless manner. Additional and supplementary affidavits 109. The conduct of the officials of the DGCEI in undertaking the entire exercise of searching the premises of the Petitioner and then proceeding to arrest Mr. Pallai are the subject matter not only of the writ petition itself but the supplementary affidavits and the replies to those supplementary affidavits of Mr. Pallai and Mr. Deepak Katyal of MMT by the officials of the DGCEI .....

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T to institute appropriate proceedings in accordance with law in which the affidavits filed in these proceedings can be relied on. This holds good for the officials of the DGCEI as well when called upon to defend those proceedings in accordance with law. The Court accordingly refrains from examining that aspect of the matter any further. Pendency of separate criminal proceedings not a bar 111. At this stage, the Court also deals with another objection raised by Mr. Satish Aggarwala. He urges tha .....

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realm of powers of this Court. The Court cannot decline to exercise its jurisdiction and must clarify 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. This Court decided, therefore, to proceed with these petitions notwithstanding that petitions may be pending in the criminal jurisdiction of this Court. 113. The possibility of misuse of statutory powers by officers was commented upon noti .....

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to coerce them to make the payment. This is unfortunate. 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 whic .....

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er the Customs Act, 1962 observed in Vodafone Essar South Limited v. Union of India 2009 (237) ELT 35 (Bom), as under: 22. In these circumstances, we are clearly of the opinion that in the present case, the conduct of the DRI Officers is not only high handed but it is in gross abuse of the powers vested in them under the Customs Act. It is apparent that the DRI officers in utter disregard to the order passed by the Commissioner of Customs (A), Mumbai have forced the Petitioners to pay the amount .....

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the norms laid down under the Customs Act in relation to reassessment proceedings and purporting to collect the amount even before reassessment. We hope that such incidents do not occur in the future. 115. 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. The Court is conscious that Mr. Pallai has instit .....

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ns 90 and 91 of the FA. The power of arrest is 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. (ii) Where an assessee has been regularly filing service tax returns which have been accepted by the ST Department or which in any event have been .....

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hat a person is "liable to a penalty", which cannot happen till there is in the first place a determination in terms of Section 72 or 73 or 73 A of the FA. (iii) For a Central Excise officer or an officer of the DGCEI duly empowered and authorised in that behalf to be satisfied that a person has committed an offence under Section 89 (1) (d) of the FA, it would require an enquiry to be conducted by giving an opportunity to the person sought to be arrested to explain the materials and ci .....

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exception could be where a person is shown to be a habitual evader of service tax. Such person would have to be one who has not filed a service tax return for a continuous length of time, who has a history of repeated defaults for which there have been fines, penalties imposed and prosecutions launched etc. That history can be gleaned only from past records of the ST Department. In such instances, it might be possible to justify resorting to the coercive provisions straightaway, but then the not .....

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er of the Central Excise department or another agency like the DGCEI, authorised to exercise powers under the CE Act and/or the FA will have to be conscious of the constitutional limitations on the exercise of such power. (vi) 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. (vii) In terms of CBE .....

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record, it could not have been possible for the DGCEI to arrive at a reasonable conclusion whether there was a deliberate attempt of evading payment of service tax. In the case of MMT, the decision to go in for the extreme step of arrest without issuing an SCN under Section 73 or 73A (3) of the FA, appears to be totally unwarranted. (viii) For the exercise of powers of search under Section 82 of the FA, (i) an opinion has to be formed by the Joint Commissioner or Additional Commissioner or othe .....

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ners 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. (x) 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. It is only after checking the entire records .....

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thereto can be relied on. This holds good for the officials of the DGCEI as well when called upon to defend those proceedings in accordance with law. (xii) The Court cannot decline to exercise its jurisdiction and clarify the legal position as regards the interpretation of the scope and ambit of the powers under Sections 89, 90 and 91 of the FA. This is clearly within the powers of this Court. That is why this Court has decided to proceed with these petitions notwithstanding that the criminal p .....

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