TMI Blog2016 (9) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or which in any event have been examined by it, as in the case of the two Petitioners, without commencement of the process of adjudication of penalty under Section 83 A of the FA, another agency like the DGCEI cannot without an SCN or enquiry straightway go ahead to make an arrest merely on the suspicion of evasion of service tax or failure to deposit service tax that has been collected. Section 83 A of the FA which provides for adjudication of penalty 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 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 perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax dues in terms of Section 73/73A of the FA. MMT also seeks a declaration that Respondent Nos. 2, 3 and 4 do not have the power to arrest the officials of MMT under Section 91 read with Section 89 of the FA and Section 9AA of the Central Excise Act, 1944 ( CE Act ). 3. Writ Petition (Civil) No. 1283 of 2016 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 and their officers. Common issues 5. A common issue that arises in both writ petitions is about the nature of service rendered by the Petitioners, MMT and IBIBO. The case of MMT and IBIBO is that they host web portals that facilitate the booking of rooms in hotels throughout the country and collect a charge for rendering such service. The two Petitioners characterise t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Magistrate ( CMM ) on 11th January, 2016. While prior to the said order, a sum of Rs. ₹ 15.33 crores was paid by MMT towards 'admitted' service tax dues (which assertion of the DGCEI is contested by MMT), a further sum of ₹ 25 crores was paid in terms during and after the bail proceedings. MMT's Vice President has filed a separate petition in this Court in its criminal jurisdiction assailing the arrest and initiation of criminal proceedings. Since the petition is pending, the 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, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it corresponding to the service rendered by it. 14. MMT states that in terms of Rule 11 (ii) of Notification No. 26/2012ST dated 20th June, 2012, it claimed 90% abatement on such gross 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 issued to Mr. M.K. Pallai, Vice President (Finance), MMT for tendering his statement under Section 14 of the CE Act as made applicable to service tax in terms of Section 83 of the FA. 15. MMT states that during the investigation, the officials of DGCEI conveyed that some hotels for whom the booking was made by MMT had not deposited service tax with the Government thus causing loss of revenue and that such taxes were to be recovered from MMT. The specific allegation conveyed by the officers of DGCEI to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it was the obligation of the concerned hotels to pay the service tax to the government account. According to the DGCEI, 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. It was further mentioned in the grounds of arrest that besides, a large number of such hotels are not even registered Service Tax Assessees and do not appear to have deposited the service tax claimed to have been remitted by M/s. MMT to such hotels, in the government account. The grounds of arrest then stated that Mr. Pallai, in his statement recorded on 10th December, 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 crores for the period from October 2010 to September 2015. It is stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by MMT with the hotels. The customer voucher was not supplied 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 service providers providing services of renting hotel rooms to MMT. Thus, MMT was liable to pay service tax on 60% of the amount charged from the customers for provision of short-term accommodation services (renting of hotel rooms) in terms of the Notification No. 26/2012-ST dated 20th June, 2012, as amended. It was noted in the application for judicial remand that MMT had provided data for the period upto September 2015 in terms of which MMT had not paid service tax amounting to ₹ 82,78,03,760 and had only arbitrarily paid ₹ 15,33,84,593 (approximately). Thus, MMT had not paid service tax which they had collected from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... huge sums of service tax to the Central Government exchequer from March 2011 to September 2015 inasmuch as ₹ 2,99,85,99,891 as service tax. It is further pointed out that the DGCEI had arbitrarily, and without giving an opportunity of a hearing or an SCN, considered MMT as a hotel providing renting services to the customers and not as a tour operator. The DGCEI insisted that MMT should discharge service tax on the entire amount collected from the customers. 24. 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 sought to the concerned department to furnish the correct calculated amount depicting the actual liability towards service tax. The CMM noted the submission of the Investigating Officer ( IO ) of the case that he had no obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at they were discharging their service tax liability on the 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. Counter affidavit of the DGCEI 28. A counter-affidavit has been filed by Mr. Samanjasa Das, ADG, DGCEI, Delhi Zonal Unit, New Delhi. A reference is made in the counter affidavit to the intelligence received in the DGCEI which indicated that MMT was providing services relating to renting of hotel rooms through its website www.makemytrip.com and was not discharging its service tax liability 'properly . It is stated that the investigation was thereafter initiated by visiting the premises of MMT under Rule 5A of the Service Tax Rules, 1994 ( ST Rules ). It is stated that the investigation conducted till then revealed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith MMT for booking of hotel rooms. It is stated that in the event of cancellation, MMT s customers approached MMT, and not the hotel, for redressal of their complaints. 30. It is asserted by the DGCEI that there was no statutory provision under which MMT could collect service tax on behalf of the others. A reference is made to Rule 4A of the ST Rules which provides that every person providing any taxable service shall issue an invoice, a bill or a challan signed by such person in respect 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 MMT remitted to the hotels was not in accordance with Rule 4A of the ST Rules since the hotels were not raising any invoice or challan on the customers. It is stated that MMT had provided the PAN details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 expenses. Therefore, MMT was not acting as an agent of the hotels. 32. It is stated by the DGCEI that till September 2015, MMT had collected service tax to the tune of ₹ 82,78,03,760 from its customers, out of which ₹ 67,44,19,167 was not deposited in the government account. It is further stated that the Vice-President of MMT was arrested under Section 91 of the FA for the cognizable and non-bailable offence covered 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 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 M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharging their service tax liability on the hotel service provided. Representative copies of confirmation certificates have been enclosed with the rejoinder affidavit as Annexure-I. It is further stated that since the FA was not applicable to the State of Jammu Kashmir, there was no question of hotels charging service 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 ₹ 1,000, with its rejoinder MMT has enclosed as Annexure-3 affidavits of such hotels confirming that they were not charging service tax from their customers and further that hotel taxes did not include any service tax. 36. It is pointed out by MMT that para 5.9.6 of the Education Guide, Rule 2(f) of the Place of Provision of Service Rules, 2012 and the provisions fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 enclosed as Annexure-6 to the rejoinder affidavit. It is stated that in June 2014 an audit was conducted by the Central Excise Regulatory Authority ( CERA ) for the period from FYs 2010-11 to 2013-14. MMT had been issued the SCN on the basis of CENVAT credit eligibility where the ST Department had specifically recognized the activities performed by MMT. A reference is made to the SCN dated 25th October, 2010 and 18th October, 2011. In para 6.1 of the SCNs dated 25th October, 2010 and 18th October, 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een (Intelligence Officer), Mr. Rajeev Dhawan and Mr. Rajesh Arora. Mr. Das, Mr. Jatinder Singh, Mr. Kapoor, Mr. Ajay Kumar and Mr. Praveen filed their affidavits 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 travel agent/ tour operator for booking hotels for its customers and is registered with the ST Department under the relevant provisions of the FA vide service tax registration number AAHCP1178LSD001. IBIBO provides an online platform (website/mobile application) whereby various hotel service providers can make available hotel accommodation services to customers. Just like in the case of MMT, it is stated that the customers intending to book a hotel room visit the website/mobile application and enter the details required for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited v. The Union of India where an ad interim order was passed restraining the Respondents from taking coercive action against Cleartrip. A reference was also made to the order passed in MMT s case. Counter affidavit of DGCEI in IBIBO's petition 46. The counter affidavit filed by the DGCEI in W.P. (C) No. 1283/2016, is on the same lines as the one filed in W.P. (C) No.525/2016. It is asserted that IBIBO was in the business of running a hotel room booking service and collecting service tax from their customers and entered into agreements with more than 25,000 hotels on 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 tax with regard to the hotel service provided, copies of such confirmation certificates were anne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or refundable to the Assessee on the basis 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 erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : PROVIDED that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of - (a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the offences for which limitation of eighteen months applies under subSection (1). (3) Where any service tax has not been 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 subsection (1) in 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 specified in this section, and the period of eighteen months referred to in sub-section (1) shall be counted from the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be paid under this Chapter or the rules made thereunder; (ii) in a case where the 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 category of a person not filing a return under Section 70 of the FA as envisaged under Section 72 (a) of the FA. Under Section 72 (b) of the FA, the return filed by the Assessee can be scrutinized by the Central Excise Officer who has been assigned his functions in terms of the provisions of the FA read with CE Act. 51. Proceedings were initiated by the ST Department against each of the Petitioners in respect of the returns filed by them and SCNs were also issued to them. In other words, the power of assessment has been and is continued to be exercised by the concerned designated offices of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made there under from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. (2) Where any person who has collected any amount, which is not required to be collected, 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 not be paid by him to the credit of the Central Government. (4) The Central Excise Officer shall, after considering the representation, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tel 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 tax passed on to them by the Petitioners, since it is the Petitioners who have collected the said component service tax, it is the Petitioners who are liable to, under Section 73A (1) of the FA, to credit the tax so collected to the account of the Central Government and their failure to do so results in violation of Section 73A of the FA. 57. The case of the Petitioners that they have included the service tax to the extent payable by the hotels in the bills raised on the customers but have not 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting colours the sense of the word. The spirit of the provision lends force to the construction that collected means collected and kept as his by the trader. If the dealer merely gathered the sum by way of tax and kept it in suspense account because of dispute about taxability or was ready to return if eventually it was not taxable, it is not collected. Collected , in an Australian Customs Tariff Act, was held by 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' or otherwise has been retained' by them. Without such prima facie conclusion, it cannot be inferred that the Petitioners have violated Section 73A (1) of the FA. 61. The above determination becomes relevant even for the purpose of Section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 fifty lakh rupees, with imprisonment for a term which may extend to seven 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 period of less than six months; (iii) in the case of any other offences, which imprisonment for a term, which may extend to one year. (2) If any person is convicted of an offence punishable under (a) clause (i) or clause (iii), then, he shall be punished for the 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is of imprisonment for a term which may extend to one year. Section 89 (2) (b) further states that if a person convicted of an offence punishable under Section 89 (1) (ii) commits a subsequent offence, the imprisonment shall be for a period which may extend to seven years. Section 89 (4) requires previous sanction of the Chief Commissioner of Central Excise for any prosecution under Section 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 the other. The former would be a non-cognizable whereas the latter was made cognizable and linked to Section 91 (1) regarding the power of arrest. 66. There are two aspects of the proceedings as far as Section 73A and Section 89 (1) (d) of the FA is concerned. Section 73A sets out the procedure fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 person. (2) Where a person is arrested for any cognizable offence, every officer authorized to arrest a person shall, inform such person of the grounds of arrest and produce him before a magistrate within twenty-four hours. (3) In the case of a non-cognizable and bailable offence, the Assistant Commissioner, or the Deputy Commissioner, as the case may be, shall for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer 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) m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y non-cognizable and bailable offence, the Assistant Commissioner (AC) or the Deputy Commissioner (DC), as the case may be, has the same powers as an officer-in-charge of a police station has under Section 436 of the Cr PC for the purpose of releasing such arrested person on a bail. This contemplates the offences 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. Section 91 (4) is more important. It states that all arrests under Section 91 shall be carried out in accordance with the provisions of the Cr PC relating to arrests . In other words the entire Chapter V of the Cr PC on Arrests , comprising Sections from 41 to 60A would apply to any arrest made of a person in exercise of the powers under Section 91 of the FA. The determination by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 person from whom the goods are seized to show that they are not smuggled goods. Powers are given to the Customs Officer under Section 108 to record statements which are admissible in law. The point to be noted is that coercive powers under taxing statutes are hedged in by limits on the use of that power by in-built restrictions and limitations. 75. It is for this reason that the powers of a Central Excise Officer under the FA cannot be compared with the powers exercised by the same officer either under 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preceded by the adjudication for the purposes of determining the evasion of service tax. The Petitioners are, therefore, right that without any such determination, 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 the following question: Whether, without there being any adjudication in any of the proceedings as provided under Chapter 5 of the Finance Act, 1994 coercive steps can be taken by the Revenue, for recovery of service tax or penalty or interest. The Court there was dealing with a case where the Assessee had made payments under protest of alleged service tax dues under threat by the ST Department of taking drastic action under Section 87 of the FA in the form of sealing of the business premises, attachment of bank accounts and so on. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Central Excise Act, 1944, the DGCEI has published a Manual in 2004 containing guidelines to the CE Officers on when and in what circumstances resort should be had to the coercive step of arrest. In Chapter X para 7 of the said Manual, it is stated that arrest can be made prior to the issue of an SCN but only where fraudulent intent is clear (prima facie there is evidence of mens rea) or where the evidence is enough to secure a conviction or where the person is likely to abscond, tamper with evidence or influence the witnesses 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 safeguards have been judicially evolved by reading constitutional limitations into the width and ambit of these powers. Constitutional safeguards 84.1 The saf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 Directorate of Enforcement. After getting an enquiry conducted by the additional District Judge, which disclosed a prima facie case for investigation and prosecution, this Court directed the CBI to lodge a FIR and initiate criminal proceeding against all persons named in the report of the Additional District Judge and proceed against them. The Union of India/Directorate of Enforcement was also directed to pay sum of ₹ 2 lacs to the widow of the deceased by was of the relevant provisions of law to protect 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) (ii). In the latter case, it has been mandated that after following the due procedure of arrest, the arrested person must be produced before the Magistrate without unnecessary delay and definitely within 24 hours. Para 2 of the said circular specifies conditions precedent . Para 2.1 states that, since arrest impinges on the personal liberty of an individual this power must 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 must be based on credible material which will stand judicial scrutiny . The further criterion is spelt out in para 2.3 which reads thus: 2.3 Apart from fulfilling the legal requirements, the need to ensure proper investigation, prevention of the possibility of tampering with evidence of intimidating or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 ₹ 82,78,03,760 and paid service tax only to an extent of ₹ 15,33,84,593. Para 2.3.4 of the note is critical since it states that Mr. M.K. Pallai, Vice President (Finance) of MMT, in a statement dated 10th December, 2015, has stated that in case of service tax matters they took a legal opinion and that based on such legal opinion, he and Mr. Mohit Kabra, CFO of MMT, took the decision on taxation issues. 89. From the above it is concluded in para 3 that Mr. Pallai and Mr. Kabra were the main persons responsible 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. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax evasion is equal to or more than ₹ 1 crore. 93. It appears that a decision to launch prosecution and a decision to arrest have to be taken more or less simultaneously. In other words, without a decision to launch prosecution there cannot be a decision 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 Credit facility if it has been involved in three or more cases of confirmed demand (at the first appellate level or above) of Central Excise duty or Service Tax or misuse of Cenvat Credit involving fraud, suppression of facts etc. in the five years from the date of the decision such that the total duty or tax evaded or total credit misused is equal to or more than Rs. One Crore. Offence register (335J) may be used to monitor and ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. 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 nature as well as quality of evidence collected. 6.4 Decision on prosecution should be normally taken immediately on completion of the adjudication proceedings. However, Hon ble Supreme Court of India in the case of Radheyshyam Kejriwal [2011 (266) ELT 294 (SC)] has inter alia, observed the following (i) adjudication proceedings and criminal proceedings can be launched simultaneously; (ii) decision in adjudication proceedings is not necessary before initiating criminal prosecution; (iii) adjudication 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the Service Tax collected by them to the concerned hotels, it is the obligation of the hotel to pay Service 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 the Service Tax claimed to have been remitted by M/s MMT to such hotels, in the Government account. 99. This is a significant addition to the so-called reasons why it is decided to arrest Mr. Pallai. The conclusion in this paragraph that a large number of such hotels are not even registered Service Tax assessees and do not appear to have deposited the Service Tax is on the unilateral searches conducted on the website by Mr. Jatinder Singh and his team which were obviously not confronted to Mr. Pallai at that stage. It now transpires from the pleading that the DGCEI office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1973, relating to searches, shall, so far as may be, apply to searches under this section as they apply to searches under that Code. 103. It is seen that there are two essential requirements as far as Section 82 of the FA is concerned. An opinion has to be formed by the Joint Commissioner or Additional Commissioner or other officers notified by the Board that any documents or books or things which are useful for or relevant for any proceedings under this Chapter are secreted in any place. Therefore, the note preceding the search of the premises has to 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 cases does the note on file mention the fact that any document has been secreted away and is relevant for the proceedings. There appears to be no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 since the payment was collected by the DGCEI illegally, the refund in terms of this order will not affect the bail already granted to Mr. Pallai. Conduct of the officers of the DGCEI 107. The Court was not a little surprised that the DGCEI did not think it appropriate to check with the ST Department whether the Petitioners were regular in filing their returns and whether such returns had been assessed. In the present case, both the Petitioners have been filing returns. The ST Department has a record 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction to challenge the arrest and detention of the officers, this Court should not deal with that aspect of the matter at all. 112. The case of the Petitioners has been that the decision to arrest was based on a wrong interpretation of law and which is why they have come to the Court seeking interpretation of the scope and ambit of the powers under Sections 89, 90 and 91 of the FA. This is clearly within the 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 noticed by the Supreme Court in Dabur India Limited v. State of Uttar Pradesh (1990) 4 SCC 113 in the following passage: 31. Before we part this case, two aspects have to be adverted to one was regarding the allegation of the Petitioner that in order to compel the Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe 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 instituted separate proceedings for quashing of the criminal case and, therefore, this Court does not propose to deal with that aspect of the matter. Summary of conclusions 116. To summarise the conclusions in this judgment: (i) The scheme of the provisions of the Finance Act 1994 (FA), do not permit the DGCEI or for that matter the Service Tax Department (ST Department) to by-pass the procedure as set out in Section 73A (3) and (4) of the FA before going ahead with the arrest of a person under Sections 90 and 91 of the FA. The power of arrest is to be used with great circumspection and not casually. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutional safeguards laid out in D K. Basu's case (supra) in the context of the powers of police officers under the Cr PC and of officers of central excise, customs and enforcement directorates, are applicable to the exercise of powers under the FA in equal measure. An officer whether 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 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 is no discussion by the DGCEI with the ST Department regarding the history of such Assessee. Assuming that, for whatever reasons, if the DGCEI does not talk to ST Department, cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 petitions may be pending in the criminal jurisdiction of this Court. (xiii) The Court is satisfied that in the present case the action of the DGCEI in proceeding to arrest Mr. Pallai, Vice-President of MMT, was contrary to law and that Mr. Pallai s constitutional and fundamental rights under Article 21 of the Constitution have been violated. The Court is conscious that Mr. Pallai has instituted separate proceedings for quashing of the criminal case and, therefore, this Court does not propose to deal with that aspect of the matter. 117. The interim directions issued in the two writ petitions are made absolute. It is directed that the DGCEI will refund to each of the Petitioners forthwith the respective amounts deposited by them towards alleged dues of service tax forthwith and in any event not later than four weeks from today. Any delay in refund beyond the said period will make the DGCEI liable to pay simple interest at 6 % per annum on the res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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