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2016 (9) TMI 53

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..... traightway 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 73A 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 .....

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..... registered with the Service Tax Department (ST Department) and has been paying service tax since the year 2001. eBIZ describes the services rendered by it of booking of tour packages as that of a 'tour operator'. It has been filing its ST returns regularly. It is stated that in every half-yearly return filed by the Petitioner, exemption available to tour operators under Notification no. 26/2012-ST dated 20th June 2012 has been claimed. eBIZ states that the said returns have been duly verified by the ST Department. 3. It is stated that on 12th January 2007, the ST Department conducted a search in the premises of eBIZ as a result of which eBIZ was compelled to deposit service tax of ₹ 25,55,000/- and interest thereon amounting to ₹ 2,59,000/-. eBIZ further states that consequent upon the said search, the ST Department issued a show cause notice ( SCN ) dated 3rd July 2007. Pursuant thereto, an adjudication order was passed and eBIZ paid a penalty amount of ₹ 6,37,500 without prejudice to its right to go in appeal against the said order. By an order dated 29th August 2012, the Commissioner, Service Tax (Appeals) set aside the order passed by the adjudica .....

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..... letter further asked eBIZ to provide copies of balance sheet, trial balance and annual financial report for financial years ( FYs ) 2010-2011 to 2014-2015 along with all the schedules, tax audit report (Form 3CD), TDS detail (Form 26AS), copies of ST-3 returns submitted for the years 2010-2011 to 2014-2015; value and payment of service tax (service wise/month wise) through cash and credit for the last five years and soft copies of the aforesaid records and documents. All the above information was submitted by eBIZ on 15th December 2015. It is pointed out that since they were audited every year, therefore, it was enclosing copy of balance sheet, P L account along with all the schedules, tax reports, Form 3CD, TDS details, ST-3; and value and payment of service tax (service wise/month wise) only for the relevant year i.e., 2014-2015. The ST returns filed by eBIZ for all the aforementioned years have been enclosed with the petition. 7. It is pointed out that after conducting the verification audit of eBIZ in 2015, a notice dated 6th January 2016 was issued for examining the admissibility of the exemption claimed under Notification No.26/2012-ST dated 20th June 2012. However, before .....

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..... crores for the last five years was based only on the change of opinion and illegal search conducted in the premises of eBIZ. 11. It is on the above basis that the present writ petition was filed praying inter alia for a declaration that the action of the DGCEI was arbitrary, malicious and motivated and against the provisions of the FA and to declare the summons dated 19th and 21st January 2016 to be without authority of law. Proceedings before the Court 12. In this writ petition, the Court issued notice to the Respondents on 28th January 2016. At that stage, Mr. Malhan was still in custody and his bail application was to be taken up on 29th January 2016 by the ASJ. Mr. Atul Singh, Deputy Director, DGCEI and Mr. Sunil Joshi, SI-6, DGCEI were present along with the records, which were perused by the Court. This included a note proposing search in the premises of eBIZ and a separate note proposing the arrest of Mr. Malhan. In para 8 of the order passed by the Court on 28th January 2016, it was recorded as under: 8. It is not clear from these notes that prior to going in for the extreme measure of arresting the MD of the Petitioner, the DGCEI examined the entire previ .....

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..... td. B-18, Sector-63, Noida, Uttar Pradesh 201301 are not discharging their service tax liability properly . When the Court enquired whether the DGCEI had verified such information with the Commissionerate of Service Tax in whose jurisdiction the eBIZ was functioning and had been assessed and paying service tax, Mr. Satish Aggarwala, learned counsel for the DGCEI stated, on instructions, that DGCEI never contacted the Commissionerate of Service Tax at any stage prior to the search, seizure and arrest of Mr. Malhan. He added that the DGCEI was not obliged to do so. When asked what was the information received, Mr. Aggarwala stated that this had been kept in another file in a sealed cover in the custody of Mr. Vivek Pandey, Joint Director, DGCEI. In the circumstances, the Court passed an order on 2nd May 2016, directing Mr. Pandey to remain present in the Court on the next date along with the file which carried the information on the basis of which the decision was taken to arrest Mr. Malhan. 16. In the meanwhile, since the counter affidavit had been filed by the DGCEI and the rejoinder thereto filed by the Petitioner, further permission at the request of Mr. Aggarwala was grante .....

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..... t Noida with the registration number AABCE3009PST001. It further confirms that eBIZ has obtained service tax registration in respect of following services: i. Tour operator service. ii. Online information and database access or retrieval. 21. It is stated that the Central Excise Service, Audit-II Commissionerate, Ghaziabad came into existence with effect from 15th October 2014. It is pointed out that the Assessees are selected for audit from time to time as per audit norms specified in the Audit Manual. It is stated that in the year 20142015, for the first time, the Audit Commissionerate, Ghaziabad conducted an audit of eBIZ in terms of Rule 5A of the Service Tax Rules, 1994 ( ST Rules ). It is stated that in response to the letter sent to eBIZ informing them about the scheduled audit and requesting them to produce the relevant documents, eBIZ submitted the balance sheet for FY 2013-2014, half-yearly service tax returns for the same year, registration certificate in Form ST-2, the statement of CENVAT credit etc. Thereafter, the audit team visited the business premises of eBIZ in the months of November and December and conducted the service tax audit. The list of fi .....

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..... s amount inclusive of all taxes charged towards price of such hotel holiday accommodation. The income from such service was booked under the head Hotel Holiday accommodation by eBIZ in their financial accounts and appropriate service tax based on such claims was paid and also shown in the statutory returns submitted to the Department. In that view of the matter, there was no reason for the audit team to challenge the admissibility of the exemption availed by the Petitioner under Notification No.26/2012-ST. 25. Para 11 of the counter affidavit of the ST Department mentions eight audit objections of which five were accepted by eBIZ and these five involved service tax to the tune of ₹ 15.68 lakh. This was deposited by eBIZ on the spot. The remaining objections were not accepted and an SCN dated 2nd November 2015 was issued for recovery of service tax of ₹ 5,33,541/- and the said SCN is stated to be pending adjudication. 26. Respondent No. 3 further states that eBIZ was again selected for audit in 2014-2015 and again asked by a letter dated 13th October 2015 issued by the audit team to submit the relevant documents/records. After some of the information/records wer .....

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..... eatedly stressed by the ST Department that when the audit was conducted there was no reason to suspect the authenticity of the records/documents produced by the party and the exemption under Notification No. 26/2012-ST was found to be admissible to the Petitioner, on the basis of audit of their records produced before the audit . The Audit Department has nothing to say about the SCN issued by the jurisdictional Service Tax Commissionerate, which has been referred to in para 9 of the writ petition and that it pertained to some other issue and the same is not related to the issue of admissibility of exemption under Notification No.26/2012-ST. It is pointed out that under Section 70(1) of the FA, the Assessee has to declare the true and correct nature of the services provided and has to pay service tax due thereon. It is stated that fresh proceedings for recovery of service tax for the same period are warranted, if the issues of classification of services declared by the Assessee are found to be false or different on the basis of facts not disclosed earlier in any of the statutory record by the party. Counter affidavits of Respondent Nos. 1 and 2 30. As earlier mentioned, .....

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..... nse to the counter affidavits of the Respondent Nos. 2 and 3. 34. It must be pointed out at this stage that a letter dated 8th April 2016 was written by Dr. Puneeta Bedi, Deputy Director, DGCEI, to Mr. Pawan Malhan, MD of the Petitioner to submit the details requested therein. The abovesaid letter dated 8th April 2016 has been placed on record and it is noted that the following details had been requested by the DGCEI: i. Name, address code number of all the associates who availed Education Package, Holiday Accommodation Package-I II from October 2011 to till date. ii. List of associates who have not availed Holiday Accommodation Package-I II from Oct 2011 to till date. iii. List of associates who availed Holiday Accommodation Package- I II from Oct 2011 to till date. iv. List of associates who cancelled their request or who did not check in hotel after submitting request of availment of Holiday Accommodation Package-I II from Oct 2011 to till date. v. Ledgers of all associates individually who availed Holiday Accommodation Package-I II from Oct 2011 to till date. 35. It is pointed out in the rejoinder affidavit that the MD of eBIZ a .....

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..... number) who availed Education Package and Holiday Accommodation Package-I II from October, 2011 till date and that instead of submitting the said list, eBIZ sent a truck full of 123 cartons to the office of the DGCEI. 39. The decision to arrest the MD of the Petitioner is sought to be justified by the DGCEI by referring to Section 89 (1) (d) read with Section 90 (1) and 91 (1) of the FA. It is further asserted that in order to satisfy that there has been a commission of the offence of collecting an amount of service tax and the failure to deposit the amount so collected to the credit of the Central Government beyond six months from the date on which such payment is due in terms of Section 89 (1) (d) of the FA, there is no requirement for issuance of SCN as contemplated under Section 73 (1) and 73A (3) of the FA. Submissions of counsel for the Petitioner 40. Mr. J.K. Mittal, learned counsel for the Petitioner, made the following submissions: (i) The search conducted by the DGCEI was arbitrary and in complete breach of the provisions of law inasmuch as it was authorised without placing any material on record and without any application of mind and formation of an .....

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..... ppeals) by an order dated 29th August 2012. This entailed a refund to eBIZ of ₹ 25,55,000 as service tax, ₹ 2,59,000 as interest, ₹ 6,37,000 as penalty totalling ₹ 34,51,500. Despite an application dated 27th January 2014, the said amount, which had been deposited under protest by eBIZ, had not been refunded to it. (vii) The arrest memo also did not mention that a second search had taken place on 4th October 2012 of the premises of eBIZ by the Anti-Evasion Wing of the Noida Commissionerate. However, till date no demand has been raised as a result of the said search. (viii) The ST Department has in its counter affidavit admitted to the fact that for the past 10 years it had been regularly conducting audit of eBIZ s books of accounts and records while deputing its officers in exercise of the power under Rule 5A of the Service Tax Rules, 1994. While there was no evidence regarding any tax evasion, the discrepancies pointed out were immediately rectified. Throughout, eBIZ s claim for entitlement of exemption under Notification 29/2006-ST was not disputed. In other words, even during the course of the audit, the ST Department acknowledged that eBIZ wa .....

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..... the earlier SCNs were pending adjudication was arbitrary. (xii) It is emphasised that without there being any provision for reopening of assessments, the resort to the coercive steps of search, seizure and arrest without even an SCN was illegal. Submissions of counsel for the Respondents 41. Mr. Satish Aggarwala, learned counsel of the Respondents made the following submissions: (i) eBIZ, in order to evade the leviable service tax at the full rate, rechristened its education package as eBIZ Holiday Accommodation Packages I and II and fraudulently claimed exemption at 90% available to 'tour operators' when it was not one. (ii) The Competent Authority had reasonable grounds of belief, on the basis of a thorough examination of the material on file which included the specific information as provided by an informer, that eBIZ was only providing online coaching service and not tour operating service . It is submitted that the decision to go in for a search operation was not arbitrary. The information received is developed by a senior officer and then discussed with superior officers. It is only after a brainstorming exercise by the officers on the .....

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..... he audit by the Audit Team of the ST Department was different from the search that could be undertaken by the DGCEI. The audit party in the present case accepted the documents presented before it by an Assessee as genuine without information of any fraud committed by such Assessee. The regular/routine audit cannot be construed as immunity against any other action which can be taken on the basis of some specific information/inputs regarding evasion of tax. (vi) Under Section 73 of FA, the ST Department could make enquiries covering a period of past five years in the event the Assessee had not paid service tax by reason of 'fraud' or 'collusion' or 'wilful misstatement' or 'suppression of facts' or 'contravention of any of the provisions of this Chapter or of the rules made thereunder with an intent to evade payment of service tax'. (vii) While the DGCEI did not contact the Jurisdictional Service Tax or Audit Commissionerate at any stage prior to the search, seizure and arrest of Mr. Malhan since any such action would lead to the threat to the life of the informer , however, after the case was booked against eBIZ, both the Jurisd .....

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..... ermissible as long as DGCEI was able to show that a fraud had been committed by eBIZ. Since investigation was still in progress, no SCN was issued in the matter. (xi) The sum of ₹ 17 crores was voluntarily paid by Mr. Malhan and not under coercion or threat as alleged. Mr. Aggarwala sought to distinguish the decisions in Mahesh Chandra v. Regional Manager, U.P. Financial Corporation (supra) Uniworth Textiles Ltd. v CCE, Raipur (supra) and Parashuram Pottery Works Co. Ltd. v Income-tax Officer and Calcutta Discount Company v ITO (supra). Analysis of the relevant provisions 42. The Court proposes to begin the analysis of the above submissions by first referring to the relevant statutory provisions. For the purposes of the present case, a reference is required to be made to the relevant provisions of the FA. Section 65 (105) (n) of the FA defines 'taxable service' as 'any service provided or to be provided to any person by a tour operator in relation to a tour'. Section 65B (44) defines 'service' as any activity carried out by a person for another for consideration, and includes a declared service. It then proceeds to set out the ne .....

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..... een 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 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 for recovery of service tax), the Central Excise Officer may serve, subsequent to any notice or notices served under that sub-section, a statement containing the details of service tax has not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, on the person .....

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..... ny 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 receipt of such information of payment. Explanation 1: For the removal of doubts, it is hereby declared that the interest under Section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer, but for this 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 app .....

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..... fficer who has been assigned his functions in terms of the provisions of the FA read with CE Act. The narration of facts shows that the ST Department undertook scrutiny of the returns in which the exemption was claimed describing eBIZ as a tour operator . Searches and audits were also undertaken. SCNs were issued to eBIZ. In other words, the power of assessment has been and is continued to be exercised by the ST Commissionerate. If in terms of Section 72 of the FA, the Assessing Officer (AO) was of the view that eBIZ was wrongly availing exemption as a tour operator or evading service tax, it was open to the said AO to require such person to produce documents and other evidence to make an assessment of the value of the taxable service to the best of his judgment and determine the sum payable by the Assessee or refundable to the Assessee on the basis of such assessment . Section 72 of the FA requires the AO to give such person an opportunity of being heard. 45. In a decision rendered today in MakeMy Trip (India) Pvt. Ltd. v. Union of India (decision dated 1st September 2016 in W.P. (C) No. 521 of 2016), this Court has while analysing Sections 72 and 73 of the FA held as under .....

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..... 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, made by the person on whom the notice is served under sub-section (3), determine the amount due from such person, not being in excess of the amount specified in the notice, and thereupon such person shall pay the amount so determined. .....

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..... lisation must be in excess and thirdly the amount of tax should be legally payable under the Act. The High Court 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 legally payable. If the purchaser realises more money that by itself will not attract the penal provisions. 6. This is a method of realisation in case of indirect tax. Penalty can be levied or is leviable for realisation of excess of tax legally payable and not for contravention of Section 8-A(2)(b). Realisation of excess amount is not impermissible but what is not permissible is realisation of excess amount as tax. .....It has to be borne in mind that the imposition of a penalty under the Act is quasi-criminal and unless strictly proved the assessee is not liable for the same. .....

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..... tion had not been availed by eBIZ as a 'tour operator'. Analysis of Section 72 A of the FA and the corresponding Rules 50. The FA does provide for special audits where there is reason to believe that there has been an evasion of service tax by an Assessee. Section 72 A of the FA provides for a special audit to be ordered by the Commissioner where he has reason to believe that any person liable to pay service tax has failed to declare or determine the value of a taxable service correctly, or has availed and utilised credit of duty or tax paid inter alia by means of fraud, collusion, or any wilful misstatement or suppression of facts. In such instances, the Commissioner may direct such person to get his accounts audited by a chartered accountant or cost accountant nominated by him. 51. The power of the Commissioner to order a search has to be read together with Rule 5 A (1) of the Service Tax Rules 1994 which permits the officer authorised to carry out the search to have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue. 52. Thus .....

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..... history of the Assessee was as far as its compliance with the requirements of the FA was concerned. The records of the earlier searches and audits were certainly relevant material as far as the decision to order a fresh search was concerned. Power to search premises 54. In the present cases one of the main grounds on which eBIZ assails the action of the DGCEI is that the search ordered on its premises was itself illegal. Section 82 of the FA which is relevant reads as under: 82. Power to search premises (1) Where the Joint Commissioner of Central Excise or Additional Commissioner of Central Excise or such 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 to searches under this section as they apply to searche .....

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..... ount or fails to supply any information which he is required to supply under this Chapter or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or (d) collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government beyond a period of six months from the date on which 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 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 s .....

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..... erson collects the due amount of service tax but fails to pay the amount 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. Where the amount does not exceed ₹ 50 lakhs, then in terms of Section 89 (1) (iii) the punishment 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 8 .....

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..... r an offence is cognizable or not and consequently whether the provisions concerning arrest get attracted. Power to arrest 59. The Court next proceeds to examine Sections 90 and 91 of the FA that provide for arrest and read as under: 90. Cognizance of offences (1) An offence under clause (ii) of sub-section (1) of Section 89 shall be cognizable. (2) Notwithstanding anything 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 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 twentyfour hours. (3) In the case of a non-cognizable and bai .....

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..... e 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 Commissioner of Central Excise may authorize any officer of the Central Excise not below the rank of Superintendent of Central Excise to arrest such person. Where the arrest is of a person for any 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 .....

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..... hould be initiated. It is only at that stage a decision is taken on initiating prosecution against the Assessee for the commission of any of the offences under that statute. It is inconceivable that an Assessee is straightway sought to be arrested without there being an assessment and a determination as to evasion of tax. 74. The Customs Act, 1962, has a different approach to the question of offences. Chapter 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 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 .....

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..... cumstances 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 from the date on which such payment is due and further that the amount exceeds ₹ 50 lakhs. 78. Therefore, while the prosecution for the purposes of determining the commission of an offence under Section 89 (1) (d) of the FA and adjudication proceedings for penalty under Section 83 A of the FA can go on simultaneously, both will have to be 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 Sec .....

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..... at for the purpose of protecting the interest of the Revenue it is necessary provisionally to attach any property belonging to the person on whom the notice is served under Section 73 or Section 73 A of the Act, he is empowered to do so, however with 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 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 a .....

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..... ate 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 ( FEMA ) as well. It observed: 30. Apart from the police, there are several other governmental authorities also like Directorate of Revenue Intelligence, Directorate of Enforcement, Costal Guard, Central Reserve Police Force (CRPF), Border Security Force (BSF), the Central Industrial Security Force (CISF), the State Armed Police, Intelligence Agencies like the Intelligence Bureau, R.A.W, Central Bureau of Investigation (CBI) , CID, Tariff Police, Mounted Police and ITBP which have the power to 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 .....

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..... ers 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. 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 17th September, 2013 where specific attention has been drawn to the types of cases covered under Section 89 (1) (i) and 89 (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 exerci .....

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..... charging its service tax liability properly. It is this information that was asked to be seen by the Court when it asked for its production by Mr. Pandey in a sealed cover. This sealed cover was separately produced. On opening the sealed cover, the Court did not find anything incriminating that would indicate that an offence had been committed. Interestingly, the name of the informer is not mentioned in the statement given by the informer. The time and date when the information was given is also not indicated. There is also no signature of the informer. There is only a thumb impression, again without indicating whether it is a left or right thumb impression. The declaration given by the informer does not appear to be on a prescribed proforma but on a computed printed sheet. Further, the information itself is not reduced in writing. It is typed. It does not disclose any specific information other than those already set out in the notes prepared by the DGCEI. 64. The note dated 18th January 2016 suggests that 90% rebate is claimed by eBIZ by describing itself as a tour operator . There is a discussion on this wrongful claim of rebate in terms of the Notification No. 26/2012. It p .....

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..... r 2015 for providing service of Online information and database access service and/or retrieval service through computer network of their e-education packages in the garb of holiday package by mis declaring their services provided to the department. 14. It is therefore, proposed that Shri Pawan Malhan, Managing Director of M/s eBiz.com Pvt. Ltd. may be arrested under Section 89(1)(ii) of the Finance Act, 1994 for his role in evasion of Service Tax. 66. It was repeatedly stressed by Mr. Satish Aggarwala that the reference to Circular No. 101/17/2015 dated 23rd October 2015 was a typographical error and in fact referred to Circular No. 1010/17/2015 dated 23rd October 2015. Be that as it may, what is significant is that there is no reference to the Circular No. 171/6/2013-Service Tax dated 17th September 2013 which sets out the Guidelines for arrest and bail in relation to offences punishable under the Finance Act, 1994 . 67. It cannot be presumed that merely because there is a reference to the enlarged monetary limit in terms of the circular dated 23rd October 2015, the Officer proposing the arrest and the officers who approved it consciously applied their minds to .....

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..... 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 mind) for committing the offence. 95. There is a detailed procedure set out in para 6 regarding procedure to sanction a prosecution. Para 6.2, 6.3 and 6.4 of this circular are significant and read as under: 6.2 Prosecution should not be launched in cases of technical nature, or where the additional claim of duty/tax is based totally on a difference of opinion regarding interpretation of law. Before launching any prosecution, it is necessary that the department should have evidence to prove that the 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 part in committ .....

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..... tax is only based on difference of opinion regarding interpretation of law. Importantly, it has to be normally 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 determination in terms of Section 72 or 73 or 73 A of the FA. Till that point, the entire case proceeds on the basis that there must be an apprehended evasion of tax by the Assessee. This apprehension hinges upon the analysis of the evidence gathered by the investigating agency. It is possible that the officer will take a different view because he has the opportunity of hearing both the sides and to more carefully analyze the evidence that has been gathered. Where prosecution is sought to be launched even before the adjudication of the penalty it has to be shown that (a) the offence involved i .....

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..... ₹ 17 crores as arrears of service tax dues. Mr. Aggarwala repeatedly stressed that such payment was not a pre-condition for the grant of bail and that, in principle, the DGCEI would oppose grant of bail in criminal proceedings only because an offer is made to pay the arrears of service tax dues in such proceedings. The case of eBIZ on the other hand is that such payment was made under extreme duress. The action of the DGCEI has been described by it as malafide and just to harass eBIZ and its officers. 73. This Court has already observed that in the present case the DGCEI did not observe any of the statutory or constitutional safeguards. Not only was the search contrary to Section 82 of the FA, the subsequent action of arrest of Mr. Malhan was undertaken contrary to the legal requirement of Section 89 read with Sections 90 and 91 of the FA. It is a case of overkill by the officers of the DGCEI. The existence of powers is one thing and its exercise, another. 74. In the circumstances outlined earlier, when the MD of a company is in judicial custody, the offer made to pay the alleged arrears of service tax dues of such company even without an SCN can hardly be characteri .....

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..... Mr. Malhan. Those proceedings will be taken to their logical end. Non-cooperation by eBIZ 76. The case of the DGCEI in its affidavits before the Court is that eBIZ was failing to co-operate in the investigation. In particular, it is complained that eBIZ was not providing the information sought by the DGCEI. It is stated that a whole truckload of documents were submitted which according to the DGCEI were not relevant. 77. The above submission appears to be contrary to the letter dated 8th April, 2016 issued to eBIZ by the DGCEI. If indeed only limited information was sought, then the letter dated 8th April 2016 should have been worded differently. What eBIZ was asked to submit was the information in a certain format designed by the DGCEI itself. This format is appended to the letter dated 11th May 2016, issued by Dr. Bedi to eBIZ. There is no requirement in law that eBIZ should maintain the information in a particular format. Mr. Aggarwala was unable to point out any provision in the FA or the ST Rules that required eBIZ to maintain information in a particular format. 78. It appears to the Court after carefully considering the affidavits on record that the conduct .....

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..... (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 from the date on which such payment is due, and further that the amount exceeds ₹ 50 lakhs (now enhanced to ₹ 1 crore). (iv) A possible 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 notes on file must offer a convincing justification for resorting to that extreme a measure. (v) The decision to arrest a person must not be taken on whimsical grounds; it must be based on credible material . The constitutional safeguards laid out in D K. Basu's case (supra) in the context of the powers of police officers .....

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..... e payment of ₹ 17 crores by eBIZ was not 'voluntary' but under coercion and duress and is required to be returned to eBIZ by the DGCEI forthwith and in any event not later than four weeks from today. It is clarified that this will not in any manner affect the bail already granted to Mr. Malhan. Those proceedings will be taken to their logical end. (xi) The conduct of the officers of the DGCEI in refusing to receive the documents tendered to them and terming the conduct of eBIZ to be noncooperative is not justified in the facts and circumstances. At the same time, the Court would reiterate the direction that eBIZ and its officers including Mr. Malhan will continue to co-operate with the DGCEI in carrying the investigations to their logical end. 80. The interim directions issued on 28th January 2016 are made absolute. It is directed that the DGCEI will refund to eBIZ forthwith the sum of ₹ 17 crores deposited by it towards alleged dues of service tax 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 said amount from the date on which .....

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