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eBIZ. COM Pvt. Ltd. Versus Union Of India & Ors.

2016 (9) TMI 53 - DELHI HIGH COURT

Coercive action including threat of arrest against officials for recovery of alleged service tax dues - power and jurisdiction of DGCEI - it was submitted that, once the Petitioners admit that they collect the service tax, even on behalf of the hotels whose rooms are booked online, it is incumbent on the Petitioners to themselves deposit the entire service tax collected. - The failure to do so, according to the DGCEI, has resulted in violation of various provisions of the FA by the two Petitione .....

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great circumspection and not casually. It is not to be straightway presumed by the DGCEI, without following the procedure under Section 73A (3) and (4) of the FA, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government. - Where an assessee has been regularly filing service tax returns which have been accepted by the ST Department or which in any event have been examined by it, as in the case of the two Petitioners, with .....

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ill 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 Section 89 (1) (d) of the FA, it would require an enquiry to be conducted by giving an opportunity to the person sought to be arrested to explain the materials and circumstances gathered against such person, which according to the offic .....

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rvice tax arrears was voluntary. Consequently, the amount that was paid by the Petitioners as a result of the search of their premises by the DGCEI, without an adjudication much less an SCN, is required to be returned to them forthwith. - Decided in favor of petitioners. - W.P.(C) 756/2016 - Dated:- 1-9-2016 - S. MURALIDHAR & VIBHU BAKHRU JJ. Petitioner Through: Mr. J.K. Mittal with Mr. Rajveer Singh, Mr. Rajesh Kumar, Advocates. Respondents Through: Mr. Jasmeet Singh, CGSC with Ms. Asth .....

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a declaration that the search conducted by the DGCEI on the business premises of the Petitioner eBIZ on 19th January, 2016 apprehending evasion of payment of service tax, as well as the summons issued to eBIZ on 19th and 21st January 2016 by the DGCEI are illegal and ultra vires the provisions of the Finance Act, 1994 ( FA ). Respondent No. 3 was impleaded pursuant to the order dated 28th January, 2016 passed by this Court. Background facts 2. eBIZ is engaged in the business of developing and se .....

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rs 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 noti .....

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date the said refund application has not been disposed of by the ST Department. 4. eBIZ states that for a second time, on 4th October 2012, a search was conducted by the ST Department in its premises. The statement of Mr. Pawan Malhan, Managing Director (MD), eBIZ was recorded and various documents were seized/resumed. However, no SCN was issued pursuant to the said search. A copy of the panchnama dated 4th October 2012 revealed that inter alia the documents seized included the file containing t .....

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list of associates of Noida and Bulandshahr for FY 2011-2012. 5. eBIZ states that in 2014 the ST Department conducted an audit of the records of eBIZ for the years 2011-2012 and 2013-2014. eBIZ was asked to deposit ₹ 73,387/- together with interest and penalty. It is stated that on 12th December 2014, eBIZ deposited ₹ 75,589/-. When discrepancies were pointed out by the ST Department for other years, they too were similarly rectified. Further, whenever there was a dispute, SCNs were .....

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ed, by a letter of that date by the Superintendent (Group-4E), Audit-II of the Meerut Commissionerate, conducting a service tax audit of the accounts/records of eBIZ for the period up to March 2015. The said 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 2010-20 .....

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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 the records could be submitted, a search was conducted on 19th January 2016 by the DGCEI. .....

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er 2014 demanding service tax of ₹ 34,00,425/- on the ground of reversal of amount of unclaimed commission. This demand was subsequently confirmed by the adjudicating authority on 21st December 2015. eBIZ was filing appeal against the said order. Reference is also made to another SCN dated 2nd November 2015, demanding service tax of ₹ 5,33,341/-, which is yet to be adjudicated. Search and arrest proceedings 9. In the above background, a search was conducted in the premises of eBIZ on .....

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at 7:40 pm on 20th January 2016 under Section 91 of the FA and sent to judicial custody. It was alleged that eBIZ had committed an offence under Section 89 (1) (ii) of the FA. The bail application of Mr. Malhan dated 21st January 2016 was rejected by the learned Metropolitan Magistrate (MM) by an order dated 25th January 2016. While Mr. Malhan was still in custody, two more summons were issued to two officers of eBIZ by the DGCEI on 21st January 2016. 10. It is pointed out that on the basis of .....

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a 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 .....

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and in particular the assessments in relation to the years 2011-12 onwards. In particular, it is not clear whether the DGCEI was conscious of the pending proceedings and show cause notices issued by the CST under Section 73 (1) of the Finance Act, 1994 and the proceedings consequent thereto. This aspect is significant since the invocation of the powers of arrest without warrant under Section 90 (l) read with Section 89 (1) (ii) of the Finance Act 1994 presupposes the arrival of a satisfaction re .....

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training the DGCEI from taking any further coercive action against eBIZ or its officials. Thereafter, in para 10 it was clarified as under: 10. It is clarified that as far as the proceedings consequent upon the arrest of the MD of the Petitioner pending in the Court of the learned ASJ is concerned, it will proceed in accordance with law and this Court expresses no opinion in that regard. Further, it is made clear that the Petitioner will continue to cooperate with the DGCEI, answer the queries a .....

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quent upon such notice shall remain stayed till the next date. 15. On the hearing on 2nd May 2016, the records produced by the DGCEI included a note dated 18th January 2016, proposing the arrest of Mr. Malhan. The first line of the said note read thus: An information has been received in this Directorate General that M/s. Ebiz.Com Private Ltd. B-18, Sector-63, Noida, Uttar Pradesh 201301 are not discharging their service tax liability properly . When the Court enquired whether the DGCEI had veri .....

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pt 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 th .....

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Petitioner the nature of the documents contained therein and might reveal the identity of the informer who gave the information, the Court on opening the packet found that there was absolutely nothing in the said documents, which were actually photocopies and a booklet, which could convey any such further information on mere sight as suggested by Mr. Aggarwala. 18. The Court nevertheless perused the papers itself. It was found that the information from the file was reduced to computer printed sh .....

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was not information which was not already available with the ST Department. 19. Three separate counter affidavits have been filed. The counter affidavits filed by Respondent No.1/Union of India and Respondent No.2/DGCEI are word to word identical. A separate counter affidavit has been filed by the ST Department/Respondent No.3, which was impleaded by the order dated 28th January 2016. Interestingly, Mr. Satish Aggarwala, learned counsel appearing for all three Respondents although stated that t .....

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t 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, th .....

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ness premises of eBIZ in the months of November and December and conducted the service tax audit. The list of financial records produced before the audit team has also been set out in the counter affidavit. 22. It is further stated that on examination of the sale invoices issued by eBIZ in respect of its tour operator services, it was seen that it had specifically mentioned the description of services as eBIZ Holiday Accommodation Package in its sale invoices and the same were issued in favour o .....

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ue of Tour Operator Service is admissible under Notification No.26/2012-ST subject to the following conditions: i) CENVAT credit on inputs, capital goods and [input services other than the input service of a tour operator} [input services}, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. iii) This exemption shall not apply in s .....

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o.26/2012-ST stood satisfied, the audit had no reason or any basis to challenge the admissibility of exemption availed by eBIZ in respect of Tour Operator Service . The audit team also examined the brochure/catalogue of eBIZ which gave details of the various packages offered by eBIZ. The brochure also provided the details of 48 hotels with domestic destinations and five international destinations for holiday accommodation package . The invoices showed the gross amount inclusive of all taxes char .....

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er 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 a .....

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nged by eBIZ for its customers for the FYs 2013-2014 and 2014-2015. 27. In its counter-affidavit, Respondent No. 3 states that the documents required by notice dated 6th January 2016 were only to examine and verify the quantum of abatement availed by eBIZ and not for examining the issue of admissibility of exemption. Another reminder was sent on 22nd January 2016. However, in view of the order dated 28th January 2016 of this Court, no further action was taken. 28. Respondent No. 3 points out tha .....

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y due to ignorance, bona fide mistake or otherwise, audit of the financial and statutory records maintained by the Assessee is carried out from time to time. It is stated that the audit report issued after the audit certifies the correctness of tax assessment only so far as it is based on the records/documents as produced by the Assessee. Further, the authenticity of such records/documents, produced by the Assessee, is generally accepted and not challenged unless and until there is any apparent .....

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p investigation. 29. It is, however, repeatedly 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 r .....

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rvices 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, two separate identically worded counter affidavits have been filed by Respondent Nos. 1 and 2 respectively. The same officer, viz., Mr. Samanjasa Das, Additional Director General ( ADG ), DGCEI has filed both these affidavits. 31. The DGCEI states that the competent autho .....

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d eBIZ to cooperate with the DGCEI, the MD of eBIZ had still not provided data of individual associates regarding the amount received from individual associates and date of receipt etc. till date. A reference is made to the statement made by Mr. Sulabh Jain, Accountant of eBIZ on 14th March 2016, to the effect that in 'Tally', the data of individual associates was not maintained and that it was not accessible. It was stated by Mr. Jain that the revenue data was provided by the technical .....

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stating that they had brought 123 cartons of documents relating to the associates of eBIZ in a truck. It was then stated that DGCEI did not call for the said documents and only certain details of individual associates had been called for. It was decided to verify the documents on sample basis. It was stated that two of the 123 cartons were opened and nothing relevant was found. This, it is stated, is a glaring instance of non-cooperation. Rejoinder Affidavit by the Petitioner 33. A rejoinder aff .....

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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 .....

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accommodation packages -I & II from Oct 2011 till date on 18th April 2016 through its counsel, Mr. Rajveer Singh. However it is stated that the DGCEI officials had refused to take delivery of the said documents and also seized the mobile phone of Mr. Singh. Affidavit of the counsel of the Petitioner 36. An affidavit dated 16th May 2016 has been filed by Mr. Rajveer Singh, counsel for eBIZ. Consequent to the letter dated 8th April 2016 of the DGCEI requiring the MD of eBIZ to submit document .....

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ence Officer was directed to take possession of the documents. However, Mr. Tyagi on reaching the truck was stated to have used abusive language and made the advocate and the client wait till 4:30 p.m. and thereafter stated that they would not be taking possession of the documents since they were irrelevant. It is stated that some wrong statements were recorded in the panchnama and therefore the advocate and his client requested for a change to be made. It is stated that Mr. Tyagi was again abus .....

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i alleging non-cooperation by eBIZ. In the said affidavit dated 12th May 2016, Dr. Bedi states that eBIZ was asked only to submit a list of associates (name, address & code 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 refer .....

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he 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 opinion which are held to be essential ingredients for authorising search under Section 82 of the FA and arrest under Section 91 of the F .....

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tion 82 and 91 by the DGCEI without consultation with the Commissionerate of Service Tax tantamounted to reopening the assessment of FYs for which there was no power in the FA. Further, it is sought to arm the officers of the DGCEI with powers of review and reassessment which are not available to them under the FA. (iv) For authorizing a search under Section 82 of the FA, the competent authority should have reason to believe and not reason to suspect . There had to be some material for the forma .....

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rights and freedom of the MD of eBIZ and eBIZ itself and harmed their reputation. The actions of the DGCEI and other Respondents were violative of Articles 14, 19 and 21 of the Constitution of India. (vi) This was a proven case of illegal search, seizure and arrest. The facts concerning the two earlier searches were not found mentioned in the note prepared for proceeding with the arrest of Mr. Malhan. If only the DGCEI had called for information from the ST Department, it would have been informe .....

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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 it .....

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es of which have been placed on record, eBIZ disclosed the full receipt of the charges collected for hotel bookings as a tour operator with full computation by claiming exemption under Notification No. 26/2012-ST. The records from 2009 till 2015 during which such returns had been filed have been duly verified by the ST Department and no discrepancy had been pointed out. The SCN issued on 17th November 2014 demanding service tax of ₹ 34,00,425 and the SCN dated 2nd November 2015 demanding s .....

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ooperated with the ST Department or the DGCEI on the numerous queries raised and during the course of repeated audits. Referring to the decision in Mahesh Chandra v. Regional Manager, U.P. Financial Corporation (1993) 2 SCC 279 and Uniworth Textiles Ltd. v CCE, Raipur, 2013 (288) ELT 161 (SC), it was submitted that the mere non-payment of dues would not amount to suppression of material facts. Reliance was also placed on the decisions in Parashuram Pottery Works Co. Ltd. v. Incometax Officer (19 .....

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7 (Bom) and Technomaint Contractors Ltd. v. Union of India 2014 (36) STR 488 (Guj). Reliance was placed on the decision in N. R. Management Consultants P. Ltd. v. Commissioner of Service Tax, Delhi 2014 (33) STR 371 (Del) to urge that repeated issuance of SCNs when 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 w .....

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tion 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 information received that the decision was taken. Accordingly, aut .....

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not rendering any services as a tour operator . It was essentially engaged in the business of providing educational packages camouflaging them as tour operators services . Therefore, eBIZ had committed fraud by claiming exemption under Notification No. 26/2012. Inasmuch as eBIZ had not arranged for a tour which was an essential ingredient of the service provided by a tour operator in terms of Section 65 (105) (n) of the FA and which was admitted by the officials of the eBIZ during the course of .....

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of search reflected that against the total income of ₹ 170 crores from December 2011 till 19th January 2016, the expenses on account of hotel bookings was only 0.09%. The contents of the educational packages were provided free under the garb of holiday accommodation packages while the price of ₹ 10,880 (inclusive of all taxes) was same for both the education packages as well as the holiday accommodation packages. This was, therefore, a clear fraud committed by eBIZ to evade paying s .....

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ore 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 missta .....

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Jurisdictional Service Tax and Audit Commissionerate were contacted to provide various details. (viii) Referring to the note sheets on file, it was submitted that the impugned action of the DGCEI was justified. As regards the past searches undertaken by the officers of Anti-Evasion, Jurisdictional Commissionerate, Noida, it was submitted that the search conducted in 2007 was on the issue of nonpayment of service tax on handling charges for preparation of cheques, courier charges and other suppo .....

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) and Chitra Construction Co. v. Addl. Commr. of CCE & ST Coimbatore (supra) to urge that it was not open to the Court to examine the sufficiency or relevancy of the materials which were available with the Competent Authority for forming a reasonable belief that there was evasion of service tax by eBIZ. Reliance is placed on the decision in Pooran Mal v. Director of Inspection (Investigation) of Income-Tax AIR 1974 SC 348 to urge that material obtained even as a result of illegal search or s .....

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ly mis-declared their services of online education as tour operator in their service tax returns with an intent to evade the payment of service tax at the full applicable rate, the action of DGCEI was legal and tenable. Reliance is placed on the decision in Nizam Sugar Factory v. CCE 2006 (197) ELT 465 (SC) to urge that a second or third SCN in the same or similar facts is not impermissible as long as DGCEI was able to show that a fraud had been committed by eBIZ. Since investigation was still i .....

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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 inc .....

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e or a contract carriage by whatever name called, covered by a permit, other than a stage carriage permit, granted under the Motor Vehicles Act, 1988 (59 of 1988) or the rules made thereunder; Explanation:- For the purposes of this clause, the expression tour does not include a journey organised or arranged for use by an educational body, other than a commercial training or coaching centre, imparting skill or knowledge or lessons on any subject or field. 43. Sections 72 and 73 of the FA read as .....

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der in writing, after giving the person an opportunity of being heard, make the assessment of the value of 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. 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 Of .....

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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 perio .....

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d for the subsequent period, on the person chargeable to service tax, then, service of such statement shall be deemed to be service of notice on such person, subject to the condition that the grounds relied upon the subsequent period are same as are mentioned in the earlier notices. (1B). Notwithstanding anything contained in sub-section (1), in a case where the amount of service tax payable has been self-assessed in the return furnished under sub-section (1) of Section 70, but not paid either i .....

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y the amount so determined. (2A) Where any appellate authority or Tribunal or court concludes that the notice issued under the proviso to sub-section (1) is not sustainable for the reason that the charge of - (a) fraud; or (b) collusion; or (c) wilful misstatement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or the rules made thereunder with intent to evade payment of service tax, has not been established against the person chargeable with the servi .....

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ay 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 .....

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on 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 ther .....

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nder sub-Section (2) - (a) within six months from the date of notice where it is possible to do so, in respect of cases whose limitation is specified as eighteen months in sub-section (1); (b) within one year from the date of notice, where it is possible to do so, in respect of cases falling under the proviso to subsection (1) or the proviso to sub-section (4A); (5) The provisions of sub-section (3) shall not apply to any case where the service tax had become payable or ought to have been paid b .....

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aforesaid is filed, the last date on which such return is to be filed under the said rules; (c) in any other case, the date on which the service tax is 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 o .....

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ndertook 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 p .....

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Sections 72 and 73 of the FA held as under: "52. It is perhaps a peculiar feature of the FA that there is no power of reopening the assessment like for instance under Sections 147 and 148 of the Income Tax Act, 1961 ( IT Act ). What is provided for is an audit in terms of Section 72A of the FA. Proceedings for recovery of service tax not levied or paid, or short-levied or short-paid or erroneously refunded can be initiated under in Section 73 of the FA Act. Section 73 (1) stipulates the tim .....

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s Chapter V of the FA or the Rules made thereunder with intent to evade payment of service tax the period of limitation is enlarged from 18 months to five years. Section 73 (2) of the FA envisages adjudication proceedings pursuant to the SCN being issued. It premised on the fact that it is not possible for an adjudication officer to determine beforehand the extent of evasion of service tax. " 46. As far as the present case is concerned, the DGCEI proceeded to compute the extent of evasion o .....

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t deposited it with the Central Government. Section 73A of the FA reads thus: 73A. Service Tax collected from any person to be deposited with Central Government: (1) Any person who is liable to pay service tax 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 an .....

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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 amoun .....

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(5), such amount shall either be credited to the Consumer Welfare Fund referred to in section 12C of the Central Excise Act, 1944 or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 11B of the said Act and such person may make an application under that section in such cases within six months from the date of the public notice to be issued by the Central Excise Officer for the refund of such surplus amount." .....

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overnment. The crucial words are collected any amount in excess of the service tax assessed or determined. The other expression which has significance is: in any manner as representing service tax. The case of the DGCEI is that service tax is being collected by the Petitioners from the recipient of taxable service in any manner as representing service tax . ............. 58. In the context of Section 73-A (2) of the FA, the person against whom the proceedings are initiated should be shown to hav .....

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dly 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 custome .....

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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." (emphasis in original) 59. In R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited (1977) 4 SCC 98, the Supreme Court was analysing what the expression "collected' meant in the context of the sales tax legislation of Gujarat. It observed as under: Section 37 (1) uses the expressions, in relation to forfeiture, any sum .....

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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 collect .....

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he credit of the Central Government . Without coming to the above determination in clear terms, it would not be permissible for the Department to straightway presume that Section 89 (1) (d) read with Section 73A (1) of the FA is attracted.... 49. In the present case, there is no determination by the DGCEI after issuing an SCN that eBIZ has collected service tax which it has failed to deposit with the Central Government. There is only a presumption drawn by calculating what the probable evasion w .....

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e 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 sea .....

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pe of the audit carried out on two occasions of the records and accounts of eBIZ by the ST Department was different from the scope of the search carried out by DGCEI. It is sought to be suggested that the audit party accepted at face value the information provided by eBIZ without inquiring further into the matter. The Court finds it difficult to accept this contention since it finds that the scope of the powers available to an officer authorised by the Commissioner to carry out a search under Ru .....

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hing to say, after examining the records of past searches and audits, that there is still reason to believe that there has been evasion of tax for the grounds recorded but it is another to come to such conclusion without even referring to the records of the audit and searches carried out earlier. The latter would be vulnerable to being assailed on ground of lack of application of mind to relevant material which would enable an officer vested with the power in that behalf to come to a just, fair .....

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he fact remains that at the time the search was contemplated by the DGCEI, there was no attempt at finding out what the 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 .....

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ng 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 searches under that Code. 55. In interpreting the above provision, this Court in MakeMy Trip (India) Pvt. Ltd. v. Union of India (supra) held thus: 103. It is seen that there are two essential requirements as far as Se .....

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the power of search under Section 105 of the Customs Act 1962 which is similar to Section 82 of the FA 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.".... 56. As was noted in the case of the Petitioners in that case, here too, the notes on file mentioned the fact that any document secreted away by eBIZ and was relevant for the .....

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n 89 57. For the purposes of justifying the arrest and detention of Mr. Malhan, the DGCEI has sought to bring the case within Section 89 (1) (ii) of the FA. Section 89 of the FA Act prescribes offences and penalties. Section 89 reads as under: 89. Offences and penalties (1) Whoever commits any of the following offences, namely, - (a) knowingly evades the payment of service tax under this Chapter; or (b) avails and utilizes credit of taxes or duty without actual receipt of taxable service or exci .....

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d 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 mo .....

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fence 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 seven years. (3) For the purposes of sub-sections (1) and (2), the following shall not be considered as special and adequate reasons for awarding a sentence of imp .....

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of offence; (iv) the age of the accused. (4) A person shall not be prosecuted for any offence under this section except with the previous sanction of the Chief Commissioner of Central Excise. 58. In MakeMy Trip (India) Pvt. Ltd. v. Union of India (supra), this Court analysed Section 89 of the FA as under: "64. A plain reading of Section 89 reveals that a distinction is sought to be made in the first instance between the offence where the amount exceeds ₹ 50 lakhs (raised to ₹ 1 .....

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sion of the offence has to be made by the Court and not by any of the officers of the Department. Where in terms of Section 89 (1) (d), a person 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 ͅ .....

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ubsequent 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 .....

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cedure for determination whether the situation envisaged thereunder exists. That procedure requires notice to be served on the person liable to pay such amount 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. Therefore, under Section 73A (4), the Central Excise Officer concerned shall, after considering the representation made by such person, determine the amount due from such person, not being in exce .....

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t should not be paid beyond a period of six months from the date on which such payment becomes due. The second aspect is that the sentence as provided under Section 89 (1) (ii) of the FA, where the amount exceeds ₹ 50 lakhs, is imprisonment for a term which may extend to seven years. The proviso thereto suggests that for special and adequate reasons, the imprisonment can be lesser than six months in such cases. Where the amount does not exceed ₹ 50 lakhs, the imprisonment is for a te .....

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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 offi .....

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rson 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. 60. In MakeMy Trip (India) Pvt. Ltd. v. Union of India (supra) this Court analysed the above provisions and held .....

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the date from which it is due and where such amount exceeds ₹ 50 lakhs, which is cognizable under Section 90 (1) of the FA. All other offences i.e., offences other than described as Section 89 (1) (ii) of the FA, shall be non-cognizable and bailable , notwithstanding anything contained in the Code of Criminal Procedure 1973 ( Cr PC ). It is only when the offence is cognizable that, in terms of Cr PC, the power of arrest is attracted. In Om Prakash v. Union of India (2011) 14 SCC 1, the Sup .....

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der any other law for the time being in force, arrest without warrant. In other words, on a construction of the definitions of the different expressions used in the Code and also in connected enactments in respect of a non-cognizable offence, a police officer, and, in the instant case an excise officer, will have no authority to make an arrest without obtaining a warrant for the said purpose. The same provision is contained in Section 4 of the Code which specifies when a police officer may arres .....

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er (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 a .....

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arrest made of a person in exercise of the powers under Section 91 of the FA. The determination by a Court that a person has committed an offence cannot possibly be arrived at till the completion of the process envisaged under the Cr PC. 72. It is difficult to conceive of the DGCEI or for that matter the ST Department being able to by-pass the procedure as set out in Section 73A (3) and (4) of the FA before going ahead with the arrest of a person under Section 90 and 91 of the FA. The power of a .....

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heme of the provisions in the FA is carefully analysed, the said submission appears to be legally untenable. There are statutes concerning both direct and indirect taxes. The Income Tax Act, 1961 is an example of a direct tax statute. The Customs Act, 1962 and the Central Excise Act, 1944 are two of the many indirect tax statutes. These statutes have specific provisions which describe offences and the corresponding punishments. However, the scheme of the Income Tax Act, 1961, in regard to offenc .....

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hat 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, .....

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se 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 C .....

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. Didwania v. Income Tax Officer 1995 Supp (2) SCC 724 and K. C. Builders v. Assistant CIT (2004) 2 SCC 731 and inter alia held that; (i) Adjudication proceedings and criminal prosecution can be launched simultaneously; (ii) Decision in adjudication proceedings is not necessary before initiating criminal prosecution and (iii) Adjudication proceedings and criminal proceedings are independent in nature to each other. 77. In the context of the provisions of the FA where an assessee has been regular .....

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at has been collected. Therefore, for a Central Excise officer or an officer of the DGCEI duly empowered and authorised in that behalf to be satisfied that a person has committed an offence under Section 89 (1) (d) of the FA, it would require an enquiry to be conducted by giving an opportunity to the person sought to be arrested to explain the materials and circumstances gathered against such person, which according to the officer points to the commission of an offence. Specific to Section 89 (1 .....

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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 determi .....

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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. The Court held that "the amount payable by a person can be said to be payable only after there is determination as provided under Section 72 or Section 73 of the Act." It further held, "the conduct of the Revenue, first .....

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hich 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 instance, 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. What, however, requires reiteration is that the potent power of arrest should not be lightly and casually exercised to induce fear into an asse .....

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g 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), .....

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ere 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) Constitutional safeguards 61. At this stage it also requires to be recalled that since the provisions of the Cr PC stand attracted in terms of Section .....

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f India and in particular Article 22 which pertains to arrest and Article 21 which mandates that no person shall be deprived of his life and liberty without the authority of law. The safeguards pertaining to arrest have been spelt out in the decision of the Supreme Court in D.K. Basu v. State of West Bengal (1997) 1 SCC 416. The directions issued by the Supreme Court included setting out in the arrest memo - (i) the brief facts of the case, (ii) the details of the persons arrested, (iii) the gis .....

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mo should be given to the person arrested after obtaining the proper acknowledgment. It must be mentioned herein that in 2008, the Cr PC was amended by inserting Sections 41A , 41B, 41C, 41D, 50A, 55A and 60A and amending Sections 41, 46 and 54 to provide for the above safeguards. 84.2 It is significant in the decision in D.K. Basu (supra), the Supreme Court did not confine itself to the actions of police officers taken in terms of powers vested in them under Cr PC but also of the officers of th .....

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d, 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 Regulati .....

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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 righ .....

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law) co-exist and are not only important and relevant but lie at the heart of the doctrine that the welfare of an individual must yield to that of the community. The action of the State, however must be "right, just and fair". Using any form of torture for extracting any kind of information would neither be 'right nor just nor fair' and, therefore, would be impermissible, being offensive to Article 21. Such a crime-suspect must be interrogated - indeed subjected to sustained an .....

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nary criminal...." 84.3 These constitutional safeguards emphasised 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 exerc .....

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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 Cent .....

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ensure proper investigation, prevention of the possibility of tampering with evidence of intimidating or influencing witnesses and large amounts of service tax evaded are relevant factors before deciding to arrest a person. 85. It is, therefore, plain that the decision to arrest a person must not be taken on whimsical grounds. To recapitulate, reasons to believe must be based on credible material . The decision must also be conveyed at the earliest to a superior officer who will constantly moni .....

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rs by the DGCEI. Court would begin by a caveat that it is not concerned here with the sufficiency or relevance of the materials available with the DGCEI. The Court is called upon to determine whether on the basis of the materials available to it, the DGCEI could have proceeded to form a prima facie opinion regarding the commission of an offence by eBIZ under Section 89 (1) (d) read with 89 (1) (ii) of the FA. 63. There are two notes in the file of the DGCEI. The first is the note dated 18th Janu .....

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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 i .....

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here is an evasion of service tax to that extent. Significantly, the note does not acknowledge that eBIZ is regularly filing service tax returns and paying service tax on that basis. There is no mention of the fact that there had been two earlier searches in the premises of eBIZ by the ST Department. Admittedly, at this stage no attempt was made by the DGCEI to even contact the ST Department. That happened later, after the case against eBIZ had been 'booked'. 65. Another note was prepare .....

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nd not depositing the same to the government exchequer beyond a period of six months from the date on which such payment becomes due (the limit was later enhanced to ₹ 1 Crores w.e.f. vide Circular No.101/17/2015-CX dated 23.10.2015. In this regard, it is observed during 2014-15 alone the company has collected ₹ 41,69,09,298/- inclusive of taxes (only Service tax is applicable on the said value) in the garb of Holiday packages while in the 9 months of 2015-16, the company have collec .....

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44,28,851/- for 2015-16 but not deposited to the government exchequer (much higher than the limit of ₹ 1 crore). In fact, in this way they have collected and not deposited approximately Service Tax to the tune of ₹ 17 Crores for the period 2011-12 to December 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 .....

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re 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 the requirements of the abovementioned circular .....

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ment. There is no other way with the DGCEI to determine if the persons they are dealing with satisfy the profile of the person who should be arrested. 68. In this context, the following passages in the decision of this Court in MakeMy Trip (India) Pvt. Ltd. v. Union of India (supra) are relevant: "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 .....

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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 identify assessees who can be considered to be habitually e .....

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ilty 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 .....

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ive part in committing the duty/tax evasion or had connived at it. 6.3 Prosecution should not be filed merely because a demand has been confirmed in the adjudication proceedings particularly in cases of technical nature or where interpretation of law is involved. One of the important considerations for deciding whether prosecution should be launched is the availability of adequate evidence. The standard of proof required in a criminal prosecution is higher as the case has to be established beyon .....

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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) ad .....

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s circular again underscores is that there should be a comprehensive analysis of the evidence gathered before deciding to go in for prosecution. Importantly, prosecution should not be launched merely because a demand has been confirmed or particularly where the cases are of technical nature or where interpretation of law is involved. It is also not to be launched where additional claim of duty/tax is only based on difference of opinion regarding interpretation of law. Importantly, it has to be n .....

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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 lau .....

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es of eBIZ and soon thereafter arrest Mr. Malhan. 70. The explanation offered in Court by Mr. Satish Aggarwala, on instructions, was that these Departments have to act secretly to the extent that the DGCEI will not even tell the ST Department of their proposed actions. To the Court, it seems unacceptable that with the guidelines issued for launching of prosecution and procedure for arrest, the DGCEI or any other agency other than the ST Department can form any reasonable opinion regarding such l .....

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utter disregard to the order passed by the Commissioner of Customs (A), Mumbai have forced the Petitioners to pay the amount by threat and coercion which is not permissible in law. Thus, the conduct of the DRI officers in the present case in collecting the amount from the Petitioners towards the alleged differential duty is wholly arbitrary, illegal and contrary to law. Having terrorised the Petitioners with the threat of arrest, it is not open to the DRI Officers to contend that the amount has .....

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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. Thi .....

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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 characterised as 'voluntary'. The loss of liberty, and more disconcertingly, the loss of reputation, is bound to compel even the most rational person to succumb to the extreme pressure that such circumstance subjects him to. In more or less similar circumstances, this Court in MakeMy Trip (India) Pvt. Ltd. v. Union of India (supr .....

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DGCEI did not decline to receive the offer of payment of alleged service tax arrears. 106. In a different context, while interpreting the provisions of the Delhi Value Added Tax Act, 2004 ( DVAT Act ), this Court in Capri Bathaid Pvt. Ltd. v. Commissioner of Trade & Taxes 2016 (155) DRJ 526 (DB) took exception to the officials of the Department of Trade and Taxes collecting arrears of sales tax from dealers at the time of survey and search. The Court pointed out that the said practice was i .....

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red 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." 75. The Court is satisfied that in the present case the 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 .....

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bmission 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 .....

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d its officers including Mr. Malhan will continue to co-operate with the DGCEI in carrying the investigations to their logical end. Summary of Conclusions 79. To summarise the conclusions in this judgment: (i) The scheme of the provisions of the Finance Act 1994 (FA), does 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 9 .....

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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 .....

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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 (now enhanced to ₹ 1 crore). (iv) A possible exception c .....

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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 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 th .....

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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 the present case. The DGCEI cannot possibly come to a conclusion that an Assessee is an 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, certainly it needs to access the service tax record of such Asses .....

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y documents or books or things which are useful for or relevant for any proceedings under this Chapter are secreted in any place, and (ii) the note preceding the search of a premises has to specify the above requirement of the law. The search in the present case was in violation of Section 82 of the FA. It is unconstitutional and legally unsustainable. (ix) The Court is unable to accept that payment by the two Petitioners of alleged service tax arrears was voluntary. Consequently, the amount tha .....

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