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Coercive action including threat of arrest against officials for recovery of alleged service tax dues - power and jurisdiction of DGCEI

Commentaries / Editorials - Dated:- 1-9-2016 - Hon'ble Delhi High Court in the cases of Makemytrip (India) Pvt. Ltd. and IBIBO Group Pvt. Ltd. Versus Union Of India and Ors - 2016 (9) TMI 52 - DELHI HIGH COURT and eBIZ. COM Pvt. Ltd. Versus Union Of India and Ors. - 2016 (9) TMI 53 - DELHI HIGH COURT held that: Summary of conclusions 116. To summarise the conclusions in this judgment: (i) The scheme of the provisions of the Finance Act 1994 (FA), do not permit the DGCEI or for that matter th .....

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of the Central Government. (ii) Where an assessee has been regularly filing service tax returns which have been accepted by the ST Department or which in any event have been 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 serv .....

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ion 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) (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 .....

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nly 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 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 .....

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service tax arrears, the resort to the extreme coercive measure of arrest followed by the detention of Mr. Pallai was impermissible in law. (vii) In terms of CBEC's own procedures, for the launch of prosecution there has to be a determination that a person is a habitual offender. There is no such determination in any of these cases. There cannot be a habitual offender if there is no discussion by the DGCEI with the ST Department regarding the history of such Assessee. Assuming that, for wha .....

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iii) For the exercise of powers of search under Section 82 of the FA, (i) an opinion has to be formed by the Joint Commissioner or Additional Commissioner or other officers notified by the Board that any documents or books or things which are useful for or relevant for any proceedings under this Chapter are secreted in any place, and (ii) the note preceding the search of a premises has to specify the above requirement of the law. The search of the premises of the two Petitioners is in clear viol .....

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es are sought to be arrested has regularly been filing service tax returns or is a habitual offender in that regard. It is only after checking the entire records and seeking clarification where necessary, that the investigating agency can possibly come to a conclusion that Section 89 (1) (d) is attracted. None of the above safeguards were observed in the present case. The DGCEI acted with undue haste and in a reckless manner. (xi) Liberty is granted to the officials of MMT and IBIBO to institute .....

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of the FA. This is clearly within the powers of this Court. That is why this Court has decided to proceed with these petitions notwithstanding that the criminal petitions may be pending in the criminal jurisdiction of this Court. (xiii) The Court is satisfied that in the present case the action of the DGCEI in proceeding to arrest Mr. Pallai, Vice-President of MMT, was contrary to law and that Mr. Pallai s constitutional and fundamental rights under Article 21 of the Constitution have been viola .....

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