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THE SCOPE OF POWERS OF DGCEI UNDER SECTION 91 READ WITH SECTIONS 90 AND 89 OF THE FINANCE ACT 1994

Service Tax - By: - Mr. M. GOVINDARAJAN - Dated:- 20-10-2016 - DGCEI Director General of Central Excise Intelligence (DGCEI) is the apex intelligence organization functioning under the CBEC, Department of Revenue, Ministry of Finance entrusted with the task of detection of evasion of duties of central excise and service tax. It develops intelligence, especially in new areas of tax evasion through its intelligence network across the country and disseminates information, by issuing modus operandi .....

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recovered an amount of ₹ 1975 crores which was suppressed and unpaid to the Government exchequer. In this article is to be discussed with reference to decided case laws. Provisions of Finance Act, 1994 Section 91 provides the powers to arrest. Section 91(1) provides that if the Principal Commissioner of Central Excise or Commissioner of Central Excise has reason to believe that any person has committed an offence specified in Section 89 (1) (ii), he may, by general or special order, autho .....

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re, 1973 (2 of 1974), relating to arrests. Section 90 provides that an offence under clause (ii) of sub-section (1) of section 89 shall be cognizable. Section 89(1)(ii) provides that whoever 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, where the amount exceeds ₹ 2 crores with imprisonment for a term which may extend to se .....

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They registered with the department, paid the tax regularly and filed the returns regularly. They collect the room charges including taxes on the basis of invoices raised by the concerned hotel and pass on the amount so collected to the concerned hotel which in turn pays the service tax. However the DGCEI is of the view that the petitioners are running hotels online. Once the petitioners admitted that they collect the service tax, even on behalf of the hotels whose rooms are booked online, it is .....

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tioners, therefore, were appeared to have contravened the provisions of Section 68 of the Finance Act, rendering themselves liable to punishment under Section 89(1)(d) read with Section 89(1)(ii) of the Act. Accordingly the Officers of the petitioners were arrested. They were released on bail by the Court of Chief Metropolitan Magistrate. Prior to this the petitioners paid a sum of ₹ 15.33 crores towards admitted service tax dues. A further sum of ₹ 25 crores was paid in terms during .....

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rs to the concerned hotel after retaining its commission; The other option is for the customer is to directly make payment to the hotel in which the customer is issued a voucher by the petitioners mentioning room tariff, taxes and fees and subsequently the petitioners receives commission from the hotel; The petitioner discharges its service tax liability on gross amount paid by the customer to it in terms of the first option or the commission paid to it by the hotel concerned as per the second o .....

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d Mr. Pallai at his office; In the communication of the arrest it was informed that the petitioner was liable to pay to the tune of ₹ 67.44 crores; failing which the petitioner appeared to have contravened the provisions of Section 68 of the Finance Act rendering themselves liable to punishment under Section 89(1)(d) read with section 89 (1)(ii) of the Act; The petitioners acted as a travel agent/tour operator between the hotels/airlines/other services and customers for bookings the hotel .....

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as a tour operator; The DGCEI only insisted that the petitioner should discharge service tax on the entire amount collected from the customers; With the investigation not having been completed at that stage, it was erroneous on the part of DGCEI to treat the petitioner as a hotel when it was only facilitating bookings of hotel rooms through its website. The DGCEI put forth the following arguments before the High Court- The investigation conducted revealed that the petitioner had entered into agr .....

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; The taxes shown on the customer vouchers included service tax, luxury tax and VAT, as applicable; The amount reflected in the customer vouchers are different from the base price shown in the hotel vouchers with the same identification numbers; In the event of cancellation the customers of the petitioners approached the petitioner only and not the hotel for the redressal of their complaints; Therefore it was concluded that the petitioner could not be treated as the agent of the hotels; Though t .....

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ervice tax collected from customers and that any service tax collected from the customer by the petitioner had to be deposited in the government exchequer by the petitioner only; Many of the hotels, making agreements with the petitioners, did not even registered with the Department; One of the hotels revealed that although they were registered with the Department, they were not paying service tax on the plea that since the petitioner had collected service tax, it was the responsibility of the pe .....

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of taxable service is representing service tax. Irrespective whether the hotels have paid the service tax passed on to them by the petitioners, since it is petitioners who have collected the said component service tax, it is the petitioners who are liable to, under Section 73A (1) of the Act to credit the tax so collected to the account of the Central Government and their failure to do so results in violation of Section 73A of the Act. The High Court held that the DGCEI fails to make out even a .....

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situation envisaged there under 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 be paid by him to the credit of the Central Government. Therefore, under Section 73A(4), the Central Excise Officer concerned shall, after considering the representation made by such person, determine the amount due from such person, not being in excess of the amount specified in the notice. .....

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