Service Tax - Arrest - NO BAIL - HC
THIS should be great news for the Service Tax Department. These days there are several reports about several arrests under Service Tax. Some big businessman is arrested and the Service Tax offices give wide publicity. Even before the Press reports about the arrest, the alleged offender is released on bail and that fact is usually not mentioned.
On 17.12.2013, we had carried an article Service Tax - Arrest for offences prior to 10.05.2013 is illegal in which the author had observed,
The power to arrest under the provisions of Finance Act, 1994 (Service Tax) was introduced by Finance Act, 2013 w.e.f. 10.05.2013 by inserting Section 91. This section inter alia empowers an officer not below the rank of a Superintendent to arrest a person if he defaulted in payment of service tax collected equal to 50 lakhs or more (a cognizable offence) and authorised by the jurisdictional Commissioner for such arrest. Section 90 was also enacted along with Section 91 to enable classification of offences into cognizable and non cognizable offences. Relevant provisions of Section 89 of the Act relating to Offences and Penalty were also substituted to align with newly inserted provisions under Section(s) 90 & 91.
The author argued that the amendments had no retrospective effect and that it is effective only for an act or omission committed after 10.05.2013, the date on which Finance Act, 2013 was enacted. An Officer empowered can only arrest a person for non-payment of Service Tax if he fails to remit the amount collected and exceeds the prescribed limit (as stated in section 89(1) (ii)) if such amount pertains to the period after 10.05.2013.
This was exactly the argument taken by an arrested person, before the Bombay High Court.
The applicant is said to have collected Rs. 2.59 Cores of Service Tax during the period 2010-2011 to 2013-2014 but had not deposited the said amount except Rs. 15 Lakhs; that he had in fact never filed any service tax returns and as such knowingly utilized the Government monies for his personal use.
The applicant submitted that there cannot be any retrospective effect to the penal provisions and as such considering the arrest of the applicant on 22.1.2014 and considering that the amount of tax collected and required to be deposited with the Government must exceed Rs. 50 Lakhs and there must be failure 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, the applicant was not liable for the arrest inasmuch as the amount collected between 10.5.2013 to 21.7.2013 is only Rs. 5,00,887/-. In other words, it is submitted on behalf of the applicant that the maximum amount evaded, if any, under Section 89(1)(d) is less than Rs. 50 lakhs for the relevant period and as such the provisions of Section 89(1)(d)(ii) are not applicable.
The High Court was not impressed and observed,
In the considered opinion of this Court, it being continuing offence the entire outstanding amount to be deposited with the Central Government in the present matter is required to be taken into consideration inasmuch as on 10.5.2013 what was the arrears then accrued is required to be taken into account while calculating the amount of Rs. 50 Lakhs as contemplated by Section 89(1)(d)(ii) of Finance Act, 1994.
During the arguments it was suggested on behalf of the applicant that he would deposit all the outstanding Service Tax to the Central Government but in a time bound programme. But the schedule was not appealing to the Revenue and it insisted that the entire dues of Service Taxes, already collected by the applicant, shall be deposited with the Department.
So, the High Court held that it is a continuing offence and as on 10.5.2013 there were huge outstandings definitely beyond the amount of Rs. 50 Lakhs and more so said amount was outstanding even at the time of arrest of the applicant; it is not a case in which the applicant can be released on bail more so when the investigation is still going on.
Consequently the application for bail is dismissed.
Now what will happen? As long as he doesn't pay up the dues, he may not get bail - he may not be able to pay up unless he gets bail - A Catch 22 situation? Wouldn't it have been prudent for the Department to allow him to go on bail and pay up the dues in instalments rather than treat him as a State Guest in a jail? But prudence and Tax Collection hardly ever go together.
This order of the Bombay High Court was made available only yesterday and we bring it to you today.