Service Tax - No Recovery before Show Cause Notice
SECTION 87 of the Finance Act, 1994 provides for recovery of any amount due to Central Government and lays down that where any amount payable by a person to the credit of the Central Government under any of the provisions of that Chapter or the rules made thereunder is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned therein.
In the case of ICICI Bank Ltd. [], the High Court had held -
Law enforcers cannot be permitted to do something which is not permissible within the four corners of law - Amount which is payable by a person can be said to be payable only after there is determination as provided u/s 72 or u/s 73 of the FA, 1994 - Without there being any adjudication, coercive steps u/s 87 cannot be taken for recovery of ST or penalty or interest .
Overanxious Central Excise Officers have initiated recovery proceedings even before issue of Show Cause Notice, causing immense damage to the assessees fiscally and mentally and irreparable damage to reputation. Assessees are forced to knock at the doors of High Courts for relief.
We report one such case today.
In this case the High Court found that no demand notice in respect of the aforesaid amount had been issued to the petitioner and directly garnishee orders had been issued to the clients of the petitioner. Such course of action adopted by the respondents, evidently, would bring the petitioner to disrepute and spoil its reputation in the business. Therefore, the action of the respondents of resorting to the provisions of section 87 of the Act was not warranted in the facts and circumstances of the case.
The High Court observed that:
Going by the language of section 87 of the Finance Act, any amount payable means the amount adjudged after hearing the show cause notice and this provision of section 87 is one of the methods of recovery of the amount due and payable after adjudication is done. Such claim can be made only when the final adjudication has been done after quantifying the amount due and payable by the assessee.
Recovery under section 87 of the Finance Act can be resorted to only after an amount is adjudicated to be due to the Central Government. Under the circumstances, at the stage of show cause notice when the liability of the petitioner is yet to be crystallized, it was not permissible for the respondents to resort to the drastic provisions of section 87 of the Act .
This is one of the several orders passed by High Courts. This is another situation where the Board should intervene and issue instructions to overzealous officers that they should wait till adjudication and appeal before discrediting the assessees.
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