Court upholds Service Tax recovery under Finance Act. Challenge dismissed. SICA not a bar.

The court upheld the department's right to recover Service Tax from the petitioner under Section 87 of the Finance Act, 1994. The petitioner's challenge to the communication directing payment of Service Tax was dismissed as the court found it lawful and not arbitrary. The court also ruled that Section 22 of SICA did not bar the recovery of Service Tax from the petitioner, as the liability was incurred after the company became a sick industrial entity. The petition was ultimately dismissed, affirming the department's authority to recover the Service Tax from the petitioner.

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Issues Involved:
1. Legality of the impugned communication directing the petitioner to pay Service Tax due by the service provider.
2. Applicability of Section 87 of the Finance Act, 1994.
3. Impact of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on the recovery of Service Tax from the petitioner.

Detailed Analysis:

1. Legality of the Impugned Communication:
The petitioner challenged the communication dated 12-10-2012, which directed them to pay Service Tax of Rs. 38,27,023/- due by the service provider, arguing it was "absolutely illegal and most arbitrary." The petitioner emphasized that they were merely the recipient of the service, not the provider, and hence not liable to pay the Service Tax. The court, however, noted that the petitioner had not initially claimed any dispute with the service provider regarding the amount due and payable. The court found that the petitioner's claim of a dispute was an afterthought to avoid the provisions of Section 87 of the Finance Act, 1994.

2. Applicability of Section 87 of the Finance Act, 1994:
Section 87 of the Finance Act, 1994, allows the Central Excise Officer to recover unpaid Service Tax from any person who owes money to the defaulter. The court observed that the petitioner owed more than Rs. 2 crores to the service provider and that the impugned notice was in consonance with Section 87. The court held that the department had the authority to recover the Service Tax from the petitioner, who held money due to the service provider. The court also noted that the department had taken steps to recover the amount from the service provider, including booking an offense against them for non-payment of Service Tax.

3. Impact of Section 22 of SICA on the Recovery of Service Tax:
The petitioner argued that as a sick industrial company before the BIFR, Section 22 of SICA barred the recovery of Service Tax from them. The court rejected this argument, noting that the Service Tax liability was for services availed after the petitioner approached the BIFR. The court cited the Supreme Court decision in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals, which held that the bar under Section 22 of SICA does not apply to liabilities incurred after a company becomes sick. The court distinguished the cases cited by the petitioner, such as Raheja Universal Limited v. NRC Limited, finding them inapplicable to the facts at hand.

Conclusion:
The court concluded that the impugned demand was neither illegal nor arbitrary and was well within the jurisdiction and authority under the law. The petition was dismissed, upholding the department's right to recover the Service Tax from the petitioner under Section 87 of the Finance Act, 1994.

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