Illegal Tax Collection Without Proper Assessment Order: Court Orders Return of Rs. 2 Crores

The court found the search conducted by the Coimbatore Commissionerate at the petitioner's branch office unjustified as no business activities were carried out within that jurisdiction. It ruled that coercive tax collection without a proper assessment order was illegal and ordered the respondent Department to return the Rs. 2 crores collected from the petitioner within ten days. The court emphasized the necessity of following due process in tax collection and invalidated the collection, allowing the writ petition without imposing costs.

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Issues: Jurisdiction of search, Coercive collection of tax, Validity of tax collection

Jurisdiction of search:
The petitioner, a company registered with Central Excise Service Tax Department in Kolkata and Rayagada, challenged the search conducted by the Coimbatore Commissionerate at its branch office. The petitioner argued that it did not conduct any business within the Coimbatore jurisdiction, and hence, the search was unjustified. The court noted that no works were carried out by the petitioner within the Coimbatore Commissionerate, rendering the search warrant issued by the Additional Commissioner questionable.

Coercive collection of tax:
During the search, a deposition was recorded from one of the directors of the petitioner company under coercion, indicating a payment of Rs. 2 crores to the respondent Department as part of Service Tax arrears. The court emphasized that no tax can be collected without a proper assessment order, highlighting the illegality of coercive tax collection without following due process. The respondent argued that the payment was made to mitigate an offense under Section 73(3) of the Finance Act, 1994, but the court found this argument lacking merit.

Validity of tax collection:
The respondent Department collected Rs. 2 crores from the petitioner voluntarily, claiming it was towards Service Tax liability. However, the court found no evidence to support the petitioner's liability for Service Tax to the respondent department. It reiterated the legal principle that tax collection requires a proper assessment order and adherence to established procedures. As such, the court directed the respondents to return the sum of Rs. 2 crores collected during the search within ten days, deeming the collection invalid in the eyes of the law. The writ petition was allowed, with no costs imposed.

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