Service tax recovery before adjudication was kept in abeyance, with pending demand proceedings directed to be completed promptly.

Coercive recovery under section 87 of the Finance Act, 1994 was considered in relation to an unfinalised service tax demand under section 73, with the Court recording a prima facie view that recovery may not proceed as tax payable before adjudication. The adjudicating authority was directed to complete the pending proceedings preferably within three months, and the impugned recovery directions were kept in abeyance prospectively. Amounts already recovered were left subject to the final quantification of demand, and the question whether section 87 can be invoked before adjudication was expressly left open.

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Issues: Whether the coercive recovery measures issued under section 87 of the Finance Act, 1994 could continue before final adjudication of the service tax demand under section 73 of the Finance Act, 1994, and whether the pending adjudication should be completed within a fixed time.

Analysis: The adjudication on the tax demand and consequential liability had not yet been finalised. The Court recorded a prima facie view that, until the demand is adjudicated, it may not be treated as tax payable for invoking section 87. At the same time, the Court noted that part of the amount had already been recovered and that the parties accepted an interim arrangement for completing adjudication and regulating the future operation of the impugned directions.

Outcome: The adjudicating authority was directed to complete the pending proceedings preferably within three months. The impugned recovery directions were kept in abeyance prospectively, while the amount already recovered was left subject to the final quantification of demand. The question whether section 87 could be applied before adjudication was expressly left open.

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