Service tax recovery cannot begin before adjudication; bank freezing notices were quashed for lack of crystallised liability.

Bank account freezing and recovery under Section 87 of the Finance Act, 1994 cannot be sustained before service tax liability is adjudicated and crystallised by a valid order. Where the show cause notice remained undecided and no adjudication order had been passed, there was no amount payable in law to justify direct recovery through banks. The Bombay HC held that recovery cannot precede assessment or adjudication of the tax demand, and the freezing notices and recovery action were quashed.

---

---

Issues: Whether bank account freezing and recovery action under Section 87 of the Finance Act, 1994 could be sustained before adjudication of the service tax demand and crystallization of liability.

Analysis: The notice under challenge was issued on the basis of allegations that service tax had been collected but not remitted, and the assessee had replied denying liability and seeking personal hearing. The record showed that no adjudication order had been passed on the show cause notice when the banks were directed to freeze the accounts. Recovery under Section 87 presupposes an amount that is payable in law, which requires an ascertained and crystallized liability. On the facts, the demand remained unadjudicated, so direct recovery action through the banks was impermissible. The Court relied on the settled principle that recovery cannot precede assessment or adjudication of the tax liability.

Conclusion: The bank freezing notices and recovery action were unsustainable and were quashed. The issue is decided in favour of the assessee.

Ratio Decidendi: Recovery of service tax under Section 87 of the Finance Act, 1994 cannot be initiated before the demand is adjudicated and the liability is crystallized by a valid order.

---