Petitioner company not liable for proprietorship debts. Garnishee notices set aside. Recovery requires established liability.

The court held that the petitioner company and the proprietorship concern were distinct entities, with the petitioner not inheriting any liabilities from the concern. Garnishee notices issued by the Revenue were set aside due to lack of proper assessment. Recovery under Section 87 can only occur after an adjudicated liability is established. Writ petitions were allowed, and Revenue's writ appeals were dismissed. The petitioner company was given liberty to seek refunds for amounts collected coercively from its clients.

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Issues Involved:
1. Liability of the petitioner company for service tax dues of the erstwhile proprietorship concern.
2. Validity of garnishee notices issued by the Revenue.
3. Legal assessment and recovery process under the Finance Act, 1994.

Issue-Wise Detailed Analysis:

1. Liability of the Petitioner Company for Service Tax Dues of the Erstwhile Proprietorship Concern:
The petitioner company, M/s. Service Care Pvt. Ltd., Bangalore, argued that it was a separate legal entity from the proprietorship concern, M/s. Service Care, Chennai, which was owned by the deceased father of the Managing Director. The petitioner contended that upon the death of the proprietor, the concern ceased to exist, and no liabilities were inherited by the petitioner company. The Revenue, however, claimed that the petitioner company continued the business of the proprietorship concern and thus was liable for its service tax dues.

2. Validity of Garnishee Notices Issued by the Revenue:
The Revenue issued garnishee notices to the clients of the petitioner company to recover service tax dues allegedly owed by the proprietorship concern. The petitioner challenged these notices, arguing that no assessment order had been made against the proprietorship concern, and thus, the garnishee notices were unlawful.

3. Legal Assessment and Recovery Process Under the Finance Act, 1994:
The court examined the relevant provisions of the Finance Act, 1994, particularly Sections 73, 73A, and 87. Section 73 requires a show cause notice to be issued to the person chargeable with service tax, and Section 87 allows for recovery of dues from any person holding money for the defaulter. The court noted that no assessment order had been passed against the proprietorship concern, and there was no evidence that the clients owed money to the concern.

Judgment:
The court held that the petitioner company and the proprietorship concern were distinct entities. The petitioner company did not inherit any liabilities from the proprietorship concern. The garnishee notices issued by the Revenue were set aside as they were based on an erroneous premise without proper assessment. The court emphasized that recovery under Section 87 can only be initiated after an adjudicated liability is established. The writ petitions were allowed, and the writ appeals filed by the Revenue were dismissed. The petitioner company was granted liberty to initiate appropriate proceedings for the refund of amounts collected coercively from its clients.

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