2017 (2) TMI 577 - HC - Service Tax

Validity of Provisional Attachment Orders Confirmed under Finance Act

The court upheld the legality and validity of the provisional attachment orders and their extensions under Section 73(C) of the Finance Act, 1994. It ... Provisional attachment to protect revenue - Provisional attachment under Service Tax (Provisional Attachment of Property) Rules, 2008 - Extension of provisional attachment by Chief Commissioner under proviso to section 73(C)(2) - Requirement of hearing before extension orders - Speaking requirement for administrative extension orders - Proportionality of attachment in relation to demand and securityProvisional attachment to protect revenue - Provisional attachment under Service Tax (Provisional Attachment of Property) Rules, 2008 - Validity of the original orders of provisional attachment passed by the Commissioner under the proviso to sub-section (1) of section 73 of the Finance Act, 1994. - HELD THAT: - The Court recorded that Show Cause Notices were issued and that the Commissioner gave fullest opportunity before passing detailed, speaking orders of provisional attachment. The material on record showed large service tax demands arising from investigation and an apprehension that the noticees were likely to dispose of properties to defeat revenue recovery. Rule 8 of the Service Tax (Provisional Attachment of Property) Rules, 2008 and section 73(C) permit provisional attachment in such circumstances. On this basis the Court held the original provisional attachment orders were not illegal or beyond statutory authority. [Paras 7]Original provisional attachment orders are valid and not contrary to statute.Extension of provisional attachment by Chief Commissioner under proviso to section 73(C)(2) - Requirement of hearing before extension orders - Speaking requirement for administrative extension orders - Validity of the Chief Commissioner's orders extending the period of provisional attachment for a further year, including whether a hearing was required and whether the extension orders were non speaking. - HELD THAT: - The Court examined section 73(C) and noted that while the original provisional attachment under sub section (1) provides for an opportunity to be heard, the power of extension under sub section (2) (and its proviso) does not prescribe a further hearing. Consequently, absence of a fresh hearing before the Chief Commissioner did not render the extension orders invalid. The Court also reviewed the extension orders and found they contained reasons recording consideration of the case records, the demand established by investigation, and necessity to protect revenue; therefore the extension orders could not be characterised as non speaking. [Paras 7]Orders of extension by the Chief Commissioner are lawful, no separate hearing was required, and the extension orders are speaking and valid.Proportionality of attachment in relation to demand and security - Contention that the provisional attachment was disproportionate to the demand and impermissible because attached properties exceeded the demand value. - HELD THAT: - The Court noted the petitioners' assertion regarding the value of attached properties vis a vis the demand but observed that many attached properties had construction (row houses) and possibly unclear title, and that petitioners were not in a position to furnish security or bank guarantee from the attached properties. Considering these facts and the aim of protecting a substantial revenue demand, the Court held that the attachments could not be said to be unlawful or impermissible on the ground of disproportion between demand and value of attached properties. [Paras 7]Provisional attachment cannot be set aside on grounds of alleged disproportionate value of attached properties in the facts of the case.Final Conclusion: Both Special Civil Applications are dismissed; the provisional attachments originally ordered by the Commissioner and their extensions by the Chief Commissioner are sustained as lawful and in accordance with the statute, and notice is discharged with no order as to costs. Issues Involved:1. Legality of the provisional attachment orders under Section 73(C) of the Finance Act, 1994.2. Validity of the extension of provisional attachment orders by the Chief Commissioner.3. Alleged violation of principles of natural justice.4. Adequacy of reasons provided in the extension orders.5. Proportionality of the attached properties' value to the tax demand.Detailed Analysis:1. Legality of the Provisional Attachment Orders:The petitioners challenged the provisional attachment of their properties under Section 73(C) of the Finance Act, 1994, and Service Tax (Provisional Attachment of Property) Rules, 2008. The court noted that the Commissioner issued Show Cause Notices demanding a total sum of Rs. 34,08,47,693/- plus interest and penalty towards Service Tax. The Commissioner, after giving the petitioners the fullest opportunity to be heard, passed detailed, speaking, and reasoned orders for provisional attachment to protect the government's interest, as the petitioners were likely to dispose of the properties hurriedly. The court held that these orders were not illegal or beyond the statutory provisions, as Section 73(C) and the relevant rules provide for such provisional attachment.2. Validity of the Extension of Provisional Attachment Orders:The petitioners also challenged the extension of the provisional attachment orders for a further period of one year by the Chief Commissioner. The court observed that Section 73(C)(2) of the Finance Act, 1994, permits the Chief Commissioner to extend the period of provisional attachment. The statute does not require a hearing before passing an order of extension, unlike the original order of provisional attachment under Section 73(C)(1). Therefore, the court found no substance in the argument that the extension orders were illegal due to the lack of a hearing.3. Alleged Violation of Principles of Natural Justice:The petitioners argued that the extension orders were in violation of the principles of natural justice as no opportunity of being heard was provided. The court rejected this argument, noting that the statute does not mandate a hearing before extending the provisional attachment. The court emphasized that the petitioners had already been given a full opportunity to be heard before the original provisional attachment orders were passed under Section 73(C)(1).4. Adequacy of Reasons Provided in the Extension Orders:The petitioners contended that the extension orders were non-speaking and lacked reasons. The court examined the extension orders and found that the Chief Commissioner had considered the records of the case, relevant facts, details, and statutory provisions. The Chief Commissioner noted the substantial service tax dues and concluded that extending the provisional attachment was essential to protect the revenue's interest. The court held that the extension orders were not non-speaking and adequately reasoned.5. Proportionality of the Attached Properties' Value to the Tax Demand:The petitioners argued that the value of the attached properties exceeded the tax demand, making the attachment disproportionate. The court noted that the properties attached might not have a clear title, as some had constructions of row houses. Given the substantial amount of service tax dues, the court found that the provisional attachment orders were justified to protect the government's interest.Conclusion:The court dismissed both petitions, upholding the legality and validity of the provisional attachment orders and their extensions. The court found no violation of principles of natural justice and held that the extension orders were adequately reasoned. The court also rejected the argument of disproportionality, emphasizing the need to protect the government's substantial service tax dues.