Court sets aside interest in garnishee notices, remands for new decision. Petitioner allowed to pay tax arrears in installments.

The court set aside the interest portion covered by the garnishee notices and remanded the matter to respondent No. 2 for appropriate decision-making on the interest rate after giving the petitioner a hearing. The petitioner was allowed to pay the arrear service tax dues in 48 monthly installments starting from 15.09.2019. The writ petition was disposed of without costs.

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Issues Involved:
1. Quashing of garnishee notices.
2. Payment of service tax dues in installments.
3. Adjudication of service tax liability and interest.
4. Issuance of recovery notices without adjudication.
5. Imposition of interest rate.

Detailed Analysis:

1. Quashing of Garnishee Notices:
The petitioner sought quashing of garnishee notices issued by respondent No. 2 to respondent No. 1 under Section 87(b) of the Finance Act, 1994. These notices required the State Bank of India to remit funds from the petitioner's account to the Central Government for outstanding service tax dues amounting to Rs. 6,27,45,124.00 for the period from April 2013 to September 2016. The petitioner argued that these notices were issued without adjudicating the service tax liability and mechanically levied interest. The court noted that the petitioner had not disputed the quantum of service tax dues but highlighted the need to pay in installments. Therefore, no adjudication was necessary, distinguishing it from the Karnataka High Court's decision in Prashanthi vs. Union of India, which required adjudication before issuing garnishee notices.

2. Payment of Service Tax Dues in Installments:
The petitioner requested to pay the outstanding service tax dues in installments due to financial constraints. The court considered the petitioner's financial situation and the circular dated 28.02.2015, issued by the Central Board of Excise and Customs, which allows recovery of arrears in installments. The court directed that the arrear service tax dues, excluding the interest amount, be paid in 48 equated monthly installments commencing from 15.09.2019.

3. Adjudication of Service Tax Liability and Interest:
The petitioner contended that the garnishee notices were issued without adjudicating the service tax liability and interest, as required under Section 73 of the Finance Act, 1994. The court noted that Section 73 mandates issuing a show cause notice within 30 months (extendable to 5 years in cases of fraud) and considering any representation before determining the service tax dues. The court found that the petitioner had admitted the service tax dues, and thus, no further adjudication was necessary for the garnishee notices.

4. Issuance of Recovery Notices Without Adjudication:
The petitioner argued that recovery notices under Section 87 of the Finance Act, 1994, were issued without prior adjudication, violating the requirement of adjudication under Section 73. The court distinguished this case from the Karnataka High Court's decision in Prashanthi, noting that the petitioner had admitted the dues, and therefore, adjudication was not required.

5. Imposition of Interest Rate:
The petitioner challenged the automatic imposition of the highest interest rate (36%) by respondent No. 2 without exercising discretion. The court observed that Section 75 of the Finance Act, 1994, provides for a flexible interest rate ranging from 10% to 36%, requiring discretion and fair adjudication. The court found that respondent No. 2 had imposed the maximum interest rate mechanically, indicating non-application of mind and arbitrariness. Consequently, the court set aside the interest portion covered by the garnishee notices and remanded the matter to respondent No. 2 for appropriate decision-making regarding the interest rate after giving the petitioner an opportunity of hearing.

Conclusion:
The court issued the following orders:
1. The interest portion covered by the garnishee notices was set aside.
2. The matter of interest imposition was remanded to respondent No. 2 for appropriate decision-making after hearing the petitioner.
3. The arrear service tax dues, excluding the interest amount, were to be paid by the petitioner in 48 equated monthly installments starting from 15.09.2019.

The writ petition was disposed of with no costs.

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