TaxTMI 
TaxTMI 
2016 (9) TMI 52
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....ance, [Respondent No. 1], the Director, DGCEI, [Respondent No. 2], The Additional Director General ('ADG'), DGCEI [Respondent No. 3] and The Senior Intelligence Officer, DGCEI [Respondent No. 4] seeking to restrain Respondent Nos. 2, 3 and 4 from taking any coercive action including threat of arrest against MMT and its officials for recovery of alleged service tax dues in terms of Section 73/73A of the FA. MMT also seeks a declaration that Respondent Nos. 2, 3 and 4 do not have the power to arrest the officials of MMT under Section 91 read with Section 89 of the FA and Section 9AA of the Central Excise Act, 1944 ('CE Act'). 3. Writ Petition (Civil) No. 1283 of 2016 is filed by IBIBO Group Private Limited ('IBIBO') against the UOI through the Secretary, Ministry of Finance [Respondent No. 1], the Director and the Senior Intelligence Officer, DGCEI [Respondent Nos. 2 and 3 respectively]. The prayer in this writ petition by IBIBO is identical to the prayers in Writ Petition (Civil) No. 525 of 2016 filed by MMT. 4. In both writ petitions, applications were filed for interim directions to restrain the DGCEI from taking any coercive steps against the entities and their officers.....
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....n 13th January, 2016 searches were undertaken of the premises of IBIBO and Yatra. Simultaneously, searches were also undertaken in the premises of Cleartrip at Mumbai. Thus, there is a common pattern emerging in both cases and it is in that background that the scope of powers of DGCEI under Section 91 read with Section 90 and 89 of the FA require to be examined. 9. Another aspect which is required to be adverted to at the outset is that the arrest of Mr. Pallai, Vice President (Finance) of MMT on 8th January, 2016 led to his subsequent release on bail by the Court of Chief Metropolitan Magistrate ('CMM') on 11th January, 2016. While prior to the said order, a sum of Rs. Rs. 15.33 crores was paid by MMT towards 'admitted' service tax dues (which assertion of the DGCEI is contested by MMT), a further sum of Rs. 25 crores was paid in terms during and after the bail proceedings. MMT's Vice President has filed a separate petition in this Court in its criminal jurisdiction assailing the arrest and initiation of criminal proceedings. Since the petition is pending, the Court in the present petition by MMT only proposes to interpret the scope of the provisions of the FA. 10. A....
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....he commission paid to it by the hotel concerned as per the second option. MMT states that it is registered with the ST Department under the provisions of the FA and has a Service Tax Registration No. AADCM5146RST006. It states that it has been promptly depositing with the ST Department, the service tax collected by it corresponding to the service rendered by it. 14. MMT states that in terms of Rule 11 (ii) of Notification No. 26/2012ST dated 20th June, 2012, it claimed 90% abatement on such gross amount. It states that prior to 1st July, 2012, it was claiming abatement under Notification No. 1/2006-ST dated 1st March, 2006. It is stated that the officers of the DGCEI visited the office premises of MMT and issued summons dated 20th November, 2015. Thereafter summons dated 23rd November, 2015, 9th, 10th and 14th December, 2015 and 13th January, 2016 were issued to MMT for tendering statements and providing information. Two of the summons dated 9th December 2015 and 8th January 2016 were issued to Mr. M.K. Pallai, Vice President (Finance), MMT for tendering his statement under Section 14 of the CE Act as made applicable to service tax in terms of Section 83 of the FA. 15. MMT states....
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....Central Government, MMT appeared to have contravened the provisions of Section 68 of the FA, rendering themselves liable to punishment under Section 89 (1) (d) read with Section 89 (1) (ii) of the FA. 19. The DGCEI rejected the stand of MMT that it was only a 'tour operator' and that it was the obligation of the concerned hotels to pay the service tax to the government account. According to the DGCEI, " the hotels are mere input service providers to M/s. MMT and M/s. MMT's Service Tax liability cannot be fastened on the hotels." It was further mentioned in the grounds of arrest that " besides, a large number of such hotels are not even registered Service Tax Assessees and do not appear to have deposited the service tax claimed to have been remitted by M/s. MMT to such hotels, in the government account." The grounds of arrest then stated that Mr. Pallai, in his statement recorded on 10th December, 2015 and 8th January, 2016, had stated that he and Mr. Mohit Kabra, Director and CFO of MMT were responsible for taking service tax related decisions in MMT. The grounds stated that Mr. Pallai further admitted that " they had collected service tax but instead of paying it to t....
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....ct value at which the service is applied on his behalf, and any discounts obtained must be passed back to the principal." It was alleged that MMT was charging their own rate for renting of hotel room which was shown on the customer voucher and which is different from the rates negotiated by MMT with the hotels. The customer voucher was not supplied to hotels. Instead, hotels were given 'Hotelier's Vouchers' on which the amount charged for booking a hotel room was different from what was charged by MMT from its customers. It was concluded that in terms of the agreements with the hotels and customers, MMT was not acting as the agent of hotels. Since it had further rented the hotel rooms at the price negotiated with the customers, MMT was also providing the services of renting of hotel rooms to the customers and the hotels were merely input service providers providing services of renting hotel rooms to MMT. Thus, MMT was liable to pay service tax on 60% of the amount charged from the customers for provision of short-term accommodation services (renting of hotel rooms) in terms of the Notification No. 26/2012-ST dated 20th June, 2012, as amended. It was noted in the application f....
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.... along with the taxes charged by the hotels, which is accordingly remitted to these hotels. To the best of knowledge of Mr. Pallai, the said hotels had already discharged their service tax liability on the said amount. It is also pointed out that since March 2011, MMT had contributed huge sums of service tax to the Central Government exchequer from March 2011 to September 2015 inasmuch as Rs. 2,99,85,99,891 as service tax. It is further pointed out that the DGCEI had arbitrarily, and without giving an opportunity of a hearing or an SCN, considered MMT as a 'hotel' providing renting services to the customers and not as a tour operator. The DGCEI insisted that MMT should discharge service tax on the entire amount collected from the customers. 24. On 11th January, 2016, a detailed order was passed by the learned CMM granting bail to Mr. Pallai. The learned CMM recorded inter alia that out of Rs. 82.78 crores, a sum of Rs. 15.34 crore had already been deposited and subsequently a further sum of Rs. 15 crores had also been deposited on that date itself thus making total deposit of Rs. 30.34 crores. It is noted that the same amount was deposited without prejudice to the rights and remed....
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.... certificates issued to it by some of the hotels confirming that they were discharging their service tax liability on the amount remitted by MMT. It is asserted that MMT has merely received the gross amount and remitted the same to the hotels. It is further asserted that MMT has not 'collected' and 'retained' any amount in any manner as representing service tax. It is asserted that the failure to consider the above factors, the arrest of Mr. Pallai without issuance of an SCN and issuance of threats of further coercive action were all in violation of the requirement of due process under Sections 73/73A of the FA. Counter affidavit of the DGCEI 28. A counter-affidavit has been filed by Mr. Samanjasa Das, ADG, DGCEI, Delhi Zonal Unit, New Delhi. A reference is made in the counter affidavit to the 'intelligence' received in the DGCEI which indicated that MMT was providing services relating to renting of hotel rooms through its website www.makemytrip.com and was not discharging its service tax liability 'properly'. It is stated that the investigation was thereafter initiated by visiting the premises of MMT under Rule 5A of the Service Tax Rules, 1994' ('ST Rules'). It is stated t....
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....ices to MMT on the basis of the rates negotiated with MMT for booking of hotel rooms. It is stated that in the event of cancellation, MMT's customers approached MMT, and not the hotel, for redressal of their complaints. 30. It is asserted by the DGCEI that there was no statutory provision under which MMT could collect service tax on behalf of the others. A reference is made to Rule 4A of the ST Rules which provides that every person providing any taxable service shall issue an invoice, a bill or a challan signed by such person in respect of such taxable service. It is further stated that there is no statutory provision which allowed MMT to shift their service tax liability in respect of service tax collected from customers and that any service tax collected from the customer by MMT had to be deposited in the government exchequer by MMT only. It is stated that MMT's claim that it had entered into agreements with more than 30,000 hotels in terms of which it was the responsibility of the hotels to pay the service tax which MMT remitted to the hotels was not in accordance with Rule 4A of the ST Rules since the hotels were not raising any invoice or challan on the customers. It is....
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....t of hotel and package services was shown as Rs. 85,655 lakh in Note 22 of the said Notes. Similes figures were shown for the FY 2012-13. According to the DGCEI, all these entries of booking of revenue and expenses in relation to sale and purchase of hotel rooms by MMT clearly showed that MMT had been selling or providing services of booking of hotel rooms after procuring the same from the hotels against which they had booked expenses. Therefore, MMT was not acting as an agent of the hotels. 32. It is stated by the DGCEI that till September 2015, MMT had collected service tax to the tune of Rs. 82,78,03,760 from its customers, out of which Rs. 67,44,19,167 was not deposited in the government account. It is further stated that the Vice-President of MMT was arrested under Section 91 of the FA for the cognizable and non-bailable offence covered under Section 89 (1) (d) of the FA read with Section 89 (1) (ii) and Section 90(1) of the FA and Section 9AA of the CE Act as was made applicable to the service tax matters under Section 83 of the FA. It is asserted that the sums paid by MMT prior to and subsequent to the appellate order were all made voluntarily. 33. It is pointed out by the....
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....ere discharging their service tax liability on the hotel service provided. Representative copies of confirmation certificates have been enclosed with the rejoinder affidavit as Annexure-I. It is further stated that since the FA was not applicable to the State of Jammu & Kashmir, there was no question of hotels charging service tax and further there was no collection of service tax. It is pointed out that DGCEI had wrongly construed 'hotel taxes' as including service tax. The affidavits from the hotels situated in the State of Jammu & Kashmir, copies of which are enclosed as Annexure-2 to the rejoinder affidavit, confirmed that they were not charging service tax from their customers and further that the 'hotel taxes' did not contain any service tax element. As regards the hotels having tariffs at less than Rs. 1,000, with its rejoinder MMT has enclosed as Annexure-3 affidavits of such hotels confirming that they were not charging service tax from their customers and further that 'hotel taxes' did not include any service tax. 36. It is pointed out by MMT that para 5.9.6 of the Education Guide, Rule 2(f) of the Place of Provision of Service Rules, 2012 and the provisions from....
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....or a second time in 2012-13. It is pointed out that every time the ST Department conducted an audit, MMT had provided a detailed note of its activities, including the activities of hotel booking. A copy of one such Note has been enclosed as Annexure-6 to the rejoinder affidavit. It is stated that in June 2014 an audit was conducted by the Central Excise Regulatory Authority ('CERA') for the period from FYs 2010-11 to 2013-14. MMT had been issued the SCN on the basis of CENVAT credit eligibility where the ST Department had specifically recognized the activities performed by MMT. A reference is made to the SCN dated 25th October, 2010 and 18th October, 2011. In para 6.1 of the SCNs dated 25th October, 2010 and 18th October, 2011, it is noted that MMT had been availing benefit of abatement from paying service tax on packaged tour (inbound) and booking of hotel accommodation in India under Notification No. 1/2006 dated 1st March, 2006, as amended. Thus, the ST Department was aware of the activities undertaken by MMT and the service tax position followed by it. It is further pointed out that the SCN issued on 18th October, 2011 was after the introduction of service tax on hotel services....
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....ence Officer), Mr. Rajeev Dhawan and Mr. Rajesh Arora. Mr. Das, Mr. Jatinder Singh, Mr. Kapoor, Mr. Ajay Kumar and Mr. Praveen filed their affidavits in response to the above affidavits. Supplementary affidavits have been filed by Mr. Pallai and Mr. Kataria to which replies were again filed by the aforementioned officers. The above affidavits will be discussed further in examining the contention of MMT and IBIBO that their officers had been threatened by the officers of the DGCEI during interrogation. Averments in the petition by IBIBO 42. Turning to the facts of W.P. (C) No.1283/2016 by IBIBO, it is stated that IBIBO acts as an online travel agent/ tour operator for booking hotels for its customers and is registered with the ST Department under the relevant provisions of the FA vide service tax registration number AAHCP1178LSD001. IBIBO provides an online platform (website/mobile application) whereby various hotel service providers can make available hotel accommodation services to customers. Just like in the case of MMT, it is stated that the customers intending to book a hotel room visit the website/mobile application and enter the details required for booking a room u....
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....ad interim order was passed restraining the Respondents from taking coercive action against Cleartrip. A reference was also made to the order passed in MMT's case. Counter affidavit of DGCEI in IBIBO's petition 46. The counter affidavit filed by the DGCEI in W.P. (C) No. 1283/2016, is on the same lines as the one filed in W.P. (C) No.525/2016. It is asserted that IBIBO was in the business of running a hotel room booking service and collecting service tax from their customers and entered into agreements with more than 25,000 hotels on a 'Principal-to-Principal basis'. It is stated that the service tax could not have been collected on behalf of the hotels and was required to be deposited with the Central Government. The allegations of threat and coercion are denied. It is stated that all the deposits were made voluntarily by IBIBO. IBIBO's rejoinder 47. In the rejoinder filed by IBIBO it is again pointed out that since 200 hotels have already given confirmation to IBIBO that they were discharging the liability of service tax with regard to the hotel service provided, copies of such confirmation certificates were annexed as Annexure-6 to the writ petition. It is pointed ....
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.... service tax not levied or paid or short-levied or short-paid or erroneously refunded (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within eighteen months from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : PROVIDED that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of - (a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words " eighteen months" , the words " five years" had been substituted. Explanation: Where the service of ....
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....has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under subsection (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid. PROVIDED that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of " eighteen months" referred to in sub-section (1) shall be counted from the date of receipt of such information of payment. Explanation 1: For the removal of doubts, it is hereby declared that the interest under Section 75 shall be pa....
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.... after the final assessment thereof; (iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund. 50. In the present case, both Petitioners have been regularly filing service tax returns and have been paying service tax. It is the admitted case of the Respondents themselves. None of the Petitioners fall under the category of a person not filing a return under Section 70 of the FA as envisaged under Section 72 (a) of the FA. Under Section 72 (b) of the FA, the return filed by the Assessee can be scrutinized by the Central Excise Officer who has been assigned his functions in terms of the provisions of the FA read with CE Act. 51. Proceedings were initiated by the ST Department against each of the Petitioners in respect of the returns filed by them and SCNs were also issued to them. In other words, the power of assessment has been and is continued to be exercised by the concerned designated offices of the ST Commissionerate in respect of each of the Petitioners. If in terms of Section 72 of the FA, the Assessing Officer (AO) was of the view that any of these Petitioners acted in violation of any of the provisions of the FA, then....
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.... this Chapter or the rules made there under from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. (2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government. (3) Where any amount is required to be paid to the credit of the Central Government under sub-section (1) or sub-section (2) and the same has not been so paid, the Central Excise Officer shall serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government. (4) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub- section (3), determine the amount due from such person, not being in excess of the amount specified in the notice, and thereupon such person shall pay the amount so determined. (5) The amount ....
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.... " in any manner as representing service tax" and have not retained such amount without passing it on to the Central Government. 56. The case of the DGCEI on the other hand is that irrespective of whether the hotels have paid the service tax passed on to them by the Petitioners, since it is the Petitioners who have 'collected' the said component service tax, it is the Petitioners who are liable to, under Section 73A (1) of the FA, to credit the tax so collected to the account of the Central Government and their failure to do so results in violation of Section 73A of the FA. 57. The case of the Petitioners that they have included the service tax to the extent payable by the hotels in the bills raised on the customers but have not retained such service tax and have passed it on to the hotels appears to have not been considered by the DGCEI in the correct perspective. The understanding of the DGCEI of the transaction of online booking of hotel rooms using the web portals of the Petitioners appears to be prima facie incorrect. 58. In the context of Section 73-A (2) of the FA, the person against whom the proceedings are initiated should be shown to have "collected any am....
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....e of dispute about taxability or was ready to return if eventually it was not taxable, it is not collected. " Collected" , in an Australian Customs Tariff Act, was held by Griffth C.J., not 'to include money deposited under an agreement that if it was not legally payable it will be returned' (Words & Phrases p. 274). We therefore, semanticise 'Collected' not to cover amounts gathered tentatively to be given back if found non-exigible from the dealer." (emphasis supplied) 60. In the present case, the DGCEI fails to make out even a prima facie case that some portion of the service tax collected by the Petitioners from the customers 'as representing service tax' or otherwise has been 'retained' by them. Without such prima facie conclusion, it cannot be inferred that the Petitioners have violated Section 73A (1) of the FA. 61. The above determination becomes relevant even for the purpose of Section 89 (1) (d) which again requires, for the purpose of attracting the offence, the person concerned to 'collect any amount as service tax' and 'fails to pay the amount so collected to the credit ....
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.... in the judgment of the court, such imprisonment shall not be for a terms of less than six months; (ii) In the case of the offence specified in clause (d), where the amount exceeds fifty lakh rupees, with imprisonment for a term which may extend to seven years; PROVIDED that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for a period of less than six months; (iii) in the case of any other offences, which imprisonment for a term, which may extend to one year. (2) If any person is convicted of an offence punishable under - (a) clause (i) or clause (iii), then, he shall be punished for the second and for every subsequent offence with imprisonment for a term which may extend to three years; (b) clause (ii), then, he shall be punished for the second and for every subsequence offence, with imprisonment for a term which may extend to seven years. (3) For the purposes of sub-sections (1) and (2), the following shall not be considered as special and adequate reasons for awarding a sentence of imprisonment for a term of less than six months, namely: - (i) the fact that the accused has ....
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....revious sanction of the Chief Commissioner of Central Excise for any prosecution under Section 89 of the FA. 65. It is important to note that determination of the commission of an offence for the purposes of Section 89 has to be made by the Court. Prior thereto, there can only be prima facie determination of such commission of offence. It may also be noted that by the amendments of 2013 the structure of Section 89 underwent a change. A distinction was drawn between the offences of the type described under Section 89 (1) (a), (b) and (c) on the one hand and Section 89 (1) (d) of the FA on the other. The former would be a non-cognizable whereas the latter was made cognizable and linked to Section 91 (1) regarding the power of arrest. 66. There are two aspects of the proceedings as far as Section 73A and Section 89 (1) (d) of the FA is concerned. Section 73A sets out the procedure for determination whether the situation envisaged thereunder exists. That procedure requires notice to be served on the person liable to pay such amount requiring him " to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government." T....
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....ise, to arrest such person. (2) Where a person is arrested for any cognizable offence, every officer authorized to arrest a person shall, inform such person of the grounds of arrest and produce him before a magistrate within twenty-four hours. (3) In the case of a non-cognizable and bailable offence, the Assistant Commissioner, or the Deputy Commissioner, as the case may be, shall for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer in charge of a police station has, and is subject to, under Section 436 of the Code of Criminal Procedure, 1973 (2 of 1974). (4) All arrests under this Section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to arrests." 69. Section 90 (1) makes it clear that only an offence which is punishable in terms of Section 89 (1) (ii) would be cognizable. Section 89 (1) (ii) in turn refers to Section 89 (1) (d) which refers to a case wherein the amount involved is more than Rs. 50 lakhs. In other words, it is only the offence under Section 89 (1) (d), where a person after collection of service....
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....) (ii) of the FA as being cognizable and the commission of offences other than that under Section 89 (1) (d) read with Section 89 (1) (ii) of the FA as being non-cognizable. 71. Under Section 91 (2), where a person is arrested for any cognizable offence i.e., the offence prescribed under Section 89 (1)(ii), the officer making arrest has to inform such person of the grounds of arrest and produce him before a Magistrate within twenty four hours. Section 91 (4) is more important. It states that all arrests under Section 91 " shall be carried out in accordance with the provisions of the Cr PC relating to arrests" . In other words the entire Chapter V of the Cr PC on 'Arrests', comprising Sections from 41 to 60A would apply to any arrest made of a person in exercise of the powers under Section 91 of the FA. The determination by a Court that a person has committed an offence cannot possibly be arrived at till the completion of the process envisaged under the Cr PC. 72. It is difficult to conceive of the DGCEI or for that matter the ST Department being able to by-pass the procedure as set out in Section 73A (3) and (4) of the FA before going ahead with the arrest of a person under Secti....
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.... statements which are admissible in law. The point to be noted is that coercive powers under taxing statutes are hedged in by limits on the use of that power by in-built restrictions and limitations. 75. It is for this reason that the powers of a Central Excise Officer under the FA cannot be compared with the powers exercised by the same officer either under the Customs Act or the Central Excise Act. Each of those statutes has a different and distinct scheme which does not bear comparison with the FA. For example, the FA envisages filing of periodic returns which is comparable to the Income Tax Act, whereas the assessment under the Customs Act is of individual bills of entry. AS noticed earlier, the scheme of the FA provisions points to an assessment, followed by an adjudication of penalty under Section 83 A of the FA. There are a separate set of provisions for launching prosecution. 76. The Supreme Court by a 2:1 majority in Radheyshyam Kejriwal v. State of West Bengal (2011) 3 SCC 581 summarised the law as explained in Standard Chartered Bank v. Directorate of Enforcement (2006) 4 SCC 278 and the earlier decisions in G. L. Didwania v. Income Tax Officer 1995 Supp (2) SCC 724 a....
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....ause one consequence of such determination is the triggering of the power to arrest under Section 90 (1) of the FA. 79. The Court notes that the Bombay High Court in ICICI Bank Ltd. v. Union of India 2015 (38) S.T.R. 907 (Bom) answered in the negative the following question: "Whether, without there being any adjudication in any of the proceedings as provided under Chapter 5 of the Finance Act, 1994 coercive steps can be taken by the Revenue, for recovery of service tax or penalty or interest." The Court there was dealing with a case where the Assessee had made payments under protest of alleged service tax dues under threat by the ST Department of taking drastic action under Section 87 of the FA in the form of sealing of the business premises, attachment of bank accounts and so on. The Court held that "the amount payable by a person can be said to be payable only after there is determination as provided under Section 72 or Section 73 of the Act." It further held, "the conduct of the Revenue, firstly coercing the Assessee to make payment and thereafter not deciding the returns under Section 72 or not taking recourse to Section 73, and asking the Assessee to take recourse to Section ....
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....is enough to secure a conviction or where the person is likely to abscond, tamper with evidence or influence the witnesses if left at large. Arrest at the investigation stage should be resorted to only when it is unavoidable." (emphasis supplied) 83. At this stage it also requires to be recalled that since the provisions of the Cr PC stand attracted in terms of Section 90(2) as well as Section 91(4) of the FA, all the safeguards that are available to a person under Chapter V of the Cr PC are also available to a person sought to be arrested by Central Excise Officer under the provisions of the FA. These safeguards have been judicially evolved by reading constitutional limitations into the width and ambit of these powers. Constitutional safeguards 84.1 The safeguards are traceable to the Constitution of India and in particular Article 22 which pertains to arrest and Article 21 which mandates that no person shall be deprived of his life and liberty without the authority of law. The safeguards pertaining to arrest have been spelt out in the decision of the Supreme Court in D.K. Basu v. State of West Bengal (1997) 1 SCC 416. The directions issued by the Supreme Court included settin....
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....s custody with the Directorate of Enforcement. After getting an enquiry conducted by the additional District Judge, which disclosed a prima facie case for investigation and prosecution, this Court directed the CBI to lodge a FIR and initiate criminal proceeding against all persons named in the report of the Additional District Judge and proceed against them. The Union of India/Directorate of Enforcement was also directed to pay sum of Rs. 2 lacs to the widow of the deceased by was of the relevant provisions of law to protect the interest of arrested persons in such cases too is a genuine need. ......... 33. There can be no gainsaying that freedom of an individual must yield to the security of the State. The right of preventive detention of individuals in the interest of security of the State in various situations prescribed under different statures has been upheld by the Courts. The right to interrogate the detenues, culprits or arrestees in the interest of the nation, must take precedence over an individual's right to personal liberty. The latin maxim salus populi est suprema lex (the safety of the people is the supreme law) and salus republicae est suprema lex (safety of ....
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....ise not below the rank of the Superintendent can carry out an arrest on being authorised by the Commissioner of Central Excise. It is further stated that to authorise the arrest, the " Commissioner should have reason to believe that the person proposed to be arrested has committed an offence specified in clause (i) or clause (ii) of sub-section (1) of Section 89" of the FA. Importantly, it states " the reason to believe must be based on credible material which will stand judicial scrutiny" . The further criterion is spelt out in para 2.3 which reads thus: " 2.3 Apart from fulfilling the legal requirements, the need to ensure proper investigation, prevention of the possibility of tampering with evidence of intimidating or influencing witnesses and large amounts of service tax evaded are relevant factors before deciding to arrest a person." 85. It is, therefore, plain that the decision to arrest a person must not be taken on whimsical grounds. To recapitulate, reasons to believe must be based on 'credible material'. The decision must also be conveyed at the earliest to a superior officer who will constantly monitor the progress in the investigations. He will ensure tha....
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....ce President (Finance) of MMT, in a statement dated 10th December, 2015, has stated that in case of service tax matters they took a legal opinion and that based on such legal opinion, he and Mr. Mohit Kabra, CFO of MMT, took the decision on taxation issues. 89. From the above it is concluded in para 3 that Mr. Pallai and Mr. Kabra were the main persons responsible for non-payment of service tax by MMT to the tune of Rs. 67 crores for the period from October 2010 to September 2015, which a cognizable and non-bailable offence under Section 89 (1) (d) of the FA read with Section 89 (1) (ii) and Section 90 (1) of the FA and Section 9AA of the CE Act. Para 4 is interesting inasmuch as it states as under: " 4. Further, it is also apprehended that some of other similar online service providers namely (1) M/s. Cleartrip Private Limited, Unit No. 001, Ground Floor, DTC Building, Sitaram mills, Derise Road, NM Joshi Marg, Mumbai (2) Ibibo Group (P) Ltd., Pearl Tower, 4th Floor, Plot No. 51, Sector 32, Gurgaon (3) M/s. Yatra Online Private Limited 1101-1103, 11th Floor Unitech Cyber Park, Tower B, Sector-39, Gurgaon, may also be involved in similar service tax evasion. Hence, investigation ....
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....bitual evaders'. Para 4.2 of this circular states that prosecution can be launched " in the case of a company/assessee habitually evading tax/duty or misusing Cenvat Credit facility. A company/assessee would be treated as habitually evading tax/duty or misusing Cenvat Credit facility if it has been involved in three or more cases of confirmed demand (at the first appellate level or above) of Central Excise duty or Service Tax or misuse of Cenvat Credit involving fraud, suppression of facts etc. in the five years from the date of the decision such that the total duty or tax evaded or total credit misused is equal to or more than Rs. One Crore. Offence register (335J) may be used to monitor and identify assessees who can be considered to be habitually evading duty." 94. The circular also acknowledges at para 4.3 that sanction of prosecution has " serious repercussions for the assessee and therefore along with the above monetary limits the nature of evidence collected during the investigation should be carefully assessed. The evidences collected should be adequate to establish beyond reasonable doubt that the person, company or individual had guilty mind, knowledge of the offe....
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.... (i) adjudication proceedings and criminal proceedings can be launched simultaneously; (ii) decision in adjudication proceedings is not necessary before initiating criminal prosecution; (iii) adjudication proceedings and criminal proceedings are independent in nature to each other and (iv) the findings against the person facing prosecution in the adjudication proceedings is not binding on the proceeding for criminal prosecution. Therefore, prosecution may even be launched before the adjudication of the case, especially where offence involved is grave, qualitative evidences are available and it is also apprehended that party may delay completion of adjudication proceedings." 96. What this circular again underscores is that there should be a comprehensive analysis of the evidence gathered before deciding to go in for prosecution. Importantly, prosecution should not be launched merely because a demand has been confirmed or particularly where the cases are of technical nature or where interpretation of law is involved. It is also not to be launched where additional claim of duty/tax is only based on difference of opinion regarding interpretation of law. Importantly, it has to b....
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....large number of such hotels are not even registered Service Tax assesses and do not appear to have deposited the Service Tax claimed to have been remitted by M/s MMT to such hotels, in the Government account." 99. This is a significant addition to the so-called reasons why it is decided to arrest Mr. Pallai. The conclusion in this paragraph that " a large number of such hotels are not even registered Service Tax assessees and do not appear to have deposited the Service Tax" is on the unilateral searches conducted on the website by Mr. Jatinder Singh and his team which were obviously not confronted to Mr. Pallai at that stage. It now transpires from the pleading that the DGCEI officers were perhaps mistaken about the large number of hotels that were not found registered because the reasons why they may have failed to have been registered have been examined. 100. In terms of CBEC's own procedures, for the launch of prosecution there has to be a determination that a person is a habitual offender. There is no such determination in any of these cases. There cannot be a habitual offender if there is no discussion by the DGCEI with the ST Department regarding the histor....
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....e, the note preceding the search of the premises has to specify the above requirement of the law. In Mapsa Tapes Pvt. Ltd. v. Union of India 2006 (201) E.L.T. 7 (P&H) It was held in the context of the power of search under Section 105 of the Customs Act 1962, which is similar to Section 82 of the FA, is that: " while existence power of seizure may be justified but its exercise will be liable to be struck down unless 'reasons to believe' were duly recorded before action of search and seizure is taken." In none of the present cases does the note on file mention the fact that any document has been secreted away and is relevant for the proceedings. There appears to be no application of mind to the circulars and Section 82 of the FA at all. The officers of the DGCEI, without referring to the requirements of the FA, have entered the premises and made the Assessees agree to pay the alleged service tax dues without even an SCN. This conduct, in the considered view of the Court, is wholly unacceptable. Not only is this in clear violation of the mandate of Section 82 of the FA, but is also unconstitutional since it impinges on the life and liberty of the employees of the entities inv....
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....he refund in terms of this order will not affect the bail already granted to Mr. Pallai. Conduct of the officers of the DGCEI 107. The Court was not a little surprised that the DGCEI did not think it appropriate to check with the ST Department whether the Petitioners were regular in filing their returns and whether such returns had been assessed. In the present case, both the Petitioners have been filing returns. The ST Department has a record of the filing of returns and the corresponding assessments. Whatever may be the secret nature of the operation, it was imperative for the DGCEI to first check whether the entity whose employees are sought to be arrested has regularly been filing service tax returns or is a habitual offender in that regard. It is only after checking the entire records and seeking clarification where necessary, that the investigating agency can possibly come to a conclusion that Section 89 (1) (d) is attracted. 108. None of the above safeguards were observed in the present case. There are presumptions drawn on the documents seized and are without appropriate notice to the Petitioners under Section 73A (3) of the FA asking them to explain why they should not....
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....nd exercise of such powers of the officers of the DGCEI or, as the case may be, the ST Department can be prevented. This Court decided, therefore, to proceed with these petitions notwithstanding that petitions may be pending in the criminal jurisdiction of this Court. 113. The possibility of misuse of statutory powers by officers was commented upon noticed by the Supreme Court in Dabur India Limited v. State of Uttar Pradesh (1990) 4 SCC 113 in the following passage: " 31. Before we part this case, two aspects have to be adverted to - one was regarding the allegation of the Petitioner that in order to compel the Petitioners to pay the duties which the Petitioners contended that they were not liable to pay, the licence was not being renewed for a period and the Petitioners were constantly kept under threat of closing down their business in order to coerce them to make the payment. This is unfortunate. We would not like to hear from a litigant in this country that the government is coercing citizens of this country to make payment of duties which the litigant is contending not to be leviable. Government, of course, is entitled to enforce payment and for that purpose to take all leg....
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....dgment: (i) The scheme of the provisions of the Finance Act 1994 (FA), do not permit the DGCEI or for that matter the Service Tax Department (ST Department) to by-pass the procedure as set out in Section 73A (3) and (4) of the FA before going ahead with the arrest of a person under Sections 90 and 91 of the FA. The power of arrest is to be used with great circumspection and not casually. It is not to be straightway presumed by the DGCEI, without following the procedure under Section 73A (3) and (4) of the FA, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government. (ii) Where an assessee has been regularly filing service tax returns which have been accepted by the ST Department or which in any event have been examined by it, as in the case of the two Petitioners, without commencement of the process of adjudication of penalty under Section 83 A of the FA, another agency like the DGCEI cannot without an SCN or enquiry straightway go ahead to make an arrest merely on the suspicion of evasion of service tax or failure to deposit service tax that has been collected. Section 83 A of the FA which provides for adjudi....
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....tion of the amount of service tax arrears, the resort to the extreme coercive measure of arrest followed by the detention of Mr. Pallai was impermissible in law. (vii) In terms of CBEC's own procedures, for the launch of prosecution there has to be a determination that a person is a habitual offender. There is no such determination in any of these cases. There cannot be a habitual offender if there is no discussion by the DGCEI with the ST Department regarding the history of such Assessee. Assuming that, for whatever reasons, if the DGCEI does not talk to ST Department, certainly it needs to access the service tax record of such Assessee. Without even requisitioning that record, it could not have been possible for the DGCEI to arrive at a reasonable conclusion whether there was a deliberate attempt of evading payment of service tax. In the case of MMT, the decision to go in for the extreme step of arrest without issuing an SCN under Section 73 or 73A (3) of the FA, appears to be totally unwarranted. (viii) For the exercise of powers of search under Section 82 of the FA, (i) an opinion has to be formed by the Joint Commissioner or Additional Commissioner or other officers no....