TaxTMI 
TaxTMI 
2016 (9) TMI 53
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....gal and ultra vires the provisions of the Finance Act, 1994 ('FA'). Respondent No. 3 was impleaded pursuant to the order dated 28th January, 2016 passed by this Court. Background facts 2. eBIZ is engaged in the business of developing and selling various online/offline educational software packages as well as providing holiday accommodation booking packages. eBIZ is registered with the Service Tax Department (ST Department) and has been paying service tax since the year 2001. eBIZ describes the services rendered by it of booking of tour packages as that of a 'tour operator'. It has been filing its ST returns regularly. It is stated that in every half-yearly return filed by the Petitioner, exemption available to tour operators under Notification no. 26/2012-ST dated 20th June 2012 has been claimed. eBIZ states that the said returns have been duly verified by the ST Department. 3. It is stated that on 12th January 2007, the ST Department conducted a search in the premises of eBIZ as a result of which eBIZ was compelled to deposit service tax of Rs. 25,55,000/- and interest thereon amounting to Rs. 2,59,000/-. eBIZ further states that consequent upon the said search, the ST....
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.... ST Department. Copies of such ST returns are enclosed along with the petition. 6. On 13th October 2015, the ST Department proposed, by a letter of that date by the Superintendent (Group-4E), Audit-II of the Meerut Commissionerate, conducting a service tax audit of the accounts/records of eBIZ for the period up to March 2015. The said letter further asked eBIZ to provide copies of balance sheet, trial balance and annual financial report for financial years ('FYs') 2010-2011 to 2014-2015 along with all the schedules, tax audit report (Form 3CD), TDS detail (Form 26AS), copies of ST-3 returns submitted for the years 2010-2011 to 2014-2015; value and payment of service tax (service wise/month wise) through cash and credit for the last five years and soft copies of the aforesaid records and documents. All the above information was submitted by eBIZ on 15th December 2015. It is pointed out that since they were audited every year, therefore, it was enclosing copy of balance sheet, P&L account along with all the schedules, tax reports, Form 3CD, TDS details, ST-3; and value and payment of service tax (service wise/month wise) only for the relevant year i.e., 2014-2015. The ST returns fi....
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....inted out that on the basis of Notification No.26/2012-ST and an earlier Notification No.01/2006-ST, exemption was being consistently claimed by eBIZ and not disputed by the ST Department. eBIZ contends that the action of the DGCEI in terming the said claim to be unlawful and estimating the ST liability at Rs. 17 crores for the last five years was based only on the change of opinion and illegal search conducted in the premises of eBIZ. 11. It is on the above basis that the present writ petition was filed praying inter alia for a declaration that the action of the DGCEI was arbitrary, malicious and motivated and against the provisions of the FA and to declare the summons dated 19th and 21st January 2016 to be without authority of law. Proceedings before the Court 12. In this writ petition, the Court issued notice to the Respondents on 28th January 2016. At that stage, Mr. Malhan was still in custody and his bail application was to be taken up on 29th January 2016 by the ASJ. Mr. Atul Singh, Deputy Director, DGCEI and Mr. Sunil Joshi, SI-6, DGCEI were present along with the records, which were perused by the Court. This included a note proposing search in the premises of eBIZ and....
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.... date. 15. On the hearing on 2nd May 2016, the records produced by the DGCEI included a note dated 18th January 2016, proposing the arrest of Mr. Malhan. The first line of the said note read thus: "An information has been received in this Directorate General that M/s. Ebiz.Com Private Ltd. B-18, Sector-63, Noida, Uttar Pradesh 201301 are not discharging their service tax liability properly". When the Court enquired whether the DGCEI had verified such information with the Commissionerate of Service Tax in whose jurisdiction the eBIZ was functioning and had been assessed and paying service tax, Mr. Satish Aggarwala, learned counsel for the DGCEI stated, on instructions, that DGCEI never contacted the Commissionerate of Service Tax at any stage prior to the search, seizure and arrest of Mr. Malhan. He added that the DGCEI was not obliged to do so. When asked what was the 'information' received, Mr. Aggarwala stated that this had been kept in another file in a sealed cover in the custody of Mr. Vivek Pandey, Joint Director, DGCEI. In the circumstances, the Court passed an order on 2nd May 2016, directing Mr. Pandey to remain present in the Court on the next date along with the file w....
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.... affidavit on behalf of the ST Department (Respondent No.3) has been filed by Mr. Udai Bhan Singh, Assistant Commissioner, Circle-4, Audit-II, Commissionerate, Central Excise & Service Tax, Ghaziabad. It confirms that eBIZ is registered with the Service Tax Commissionerate at Noida with the registration number AABCE3009PST001. It further confirms that eBIZ has obtained service tax registration in respect of following services: i. Tour operator service. ii. Online information and database access or retrieval. 21. It is stated that the Central Excise & Service, Audit-II Commissionerate, Ghaziabad came into existence with effect from 15th October 2014. It is pointed out that the Assessees are selected for audit from time to time as per audit norms specified in the Audit Manual. It is stated that in the year 20142015, for the first time, the Audit Commissionerate, Ghaziabad conducted an audit of eBIZ in terms of Rule 5A of the Service Tax Rules, 1994 ('ST Rules'). It is stated that in response to the letter sent to eBIZ informing them about the scheduled audit and requesting them to produce the relevant documents, eBIZ submitted the balance sheet for FY 2013-2014, half-yearly serv....
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....IZ which gave details of the various packages offered by eBIZ. The brochure also provided the details of 48 hotels with domestic destinations and five international destinations for 'holiday accommodation package'. The invoices showed the gross amount inclusive of all taxes charged towards price of such hotel holiday accommodation. The income from such service was booked under the head 'Hotel Holiday accommodation' by eBIZ in their financial accounts and appropriate service tax based on such claims was paid and also shown in the statutory returns submitted to the Department. In that view of the matter, there was no reason for the audit team to challenge the admissibility of the exemption availed by the Petitioner under Notification No.26/2012-ST. 25. Para 11 of the counter affidavit of the ST Department mentions eight audit objections of which five were accepted by eBIZ and these five involved service tax to the tune of Rs. 15.68 lakh. This was deposited by eBIZ on the spot. The remaining objections were not accepted and an SCN dated 2nd November 2015 was issued for recovery of service tax of Rs. 5,33,541/- and the said SCN is stated to be pending adjudication. 26. Responde....
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....igation including search of business premises and other related premises, seizure of records including incriminating records, recording of statements of related persons and further follow-up investigation. 29. It is, however, repeatedly stressed by the ST Department that when the audit was conducted "there was no reason to suspect the authenticity of the records/documents produced by the party and the exemption under Notification No. 26/2012-ST was found to be admissible to the Petitioner, on the basis of audit of their records produced before the audit". The Audit Department has nothing to say about the SCN issued by the jurisdictional Service Tax Commissionerate, which has been referred to in para 9 of the writ petition and that it pertained to some other issue and the same is not related to the issue of admissibility of exemption under Notification No.26/2012-ST. It is pointed out that under Section 70(1) of the FA, the Assessee has to declare the true and correct nature of the services provided and has to pay service tax due thereon. It is stated that fresh proceedings for recovery of service tax for the same period are warranted, if the issues of classification of services de....
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....a glaring instance of non-cooperation. Rejoinder Affidavit by the Petitioner 33. A rejoinder affidavit dated 30th April 2016 was filed on behalf of eBIZ by Ms. Rajinder Kaur, Administrative Officer, in response to the counter affidavits of the Respondent Nos. 2 and 3. 34. It must be pointed out at this stage that a letter dated 8th April 2016 was written by Dr. Puneeta Bedi, Deputy Director, DGCEI, to Mr. Pawan Malhan, MD of the Petitioner to submit the details requested therein. The abovesaid letter dated 8th April 2016 has been placed on record and it is noted that the following details had been requested by the DGCEI: "i. Name, address & code number of all the associates who availed Education Package, Holiday Accommodation Package-I & II from October 2011 to till date. ii. List of associates who have not availed Holiday Accommodation Package-I & II from Oct 2011 to till date. iii. List of associates who availed Holiday Accommodation Package- I & II from Oct 2011 to till date. iv. List of associates who cancelled their request or who did not check in hotel after submitting request of availment of Holiday Accommodation Package-I & II from Oct 2011 to till date. v. Led....
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....di alleging non-cooperation by eBIZ. In the said affidavit dated 12th May 2016, Dr. Bedi states that eBIZ was asked only to submit a list of associates (name, address & code number) who availed Education Package and Holiday Accommodation Package-I & II from October, 2011 till date and that instead of submitting the said list, eBIZ sent a truck full of 123 cartons to the office of the DGCEI. 39. The decision to arrest the MD of the Petitioner is sought to be justified by the DGCEI by referring to Section 89 (1) (d) read with Section 90 (1) and 91 (1) of the FA. It is further asserted that in order to satisfy that there has been a commission of the offence of collecting an amount of service tax and the failure to deposit the amount so collected to the credit of the Central Government beyond six months from the date on which such payment is due in terms of Section 89 (1) (d) of the FA, there is no requirement for issuance of SCN as contemplated under Section 73 (1) and 73A (3) of the FA. Submissions of counsel for the Petitioner 40. Mr. J.K. Mittal, learned counsel for the Petitioner, made the following submissions: (i) The search conducted by the DGCEI was arbitrary and in compl....
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....n 12th January 2007 a search had taken place as a result of which a SCN dated 13th July 2007 had been issued. The adjudication order as a result of the said SCN was set aside by the Commissioner (Appeals) by an order dated 29th August 2012. This entailed a refund to eBIZ of Rs. 25,55,000 as service tax, Rs. 2,59,000 as interest, Rs. 6,37,000 as penalty totalling Rs. 34,51,500. Despite an application dated 27th January 2014, the said amount, which had been deposited under protest by eBIZ, had not been refunded to it. (vii) The arrest memo also did not mention that a second search had taken place on 4th October 2012 of the premises of eBIZ by the Anti-Evasion Wing of the Noida Commissionerate. However, till date no demand has been raised as a result of the said search. (viii) The ST Department has in its counter affidavit admitted to the fact that for the past 10 years it had been regularly conducting audit of eBIZ's books of accounts and records while deputing its officers in exercise of the power under Rule 5A of the Service Tax Rules, 1994. While there was no evidence regarding any tax evasion, the discrepancies pointed out were immediately rectified. Throughout, eBIZ's claim ....
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.... Management Consultants P. Ltd. v. Commissioner of Service Tax, Delhi 2014 (33) STR 371 (Del) to urge that repeated issuance of SCNs when the earlier SCNs were pending adjudication was arbitrary. (xii) It is emphasised that without there being any provision for reopening of assessments, the resort to the coercive steps of search, seizure and arrest without even an SCN was illegal. Submissions of counsel for the Respondents 41. Mr. Satish Aggarwala, learned counsel of the Respondents made the following submissions: (i) eBIZ, in order to evade the leviable service tax at the full rate, rechristened its education package as 'eBIZ Holiday Accommodation Packages I and II' and fraudulently claimed exemption at 90% available to 'tour operators' when it was not one. (ii) The Competent Authority had reasonable grounds of belief, on the basis of a thorough examination of the material on file which included the specific information as provided by an informer, that eBIZ was only providing online coaching service and not 'tour operating service'. It is submitted that the decision to go in for a search operation was not arbitrary. The information received is developed by a....
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....ings secreted in the premises which would be useful for or relevant to any proceedings. Thus the scope of the audit by the Audit Team of the ST Department was different from the search that could be undertaken by the DGCEI. The audit party in the present case accepted the documents presented before it by an Assessee as genuine without information of any fraud committed by such Assessee. The regular/routine audit cannot be construed as immunity against any other action which can be taken on the basis of "some specific information/inputs regarding evasion of tax." (vi) Under Section 73 of FA, the ST Department could make enquiries covering a period of past five years in the event the Assessee had not paid service tax by reason of 'fraud' or 'collusion' or 'wilful misstatement' or 'suppression of facts' or 'contravention of any of the provisions of this Chapter or of the rules made thereunder with an intent to evade payment of service tax'. (vii) While the DGCEI did not contact the Jurisdictional Service Tax or Audit Commissionerate at any stage prior to the search, seizure and arrest of Mr. Malhan since "any such action would lead to the th....
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....5 (SC) to urge that a second or third SCN in the same or similar facts is not impermissible as long as DGCEI was able to show that a fraud had been committed by eBIZ. Since investigation was still in progress, no SCN was issued in the matter. (xi) The sum of Rs. 17 crores was voluntarily paid by Mr. Malhan and not under coercion or threat as alleged. Mr. Aggarwala sought to distinguish the decisions in Mahesh Chandra v. Regional Manager, U.P. Financial Corporation (supra) Uniworth Textiles Ltd. v CCE, Raipur (supra) and Parashuram Pottery Works Co. Ltd. v Income-tax Officer and Calcutta Discount Company v ITO (supra). Analysis of the relevant provisions 42. The Court proposes to begin the analysis of the above submissions by first referring to the relevant statutory provisions. For the purposes of the present case, a reference is required to be made to the relevant provisions of the FA. Section 65 (105) (n) of the FA defines 'taxable service' as 'any service provided or to be provided to any person by a 'tour operator' in relation to a tour'. Section 65B (44) defines 'service' as any activity carried out by a person for another for consideration, and i....
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.... 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 the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of eighteen months or five years, as the case may be. (1A) Notwithstanding anything contained in sub-Section (1) (except the period of eighteen months of serving the notice for recovery of service tax), the Central Excise Officer may serve, subsequent to any notice or notices served under that sub-section, a statement containing the details of service tax has not levied or paid or short levied or short paid or erroneously refunded for the subsequent period....
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....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 payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer, but for this subsection. Explanation 2: For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made there under shall be imposed in respect of payment of service-tax under this sub-section and interest thereon. (4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not b....
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.... narration of facts shows that the ST Department undertook scrutiny of the returns in which the exemption was claimed describing eBIZ as a 'tour operator'. Searches and audits were also undertaken. SCNs were issued to eBIZ. In other words, the power of assessment has been and is continued to be exercised by the ST Commissionerate. If in terms of Section 72 of the FA, the Assessing Officer (AO) was of the view that eBIZ was wrongly availing exemption as a 'tour operator' or evading service tax, it was open to the said AO to require such person to produce documents and other evidence to make an assessment of the value of the taxable service "to the best of his judgment and determine the sum payable by the Assessee or refundable to the Assessee on the basis of such assessment". Section 72 of the FA requires the AO to give such person an opportunity of being heard. 45. In a decision rendered today in MakeMy Trip (India) Pvt. Ltd. v. Union of India (decision dated 1st September 2016 in W.P. (C) No. 521 of 2016), this Court has while analysing Sections 72 and 73 of the FA held as under: "52. It is perhaps a peculiar feature of the FA that there is no power of reopening the assess....
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....y 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 paid to the credit of the Central Government under sub-section (1) or sub-section (2) or....
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.... the expression "as" in the beginning of the sub-clause as significant. Penalty is leviable for excess realisation of tax, therefore, realisation of the amount should be as tax and not in any other manner. Then excess should be over and above the amount of tax legally payable. This expression obviously means tax payable under the Act, rules or notification. Therefore, realisation by the assessee from customers should not be of only sales or purchases but it should be of the tax legally payable. If the purchaser realises more money that by itself will not attract the penal provisions. 6. This is a method of realisation in case of indirect tax. Penalty can be levied or is leviable for realisation of excess of tax legally payable and not for contravention of Section 8-A(2)(b). Realisation of excess amount is not impermissible but what is not permissible is realisation of excess amount as tax. .....It has to be borne in mind that the imposition of a penalty under the Act is quasi-criminal and unless strictly proved the assessee is not liable for the same." (emphasis in original) 59. In R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited (1977) 4 SCC 98, the Supreme Court ....
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..... The FA does provide for special audits where there is reason to believe that there has been an evasion of service tax by an Assessee. Section 72 A of the FA provides for a special audit to be ordered by the Commissioner where he has reason to believe that any person liable to pay service tax has failed to declare or determine the value of a taxable service correctly, or has availed and utilised credit of duty or tax paid inter alia by means of fraud, collusion, or any wilful misstatement or suppression of facts. In such instances, the Commissioner may direct such person to get his accounts audited by a chartered accountant or cost accountant nominated by him. 51. The power of the Commissioner to order a search has to be read together with Rule 5 A (1) of the Service Tax Rules 1994 which permits the officer authorised to carry out the search to "have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue." 52. Thus the audit of the accounts can be undertaken by the ST Department but a 'special audit' can be undertaken only by the professionals that ....
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.... were certainly relevant material as far as the decision to order a fresh search was concerned. Power to search premises 54. In the present cases one of the main grounds on which eBIZ assails the action of the DGCEI is that the search ordered on its premises was itself illegal. Section 82 of the FA which is relevant reads as under: "82. Power to search premises (1) Where the Joint Commissioner of Central Excise or Additional Commissioner of Central Excise or such other Central Excise Officer as may be notified by the Board has reasons to believe that any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Chapter, are secreted in any place, he may authorise in writing any Central Excise Officer to search for and seize or may himself search and seize such documents or books or things. (2) The provisions of the Code of Criminal Procedure, 1973, relating to searches, shall, so far as may be, apply to searches under this section as they apply to searches under that Code." 55. In interpreting the above provision, this Court in MakeMy Trip (India) Pvt. Ltd. v. Union of India (supra) held thus: "103. It is....
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....l be upon him, that the information supplied by him is true) supplies false information; or (d) collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due. shall be punishable, - (i) in the case of an offence specified in clause (a), (b) or (c) where the amount exceeds fifty lakh rupees, with imprisonment for a term which may extend to three 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 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, with imprisonment for a term, which may extend to one year. (2) If any person is convicted of an offenc....
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....the manner indicated in sub-clause (ii) of Section 89 (1) of the FA Act. Where the amount exceeds Rs. 50 lakh, the punishment is of imprisonment for a period which may extend to seven years and not less than six months unless the special and adequate reasons are recorded by the Court which convicts the person. Where the amount does not exceed Rs. 50 lakhs, then in terms of Section 89 (1) (iii) the punishment is of imprisonment for a term which may extend to one year. Section 89 (2) (b) further states that if a person convicted of an offence punishable under Section 89 (1) (ii) commits a subsequent offence, the imprisonment shall be for a period which may extend to seven years. Section 89 (4) requires previous 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 t....
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....An offence under clause (ii) of sub-section (1) of Section 89 shall be cognizable. (2) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 all offences, except the offences specified in subsection (1), shall be non-cognizable and bailable. 91. Power to arrest (1) If the Commissioner of Central Excise has reason to believe that any person has committed an offence specified in clause (i) or clause (ii) of sub-section (1) of Section 89, he may, by general or special order, authorize any officer of Central Excise, not below the rank of Superintendent of Central Excise, 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 twentyfour 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....
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.... 70. Consistent with this understanding, Section 91(1) of the FA provides that where the offence has been committed under Section 89 (1) (ii) of the FA, the Commissioner of Central Excise may authorize any officer of the Central Excise not below the rank of Superintendent of Central Excise to arrest such person. Where the arrest is of a person for any non-cognizable and bailable offence, the Assistant Commissioner (AC) or the Deputy Commissioner (DC), as the case may be, has the same powers as an officer-in-charge of a police station has under Section 436 of the Cr PC for the purpose of releasing such arrested person on a bail. This contemplates the offences under Section 89 (1) (d) read with Section 89 (1) (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.....
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....oms Act, 1962, has a different approach to the question of offences. Chapter XVI thereof describes with specificity the types of offences and the procedure adopted in prosecuting such offences. Section 138A enables the court to draw a presumption, which is rebuttable, of the culpable mental state of the person charged with an offence under the Customs Act, 1962 which requires such culpable mental state. Even for the purposes of confiscation of smuggled goods, Section 123 of the Customs Act, 1962 shifts the burden of proof in the case of 'smuggling', to the person from whom the goods are seized to show that they are not smuggled goods. Powers are given to the Customs Officer under Section 108 to record 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 be....
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....date on which such payment is due and further that the amount exceeds Rs. 50 lakhs. 78. Therefore, while the prosecution for the purposes of determining the commission of an offence under Section 89 (1) (d) of the FA and adjudication proceedings for penalty under Section 83 A of the FA can go on simultaneously, both will have to be preceded by the adjudication for the purposes of determining the evasion of service tax. The Petitioners are, therefore, right that without any such determination, to straightaway conclude that the Petitioners had collected and not deposited service tax in excess of Rs. 50 lakhs and thereby had committed a cognizable offence would be putting the cart before the horse. This is all the more so because 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 se....
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....thing that is not permitted within the four corners of law." 81. In Technomaint Contractors Ltd. v. Union of India 2014 (36) S.T.R. 488 (Guj), the Gujarat High Court held that Section 73 C of the FA cannot be activated for making a recovery even before adjudication. 82. In the context of the provisions for arrest under the Central Excise Act, 1944, the DGCEI has published a Manual in 2004 containing guidelines to the CE Officers on when and in what circumstances resort should be had to the coercive step of arrest. In Chapter X para 7 of the said Manual, it is stated that arrest can be made prior to the issue of an SCN but only "where fraudulent intent is clear (prima facie there is evidence of mens rea) or where the evidence 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)" Constitutional safeguards 61. 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 ....
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....te of Revenue Intelligence, Directorate of Enforcement, Costal Guard, Central Reserve Police Force (CRPF), Border Security Force (BSF), the Central Industrial Security Force (CISF), the State Armed Police, Intelligence Agencies like the Intelligence Bureau, R.A.W, Central Bureau of Investigation (CBI) , CID, Tariff Police, Mounted Police and ITBP which have the power to detain a person and to interrogated him in connection with the investigation of economic offences, offences under the Essential Commodities Act, Excise and Customs Act. Foreign Exchange Regulation Act etc. There are instances of torture and death in custody of these authorities as well, In re Death of Sawinder Singh Grover [1995 Supp (4) SCC 450], (to which Kuldip Singh, J. was a party) this Court took suo moto notice of the death of Sawinder Singh Grover during his 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 the....
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....tly acknowledged in the circulars issued from time to time by the Central Board of Excise and Customs ('CBEC'). Insofar as officers of the Central Excise are concerned, the Service Tax Wing of the CBEC initially issued Circular No. 171/6/2013-Service Tax dated 17th September, 2013 where specific attention has been drawn to the types of cases covered under Section 89 (1) (i) and 89 (1) (ii). In the latter case, it has been mandated that after following the due procedure of arrest, the arrested person must be produced before the Magistrate without unnecessary delay and definitely within 24 hours. Para 2 of the said circular specifies 'conditions precedent'. Para 2.1 states that, since arrest impinges on the personal liberty of an individual "this power must be exercised carefully". It has been mandated that an officer of the Central Excise 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 subsection (1)....
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.... by the informer. The time and date when the information was given is also not indicated. There is also no signature of the informer. There is only a thumb impression, again without indicating whether it is a left or right thumb impression. The declaration given by the informer does not appear to be on a prescribed proforma but on a computed printed sheet. Further, the information itself is not reduced in writing. It is typed. It does not disclose any specific information other than those already set out in the notes prepared by the DGCEI. 64. The note dated 18th January 2016 suggests that 90% rebate is claimed by eBIZ by describing itself as a 'tour operator'. There is a discussion on this wrongful claim of rebate in terms of the Notification No. 26/2012. It proceeds to compute the service tax that would have been payable if the rebate was not availed of and then concludes that there is an evasion of service tax to that extent. Significantly, the note does not acknowledge that eBIZ is regularly filing service tax returns and paying service tax on that basis. There is no mention of the fact that there had been two earlier searches in the premises of eBIZ by the ST Department. Admi....
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.... It was repeatedly stressed by Mr. Satish Aggarwala that the reference to Circular No. 101/17/2015 dated 23rd October 2015 was a typographical error and in fact referred to Circular No. 1010/17/2015 dated 23rd October 2015. Be that as it may, what is significant is that there is no reference to the Circular No. 171/6/2013-Service Tax dated 17th September 2013 which sets out the "Guidelines for arrest and bail in relation to offences punishable under the Finance Act, 1994". 67. It cannot be presumed that merely because there is a reference to the enlarged monetary limit in terms of the circular dated 23rd October 2015, the Officer proposing the arrest and the officers who approved it consciously applied their minds to the requirements of the abovementioned circular dated 17th September 2013. Importantly, there is no determination whether there was any evasion of duty or possibility of evidence being tampered or witnesses being influenced or non-cooperation in the investigation. The above prescriptions spelt out in para 2.2 of the said circular dated 17th September 2013 were not even adverted to. Importantly, for the purposes of deciding whether somebody is a habitual offender or is....
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....l claim of duty/tax is based totally on a difference of opinion regarding interpretation of law. Before launching any prosecution, it is necessary that the department should have evidence to prove that the person, company or individual had guilty knowledge of the offence, or had fraudulent intention to commit the offence, or in any manner possessed mens rea (guilty mind) which would indicate his guilt. It follows, therefore, that in the case of public limited companies, prosecution should not be launched indiscriminately against all the Directors of the company but it should be restricted to only against persons who were in charge of day-to-day operations of the factory and have taken active part in committing the duty/tax evasion or had connived at it. 6.3 Prosecution should not be filed merely because a demand has been confirmed in the adjudication proceedings particularly in cases of technical nature or where interpretation of law is involved. One of the important considerations for deciding whether prosecution should be launched is the availability of adequate evidence. The standard of proof required in a criminal prosecution is higher as the case has to be established beyond....
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....ination that a person is "liable to a penalty", which cannot happen till there is in the first place a determination in terms of Section 72 or 73 or 73 A of the FA. Till that point, the entire case proceeds on the basis that there must be an apprehended evasion of tax by the Assessee. This apprehension hinges upon the analysis of the evidence gathered by the investigating agency. It is possible that the officer will take a different view because he has the opportunity of hearing both the sides and to more carefully analyze the evidence that has been gathered. Where prosecution is sought to be launched even before the adjudication of the penalty it has to be shown that (a) the offence involved is grave (b) qualitative evidence is available and (c) it is apprehended that the Assessee may delay the completion of adjudication proceedings. This underscores the importance of obtaining sanction for prosecution both in cases of MMT and IBIBO...." 69. Significantly, in the present case, no attempt was made by the DGCEI even to talk to the ST Department before proceeding to search the premises of eBIZ and soon thereafter arrest Mr. Malhan. 70. The explanation offered in Court by Mr.....
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..... 73. This Court has already observed that in the present case the DGCEI did not observe any of the statutory or constitutional safeguards. Not only was the search contrary to Section 82 of the FA, the subsequent action of arrest of Mr. Malhan was undertaken contrary to the legal requirement of Section 89 read with Sections 90 and 91 of the FA. It is a case of overkill by the officers of the DGCEI. The existence of powers is one thing and its exercise, another. 74. In the circumstances outlined earlier, when the MD of a company is in judicial custody, the offer made to pay the alleged arrears of service tax dues of such company even without an SCN can hardly be characterised as 'voluntary'. The loss of liberty, and more disconcertingly, the loss of reputation, is bound to compel even the most rational person to succumb to the extreme pressure that such circumstance subjects him to. In more or less similar circumstances, this Court in MakeMy Trip (India) Pvt. Ltd. v. Union of India (supra) held: "105. In the first place, the Court is unable to accept that when an offer is made in the circumstances outlined before a criminal court for payment of alleged service tax a....
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....the DGCEI. If indeed only limited information was sought, then the letter dated 8th April 2016 should have been worded differently. What eBIZ was asked to submit was the information in a certain format designed by the DGCEI itself. This format is appended to the letter dated 11th May 2016, issued by Dr. Bedi to eBIZ. There is no requirement in law that eBIZ should maintain the information in a particular format. Mr. Aggarwala was unable to point out any provision in the FA or the ST Rules that required eBIZ to maintain information in a particular format. 78. It appears to the Court after carefully considering the affidavits on record that the conduct of the officers of the DGCEI in refusing to receive the documents tendered to them and terming the conduct of eBIZ to be noncooperative is not justified in the facts and circumstances. At the same time, the Court would reiterate the direction that eBIZ and its officers including Mr. Malhan will continue to co-operate with the DGCEI in carrying the investigations to their logical end. Summary of Conclusions 79. To summarise the conclusions in this judgment: (i) The scheme of the provisions of the Finance Act 1994 (FA), does not per....
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....history of repeated defaults for which there have been fines, penalties imposed and prosecutions launched etc. That history can be gleaned only from past records of the ST Department. In such instances, it might be possible to justify resorting to the coercive provisions straightaway, but then the notes on file must offer a convincing justification for resorting to that extreme a measure. (v) The decision to arrest a person must not be taken on whimsical grounds; it must be based on 'credible material'. The constitutional safeguards laid out in D K. Basu's case (supra) in the context of the powers of police officers under the Cr PC and of officers of central excise, customs and enforcement directorates, are applicable to the exercise of powers under the FA in equal measure. An officer, whether of the Central Excise Department or another agency like the DGCEI, authorised to exercise powers under the CE Act and/or the FA will have to be conscious of the constitutional limitations on the exercise of such power. (vi) In the present case, without even an SCN being issued and without there being any determination of the amount of service tax arrears, the resort to the extreme coe....