High Court of Delhi
Make My Trip (India) Pvt. Ltd v. Union Of India & Ors.
01.09.2016
Service Tax
Power of arrest is to be used with great circumspection and not casually
Present writ Petitions filed by two entities operating on-line platforms/web portals raise important questions involving powers of Directorate General of Central Excise Intelligence (DGCEI) of arrest, investigation and assessment of service tax under provisions of the Finance Act, 1994. In both writ petitions, applications were filed for interim directions to restrain DGCEI from taking any coercive steps against the entities and their officers.
Scheme of provisions of Finance Act 1994 (FA), do not permit DGCEI or for that matter Service Tax Department (ST Department) to by-pass procedure as set out in Section 73A (3) and (4) of Act before going ahead with arrest of a person under Sections 90 and 91 of Act. Power of arrest is to be used with great circumspection and not casually. It is not to be straightway presumed by DGCEI, without following procedure under Section 73A (3) and (4) of Finance Act, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government. Where an assessee has been regularly filing service tax returns which have been accepted by ST Department or which in any event have been examined by it, as in case of two Petitioners, without commencement of process of adjudication of penalty under Section 83 A of Act, another agency like DGCEI cannot without an SCN or enquiry straightway go ahead to make an arrest merely on suspicion of evasion of service tax or failure to deposit service tax that has been collected.
A possible exception could be where a person is shown to be a habitual evader of service tax. Such person would have to be one who has not filed a service tax return for a continuous length of time, who has a 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 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 measure. Decision to arrest a person must not be taken on whimsical grounds; it must be based on credible material.
In case of MMT, without even an SCN being issued and without there being any determination of amount of service tax arrears, resort to extreme coercive measure of arrest followed by detention was impermissible in law. 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. It was imperative for DGCEI to first check whether entity whose employees are sought to be arrested has regularly been filing service tax returns or is a habitual offender in that regard. Liberty is granted to officials of MMT and IBIBO to institute appropriate proceedings in accordance with law against officers of the DGCEI.
Scheme of provisions of Finance Act 1994 (FA), do not permit DGCEI or for that matter Service Tax Department (ST Department) to by-pass procedure as set out in Section 73A (3) and (4) of Act before going ahead with arrest of a person under Sections 90 and 91 of Act. Power of arrest is to be used with great circumspection and not casually. It is not to be straightway presumed by DGCEI, without following procedure under Section 73A (3) and (4) of Finance Act, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government. Where an assessee has been regularly filing service tax returns which have been accepted by ST Department or which in any event have been examined by it, as in case of two Petitioners, without commencement of process of adjudication of penalty under Section 83 A of Act, another agency like DGCEI cannot without an SCN or enquiry straightway go ahead to make an arrest merely on suspicion of evasion of service tax or failure to deposit service tax that has been collected.
A possible exception could be where a person is shown to be a habitual evader of service tax. Such person would have to be one who has not filed a service tax return for a continuous length of time, who has a 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 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 measure. Decision to arrest a person must not be taken on whimsical grounds; it must be based on credible material.
In case of MMT, without even an SCN being issued and without there being any determination of amount of service tax arrears, resort to extreme coercive measure of arrest followed by detention was impermissible in law. 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. It was imperative for DGCEI to first check whether entity whose employees are sought to be arrested has regularly been filing service tax returns or is a habitual offender in that regard. Liberty is granted to officials of MMT and IBIBO to institute appropriate proceedings in accordance with law against officers of the DGCEI.
Relevant
Sections 73A, 82, 83, 89 of Finance Act, 1994
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