M. P. Enterprises Thru Partner vs. The Union Of INDIA Thru The Secretary, Ministry Of Finace , Dept. Of Revenue And Ors

Held

The Court held that the Revenue's contention that the declaration under Section 73(3) was incorrect and thus allowed immediate recovery was unacceptable as it ignored the proviso to Section 73(3). This proviso mandates that if the declared amount is not paid, a notice under Section 73(1) must be issued, with the period for issuance commencing from the date of information receipt. Therefore, coercive recovery proceedings under Section 87 cannot arise until the show cause notice dated September 8, 2017, is adjudicated. The Court noted that the show cause notice itself raised the issue of forged challans, making it a matter for adjudication where the Petitioner would have an opportunity to explain. Consequently, the invocation of Section 87 at this stage was premature. The Court reiterated its consistent view in prior judgments that Section 87 can only be invoked for coercive recovery after an adjudication order determines the payable amount. The distinction sought by the Revenue based on alleged admission of liability was rejected because the show cause notice still required the Petitioner to prove the payments were not based on false challans, meaning the issue was not crystallized. The impugned notice dated August 30, 2018, was quashed and set aside, but the amount already received by the Revenue was to be retained until adjudication. The Revenue was not prevented from invoking Section 73C if necessary.

Facts

M.P. Enterprises (Petitioner) filed a writ petition challenging a notice dated August 30, 2018, issued by the Deputy Director, Directorate General of GST Intelligence (Respondent No. 2). This notice attached the Petitioner's bank account under Section 87(b)(i) of the Finance Act, 1994, for the recovery of service tax. The Petitioner contended this action was without jurisdiction as no show cause notice under Section 73 of the Act had been issued, and no amount was adjudicated as payable. The Petitioner argued this defied previous High Court judgments. The attachment led to Rs. 19,19,676 being deposited into the treasury. Subsequently, on September 8, 2018, a show cause notice was issued for a larger demand of Rs. 2,81,97,456 for the period October 1, 2012, to June 30, 2017.

Key Issues

1. Whether the impugned notice dated August 30, 2018, attaching the Petitioner's bank account under Section 87(b)(i) of the Finance Act, 1994, is without jurisdiction, given that no show cause notice under Section 73 of the Act had been issued and no amount had been adjudicated as payable. Petitioner's arguments: The Petitioner argued that Section 87 of the Act can only be invoked after an amount payable has been determined through adjudication. Invoking it prior to the issuance and adjudication of a show cause notice is unsustainable in law, citing decisions in Quality Fabricators & Erectors, Lawson Tours & Travels (I) P. Ltd., and ICICI Bank Ltd. The Petitioner sought vacation of the attachment, agreeing to let the Revenue retain the Rs. 19,19,676 already deposited until the show cause notice is adjudicated. Revenue's arguments: The Revenue contended that the Petitioner had filed a declaration under Section 73(3) admitting a service tax liability of Rs. 28,34,866 plus interest. However, during investigations, it was found that these payments might have been made using false/fabricated challans. Therefore, the Revenue argued that there was no need to await adjudication, as the liability was admitted, making Section 87(b)(i) applicable. They also argued that the Petitioner's cited precedents were inapplicable due to the presence of an admission of liability in this case.