Homestead Projects And Developers (P) LTD. vs. Commissioner Of Central Tax And Central Excise

Facts

The petitioner, M/s. Homestead Projects and Developers (P) Ltd., a company registered for 'Construction of Residential Complex Service', regularly filed service tax returns. An audit for the period 01.04.2015 to 30.06.2017 was conducted in 2019, leading to audit objections. The petitioner replied to these objections. Subsequently, the petitioner received a show-cause notice (Ext.P8) dated 16.03.2020 under Section 73(1) of the Finance Act, 1994, read with Section 174(2) of the CGST Act, 2017, requiring them to produce evidence for their defence. While preparing a response, the petitioner received a notice (Ext.P9) demanding payment of ₹8,62,397/- with interest. Despite the petitioner's reply stating recovery proceedings under Section 87 of the Finance Act, 1994, cannot precede adjudication, the respondents issued notices (Exts.P11, P12, P13) to the petitioner's bankers, directing them to freeze and remit funds from the petitioner's accounts. An interim order stayed these notices.

Held

The Court held that initiating recovery proceedings under Section 87(b) of the Finance Act, 1994, and Section 79(1)(c)(i) of the Act read with Section 142(8)(a) of the CGST Act, 2017, prior to the adjudication of the show-cause notice dated 16.03.2020 (Ext.P8) would cause hardship to the petitioner. The Court reasoned that such proceedings are ordinarily to be initiated only after the adjudication process is completed. Therefore, the Court directed the 4th respondent to provide the petitioner an opportunity to adduce evidence and explain the deficiencies pointed out in Ext.P8. After considering the petitioner's reply and adduced materials, the 4th respondent is to pass appropriate orders on Ext.P8 within one month. The interim order staying the notices to the banks will remain in effect for this one-month period.

Key Issues

1. Whether the respondents were justified in initiating recovery proceedings under Section 87(b) of the Finance Act, 1994, and Section 79(1)(c)(i) of the Act read with Section 142(8)(a) of the CGST Act, 2017, prior to the adjudication of the show-cause notice dated 16.03.2020 (Ext.P8)? Petitioner's arguments: The petitioner contended that recovery proceedings under Section 87 of the Finance Act, 1994, cannot be initiated without prior adjudication of the show-cause notice. They argued that proceeding under Section 87(b) of the Finance Act and Section 79(1)(c)(i) of the Act read with Section 142(8)(a) of the CGST Act, 2017, before adjudication would cause them significant hardship. Respondents' arguments: The respondents argued that the internal audit detected a short payment of service tax amounting to ₹8,62,397/-. They stated that the petitioner failed to carry forward CENVAT credit and did not avail credit for service tax paid under reverse charge mechanism. They asserted that recovery proceedings were initiated due to the petitioner's failure to make the payment and that there was no arbitrariness in their actions. They also pointed out that the petitioner could have revised returns under Rule 7(b) of Service Tax Rules, 1994.