By TIOL News Service

MUMBAI, MAY 06, 2015: THE question before the Bombay High Court in Writ Petition filed by ICICI Bank Ltd. is, as to whether, without there being any adjudication in any of the proceedings under the FA, 1994, coercive steps can be taken by the Revenue, for recovery of service tax or penalty or interest.

Facts:

The Petitioner is undertaking banking activity. One of the services offered by the Petitioner bank is regarding credit card transaction. It is the case of the appellant, which is an issuing bank, that the interchange fees received by an issuing bank are not taxable to service tax inasmuch as the entire service tax is paid by the acquiring bank.

It is the further contention of the Petitioner that on the basis of the communication addressed by the Revenue Authorities, the payments have been made by the Petitioner albeit under protest. It is the case of the Petitioner that though they are not liable to pay service tax on interchange fees, under duress and coercion, they have paid the said tax. It is submitted that though from the communications placed on record, it is clear that taking into consideration the complicity of the transactions, guidance was to be sought from the Board and though such clarification has not come, the Petitioner is now called upon to make payment of interest vide communication dated 25/3/2015 for the alleged delay in payment of service tax.

The Petitioner has by this Writ Petition prayed for quashing and setting aside the communication dated 25/3/2015.

The sum and substance of the submissions made by the petitioner is that neither there is an adjudication on the return filed by the Petitioner nor any action is taken by the respondent as required under Section 73 of the said Act by issuing a show cause notice to the Petitioner; that unless a show cause notice is issued to the Petitioner, in view of the provisions of the said Act, the Petitioner is not liable to discharge its liabilities; that unless there is an adjudication under Section 73 of the said Act, no amount can be said to be due to revenue, so as to permit them to take coercive action under Section 87 of the said Act.

The counsel for the Revenue submitted that the assessee having admitted the liability to pay service tax,they cannot run away from the liability to pay the interest charges; that the Petitioner is not filing refund application u/s 11B of the CEA, 1944; that this is being done with dishonest intention by not paying interest and utilising the said amount because under the Act, there is no provision for interest on interest; that even u/s 11B of the CEA, 1944, there is a provision for adjudication by authority and as such the Petitioners would have full right to put up their case, which authority is bound to decide in accordance with law. It is also submitted that there has been adjudication insofar as the liabilities of the Petitioner for a period post 2006 is concerned and as such when there is adjudication in the case of Petitioner itself, no errors could be found with the action taken by the respondent in taking recourse to section 87 of the said Act; that the Petitioner having paid the service tax for the relevant period, the amount of interest is an amount due and payable and as such action under Section 87 of the said Act is justifiable and warrants no interference.

The High Court observed that it was not necessary to go into the aspect of liability to pay service tax on the interchange fees since it is not even determined by the original authority.

So, the High Court addressed itself to the limited issue, as to whether the action of the department in directing the Petitioner to pay interest, under the impugned communication, is permissible in law or not.

The High Court reproduced verbatim the provisions of 68, 69, 70, 72, 72A, 73, 73C, 75, 76 and 87 of the FA, 1994 and after explaining the significance of each of these sections in lucid words viewed that the said provisions are a complete Code in the matter of imposition of service tax, the duty cast upon a person providing taxable service to pay the service tax, furnishing return, determination of the liability to pay tax on the best judgment assessment and recovery of service tax not levied, not paid, erroneously refunded etc., interest, penalty on account of non-payment of service tax etc.

Adverting to the decisions of the Apex Court in the case of State of Rajasthan v/s. Ghasilal, AIR 1965 SC 1454 Harshad Shantilal Mehta v/s. Custodian & ors. (1998) 5 SCC 1, Dhanajaya Reddy v/s. State of Karnataka (2001) 4 SCC 9, the High Court observed -

+ In the present case also, as could be seen from aforesaid discussion that the scheme of the Act is that the tax would be held to be payable only after adjudication either under Section 72 or subsection 2 of section 73 of the said Act. As already stated by us hereinabove that even when an assessee voluntarily pays tax under subsection (3) and 4A of section 73, even in that case, in so far as disputed amount is concerned, determination as required under subsection 2 of section 73 is required to be done. By now it is settled principle of law that when a law requires a particular things to be done, in a particular manner, it has to be done in that manner alone and not at all.

The submission made by the counsel for the Revenue that there is already adjudication by the Tribunal regarding the liability of the Petitioner to make the payment was not accepted by the High Court by observing that both the judgments [ABN Amro Bank - 2011-TIOL-1147-CESTAT-DEL, HDFC Bank Ltd., - 2013-TIOL-1363-CESTAT-MUMBAI] wherein present Petitioner is also a party, are pertaining to assessment for the period between 1/6/2002 and 30/4/2006 and in the present case, the period of assessment is post 30/4/2006.

The High Court further observed -

++ Undisputedly, in the present case, though the Petitioners have filed return, there has been no adjudication under section 72 of the said Act.

++ We find that the said contention (that when the assessee has paid the tax, provisions of section 73 cannot be invoked) deserves to be heard only to be rejected.

++ On one hand, revenue coerces assessee to pay service tax on threat of taking action under Section 87 of the said Act, which can have drastic consequences, such as sealing, attaching accounts of bank etc. and when an assessee succumbs to the said pressure and deposits the sum under protest, innocuous argument is made that since now payment is made, provisions of section 73 cannot be invoked.

++ It is to be noted that the consequences of not paying service tax when assessee is liable to pay service tax are very drastic in nature. Not only that under the provisions of Section 76 of the said Act, the assessee is liable to pay penalty, which can be upto 50 per cent of the service tax payable, the penal provisions as contained in Section 77 and 78 provides for severe penalties even on the directors of the company.

++ If it is a view of the revenue that the petitioners though liable to pay service tax are evading payment of service tax, they can very well take recourse to section 73 and determine the amount of service tax payable by them. In any case the Petitioner has already filed his return claiming therein that the services rendered by him are not liable to service tax.

++ There is nothing which precludes the authority from taking decision on the return filed by the petitioner in accordance with the provisions of section 72 of the said Act. Upon determination of proceedings either under section 72 or 73, not only that the petitioner would be liable to pay tax but will also be liable to pay interest in accordance with the section 75 and also penalty if a case for levy of penalty is made out.

++ However, on one hand, the respondents are not even taking decision on the return filed by the petitioner as provided under Section 72 and also not taking action under Section 73 on the pretext that the payment is already made and on the other hand, now when the Petitioner has made the payment under protest, the provisions of section 87 are now sought to be invoked on the ground that the tax liability is determined.

++ The amount which is 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 said Act. We find that neither of that has been done.

++ We are again at pains to say that 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 11B can not be said to be just, fair and reasonable approach. In that view of the matter, contention in that regard, in our considered view also needs to be rejected.

++ At the cost of repetition, we may say that if a tax payer fraudulently or in order to deprive revenue from the amount which the revenue is entitled to, fails to pay tax, it is not as if, the authorities are without any power.

++ The Statute vests ample power with the authorities to deal sternly with such of the assessees who either fraudulently or with intention to deprive revenue of its legitimate dues evades payment thereof. Not only that, but if the Central Excise Officer is of the opinion that for the purpose of protecting interest of the revenue, it is necessary to attach provisionally any property belonging to a person on whom notice is served under Section 73 of the said Act, he is empowered to do so, however, with previous approval of the Commissioner of Central Excise. However, at the same time, the law enforcers cannot be permitted to do something which is not permissible within the four corners of law.

Holding that the action by the Revenue is not sustainable in law, the impugned communication dated 25/3/2015 was quashed and set aside.

(See 2015-TIOL-1164-HC-MUM-ST)