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Recovery of arrears and garnishee notice - Welcome clarification

OCTOBER 12, 2015

By Debasish Bandyopadhyay

IN terms of the general provision of ‘Garnishment' as specified under Rule 46A to Rule 46I of Code of Civil Procedure, 1908, as amended, garnishee order is an order passed by a court directing a garnishee not to pay money to judgment debtor since the latter is indebted to decree holder. It is an order of the court to attach money or goods belonging to the judgment debtor in the hands of a third person. The third party is known as 'Garnishee' and the court's order is known as Garnishee Order.

This article aims to discuss the impact of clarifications that have been made in the recovery provisions and garnishment in the area of Service Tax Law. In fact, section 87(b) of Finance Act, 1994, as amended, deals with the provision relating to garnishee notice under service tax. The extract of the said section is given here-under:

"(b) (i) the Central Excise Officer may, by notice in writing, require any other person from whom money is due or may become due to such person, or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central Government either forthwith upon the money becoming due or being held or at or within the time specified in the notice, not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount;

(ii) every person to whom a notice is issued under this section shall be bound to comply with such notice, and in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary to produce any pass book, deposit receipt, policy or any other document for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary;

(iii) in a case where the person to whom a notice under this section is sent, fails to make the payment in pursuance thereof to the Central Government, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and all the consequences of this Chapter shall follow;"

In a significant move, CBEC has overhauled the provisions relating to recovery of arrears and garnishee notice in the indirect tax laws vide Circular No. 996/3/2015-CX dt. 28th Feb., 2015. Normally, in terms of the provisions contained under the relevant statutes, recovery officer is empowered to issue order to any person from whom money is due to such person from whom recovery of arrears is required to be made. The said order for recovery is termed as garnishee notice.

It is pertinent to note that the garnishee provisions are also contained in Section 11(2) of Central Excise Act, 1944 and under section 142(1) (d) of Customs Act, 1962. In absence of clarity in the legislations, there has been much confusion in the trade regarding power of recovery officers to amend or withdraw such notice issued under the relevant provisions of Central Excise Act, 1944, Customs Act, 1962 and Finance Act, 1994.

At this juncture, it is relevant to refer to the garnishee provision contained under the Income Tax Act, 1961. Income Tax Law clearly spells out the power of Assessing Officer or Tax Recovery Officer to amend or revoke such notice issued under section 226 of the Income Tax Act, 1961. For the present discussion, section 226 (3) (vii) of the Income Tax Act, 1961 is extracted below-

"The [Assessing] Officer [or Tax Recovery Officer] may, at any time or from time to time, amend or revoke any notice issued under this sub-section or extend the time for making any payment in pursuance of such notice."

In the absence of specific provisions and lack of clarity in the indirect tax legislations that gave rise to such opacity on the power of recovery officer to add, amend or revoke the garnishee notice/order issued under relevant section of statutes obligated, the Board issued the said Circular No. 996/3/2015-CX to clarify that the recovery officer do have powers to add, amend, vary or rescind any garnishee notice deriving power from General Clauses Act, 1897. Thus, the above i s a welcome move by the Board to clear the uncertainty prevailing in the trade.

Another very relevant issue of payment of arrear in instalments is sanctioned by the said circular resulted in uniformity in the domain of indirect taxes. Facility to pay Central Excise dues in instalments was already there in terms of relevant Circulars/instructions issued from time to time. On the contrary, there was no instruction or stated provision under the Customs and Service Tax laws to pay arrears in instalments. In order to bring in consistency in the whole spectrum of indirect taxes, CBEC has permitted such benefit of payment of arrears in instalments under CEA, 1944, Finance Act, 1994 and Customs Act, 1962 through the above circular. Accordingly, the recovery of dues of taxes, interest and penalty in instalments is allowed for all indirect taxes subject to necessary conditions and safeguard prescribed therein. As per the said Circular, the power to allow such instalment facility is stated to be discretionary and shall be exercised by the Jurisdictional Commissioners.

In the realm of Service Tax, the said facility of payment of arrears in instalments is a huge relief to the service providers. Insofar as service tax matter is concerned, cases of non-filing of returns due to delayed or non-payment of service tax is widespread. Thus, the granting of instalment facility as authorized vide the said circular would serve as a lifeboat to the service tax assessees having temporary financial hardship or other reasonable causes.

The above endeavour of the Board is the true reflection of spirit and commitment of the Central Government to break free the system from the bondages of regulatory bottleneck and legislative ambiguity to improve business environment in India. It is expected that taking advantage of this spirit, a reasonably flawless GST can be implemented within the stipulated time line.

(The views expressed are strictly personal)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the sites)

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