By TIOL News Service

MUMBAI, MAY 02, 2016: THE petitioners pray for a direction to the Respondents from taking or initiating any coercive proceedings for recovery of 'Service Tax', under the provisions of Finance Act, 1994, without following the mandate of Section 73 and/or 73A thereof and arresting the Directors or employees of Petitioner under Section 91, r/w Section 89(1)(ii) of the Finance Act, read with Section 83 thereof, and further read with Section 9AA of the Central Excise Act, 1944.

The Petitioners claim that they carry on a legitimate business activity by arranging for hotel accommodation for those travelling and that is how they provide online air, rail, cab and hotel booking through a website www.cleartrip.com.

It is stated that the modality and methodology is that the Petitioners do not operate any hotels nor have any resorts or other accommodations belonging to themselves. They facilitate customers / travelling public by arranging for such hotel accommodation and with amenities based on the information, which they have obtained from the hoteliers. There is billing done, in which whatever services are rendered by hoteliers and resort owners, they are charged for, including the applicable service taxes. As far as the Petitioners are concerned, they have submitted such documents as would enable the authority to appreciate and understand their business activity, distinct from the hoteliers. The Petitioners are, in their bills, not charging or recovering any amount representing service tax from the customers, who had booked the rooms through their portal.

The Petitioners' apprehension is that DGCEI in Ludhiana had arrested one of the officials of Make-My-Trip for not depositing the service tax collected from the customers, who had booked the room on its portal;that in the light of the same and the Petitioners, being in the similar business, following identical process, DGCEI coerced the Petitioners to deposit the service tax, which they have collected but failed to deposit on behalf of the hoteliers.

The Petitioners apprehend that similar coercive measures, as were informed in relation to Make-My-Trip, would be initiated as against them.

It is the contention of the Petitioners' that, without issuing any show cause notice and without any adjudication, but on the assumption that the Petitioners had collected the amount representing service tax and not deposited the same with the Government Treasury, that these coercive measures, including arrest of the employees of the Petitioners would be effected.

The High Court enquired with the counsel for the Revenue as to what would be the stand of the Respondents.

The Counsel, on instructions, stated - that the Department has not enquired and/or investigated into the affairs of the Petitioner No.1-Company, except recording of the statements and producing affidavits of the Officers. The Department is empowered to conduct thorough enquiry and investigation, which is stalled by the absence of the Petitioners. The Department will complete the enquiry and, if it strongly believes, with supporting reasons and documents, that a prosecution is required to be launched or could be launched, only then, necessary steps for prosecution would be taken. Merely because there is a provision for prosecution, the same will not be resorted to.

The High Court, therefore, observed –

“16. We are clear in our minds and from the scheme of the Act and the Law as a whole that coercive measures, including effecting any arrest, would arise only when investigation has been completed and on launching the prosecution. If the prosecution is a criminal prosecution, then, there is no question of deviating or defeating from the Criminal Law. The Criminal Law contains several provisions including protective measures, which would enable the Petitioners to resist any arrest, as apprehended. In the scheme of the Criminal Law and particularly the Finance Act, 1994 as well, if it contains any penal provisions, it is not as merely because the investigations are underway that the arrest would be effected. Eventually, all that the Respondents are presently contemplating is to investigate the matter. The Petitioners do not dispute the right to investigate and in accordance with law. That they have already attended the offices of the concerned Respondents and once the statement of the Petitioners was recorded goes without saying that on further summons being issued and on called upon to attend the Officers of the Respondents, they will attend and co-operate in these investigations by producing all the documents and answering the requisite queries, subject, of-course, to their rights in law. It is only when these investigations conclude that the authorities would be in a position to take a decision whether to launch any prosecution. In such a prosecution as well, if the provisions of the Criminal Law, which enable arrest in cases of cognizable offences and nonbailable, that the Petitioners can have an apprehension and which also can be taken care of by approaching a competent Criminal Court. Secondly, there is no question of any recovery of tax by coercive means, unless the investigation results into issuance of a show cause notice, an opportunity to the Petitioner to resist the demand, a adjudication thereof by a reasoned order and protective remedies such as appeals. We do not think that any recovery by coercive measures is straightway permissible and particularly in the given facts and circumstances of the case.”

The Writ Petition was disposed of.

In passing: A clear read – Arrest under Service Tax -Is it a Police State?

(See 2016-TIOL-863-HC-MUM-ST)