Brief of the Case
In the case of M/s Kunj Power Project Pvt. Ltd. v/s Union Of India, it was held that the attachment of property and bank accounts can only be done by the revenue authorities after giving proper notice to the assessee and reasonable opportunity of being heard. The attachments needs to be only after following the prescribed procedures provided in the rules.
Facts of the Case
The petitioner is a company and is engaged in fabrication, erection and installation of power sub- stations. In the year, 2010, the petitioner undertook a contract for commissioning of 765 KV sub- station at Unnao from U.P. Power Transmission Corporation and also for erection of a sub-station at Jhoonsi at Allahabad. In this regard, the petitioner sub-contracted the project to M/s. Shakshi Trade Link Private Ltd. The petitioner contended that for execution of the aforesaid project service tax was paid and accordingly claimed Cenvat credit.
It transpires that an enquiry was instituted by the respondent under Section 14 of the Central Excise Act. In response thereto, the petitioners appeared and supplied the necessary information and documents. A Writ Tax No. 183 of 2015 was filed questioning the enquiry instituted under Section 14 of the Central Excise Act, which was dismissed by a judgment dated 10th March, 2015. Thereafter the directors of the petitioner’s company appeared and their statements were recorded. During the course of the enquiry, it appears that the respondents were insisting that the Cenvat credit availed by the petitioner should be reversed. In spite of these oral directions, the Cenvat credit was not reversed and accordingly a show cause notice dated 20th October, 2015 was issued under Section 73 of the Act directing the petitioner to show cause within 30 days from date of the receipt of the show cause notice as to why recovery should not be made to the tune of Rs. 1,15,27,245/- towards the Cenvat credit that was wrongly availed. It is contended that the show cause notice was received by the petitioner on 21st October, 2015 but before the petitioner could submit a reply, the respondents attached two bank accounts of the petitioner in ICICI Bank and in Central Bank of India on 20th October, 2015. The petitioner, being aggrieved by the action of the respondents in attaching the bank accounts without giving an opportunity to the petitioner has filed the present writ petition.
Held by Hon’ble High Court
The Court directed the Commissioner of Service Tax, Agra and Deputy Commissioner, Agra to file their separate affidavits justifying their action for attaching the bank accounts of the petitioner in violation of the rules.
In exercise of the powers contained in 73 of the Finance Act, 1994 read with Section 94, the Central Government promulgated the Service Tax (Provisional Attachment of Property) Rules, 2008 (hereinafter referred to as the Rules of 2008). Rule 3 provides a procedure for provisional attachment of property and Rule 4 provides what property could be attached.
From a perusal of Rule 3, it is clear that the Assistant Commissioner or Deputy Commissioner is required to be satisfied that it is necessary or expedient for the purpose of protecting the interest of revenue to attach provisionally any property during the pendency of any proceedings under Section 73 and Section 73 A of the Act. The Rule contemplates that if it is expedient and after due verification of the facts, the Authority is required to forward a proposal for provisional attachment to the Commissioner of Central Excise indicating the reason for initiating such an action. Sub-clause (2) of Rule 3 provides that an opportunity of hearing is required to be given and that a notice of minimum of 15 days is required to be given. From a perusal of Rule 4, it is also clear that in the first instance immovable property is required to be provisionally attached and, in absence of immovable property, attachment of movable property could be done.
In furtherance to the Rules of 2008, the Central Board of Excise & Customs, New Delhi issued a circular no. 103 dated 1st July, 2008.
Paragraph 2(iii) of the Circular indicates that the provision for attaching a property provisionally is of an extraordinary nature and should be resorted to in the utmost circumspection and with maximum care and caution. The authorities should have a reasonable belief that the assessee may dispose of, or remove the property which would not be in the interest of the revenue and, therefore, a firm opinion should be formed that the interest of the revenue is required to be protected. The circular contemplates that once an opinion is formed, the proposal should forward it within one month of the issuance of the show cause notice but where proceedings under Section 73 or 73 (A) of the Act has already been initiated, only the Commissioner would have the power to attach the property.
Paragraph 2 (iii) further contemplates that if the power is frivolously exercised and attachment is made without any cogent reasons then appropriate disciplinary proceeding may be initiated against the officers.
In the light of the aforesaid, the Hon’ble Court found from a reading of the affidavits and impugned notice as well as the order directing attachment of the property and perusal of the satisfaction recorded in the original that without waiting for a reply to the show cause notice, and without giving any opportunity and without giving any notice, the bank accounts were attached in gross violation of Rule 3 of the Rules of 2008 read with paragraph 2 (iii) of the Circular dated 1st July, 2008. It is mandatory for the authority to issue a notice giving 15 days’ time to reply before attaching a property. In the instant case, the Hon’ble Court found that the proposal submitted by the Deputy Commissioner clearly indicated that first the property should be attached and thereafter notice should be issued. This proposal was approved by the Commissioner without any application of mind and without considering the provision of the Rules and the circular. Action for attachment would only have been initiated by the Commissioner and could not have been initiated by the Deputy Commissioner. Such action on the part of the Deputy Commissioner is patently illegal and without jurisdiction. A perusal of the satisfactory note that was proposed by the Deputy Commissioner indicates that no cogent reason has been given justifying the action for attaching the property. Only a cursory remark has been indicated namely that there is fair possibility of the funds getting dissipated. In our opinion, cogent and sufficient justification was found lacking in the satisfactory note. The attachment proceedings could not be initiated on such ground. The order for provisional attachment was passed without sound reasons.
Considering the totality of the facts that have been brought on record the Hon’ble Court found that the action of the respondents was not malafide and consequently considering this fact, the Hon’ble Court issued only a warning to respondent that they need to be careful while resorting to exercise the powers contemplated under Rule 3 of the Rules of 2008. Such exercise of power has to be resorted to with utmost circumspection and with maximum care and caution.
In the light of the aforesaid, the impugned orders are quashed. The Writ Petition is allowed with cost of Rs. 25,000/-, which shall be paid by the respondents to the petitioner within four weeks from today. The Court has been informed that 15th December, 2015 has been fixed in the proceedings under Section 73 of the Act pursuant to the show cause notice dated 20th October, 2015. The Hon’ble Court directed the petitioner to appear before the authority on that date and file their reply, if any. The authority is directed to complete the proceedings on that date and if for some reason it cannot be done on that date, the authority shall decide the matter within 15 days thereafter.
Registry is also directed to send a certified copy of this Order to the Central Board of Excise & Customs, Department of Revenue, Ministry of Finance, Government of India, New Delhi with specific instruction to issue a circular to all the officers ensuring that the powers under Rule 3 should be exercised with utmost care and caution and should not be exercised frivolously.