Department cannot freeze Bank account of assessee if Appeal has been filed with mandatory pre deposit
As per Circular No 984/08/2014-CX dated the 16th September, 2014 via F. No. 390/Budget/1/2012-JC
Government of India, Ministry of Finance, Department of Revenue (Central Board of Excise & Customs) para 4.2 which is reproduced below:
4.2 No coercive measures for the recovery of balance amount i.e., the amount in excess of 7.5% or 10% deposited in terms of Section 35F of Central Excise Act, 1944 or Section 129E of Customs Act, 1962, shall be taken during the pendency of appeal where the party / assessee shows to the jurisdictional authorities:
(i) proof of payment of stipulated amount as pre-deposit of 7.5% / 10%, subject to a limit of Rs.10 crores, as the case may be; and
(ii) The copy of appeal memo filed with the appellate authority.
I will discuss here decision of HIGH COURT OF PUNJAB & HARYANA, J.S. Grover Autos (P.) Ltd. v. Commissioner of Central Goods & Services Tax, Civil Writ Petition No. 9559 of 2021 O&M), MAY 28, 2021
Deputy Commissioner, Central Goods and Service Tax, Pathankot, with respect to demand (service tax) confirmed by Assessment Order dated 14-1-2020, in exercise of power conferred by Section 87(c) of the Finance Act, 1994 has attached current account of the petitioner which is maintained with Union Bank of India, Pathankot
I am reproducing here Section 87 (C) of Service Tax for better understanding:
(c) the Central Excise Officer may, on an authorisation by the Principal Commissioner of Central Excise or Commissioner of Central Excise, in accordance with the rules made in this behalf, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; and in case, any part of the said amount payable or of the cost of the distress or keeping of the property, remains unpaid for a period of thirty days next after any such distress, may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and shall render the surplus amount, if any, to such person;
Provided that where the person (hereinafter referred to as predecessor) from whom the service tax or any other sums of any kind, as specified in this section, is recoverable or due, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in such business or trade by any other person, all goods, in the custody or possession of the person so succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs, after obtaining the written approval of the Principal Commissioner of Central Excise or Commissioner of Central Excise, for the purposes of recovering such service tax or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change.
The petitioner – a Private Limited Company is seeking quashing of order dated 23-3-2021 through instant petition under Article 226 of the Constitution of India.
I am reproducing here Article 226 of the Constitution of India for better understanding:
Article 226 in the Constitution of India 1949
226. Power of High Courts to issue certain writs
(1) Notwithstanding anything in article 32, every High Court shall have power, throughout the territories in relation to which it exercises jurisdiction, to issue to any person or authority, including in appropriate cases, any Government, within those territories directions, orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or any of them, for the enforcement of any of the rights conferred by Part III and for any other purpose.
(2) The power conferred by clause (1) to issue directions, orders or writs to any Government, authority or person may also be exercised by any High Court exercising jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such Government or authority or the residence of such person is not within those territories.
(3) Where any party against whom an interim order, whether by way of injunction or stay or in any other manner, is made on, or in any proceedings relating to, a petition under clause (1), without —
(a) Furnishing to such party copies of such petition and all documents in support of the plea for such interim order; and
(b) Giving such party an opportunity of being heard,
makes an application to the High Court for the vacation of such order and furnishes a copy of such application to the party in whose favour such order has been made or the counsel of such party, the High Court shall dispose of the application within a period of two weeks from the date on which it is received or from the date on which the copy of such application is so furnished, whichever is later, or where the High Court is closed on the last day of that period, before the expiry of the next day afterwards on which the High Court is open; and if the application is not so disposed of, the interim order shall, on the expiry of that period, or, as the case may be, the expiry of the said next day, stand vacated.
(4) The power conferred on a High Court by this article shall not be in derogation of the power conferred on the Supreme Court by clause (2) of article 32.
The petitioner, a Private Limited Company, located at Ludhiana and Pathankot, is registered with the Service Tax Department under the categories of “repair, re-conditioning, restoration or decoration or any other similar service of any other motor vehicle”. A Show Cause Notice dated 01.11.2019 raising a demand of service tax along with interest and penalty, amounting to Rs.30, 22,888/- for the periods 2014-15 to 2016-17, was issued on the premise that the commissions received on account of incentive / sale promotion were liable to service tax under the category of Business Auxiliary Services (BAS), and thus recoverable under Section 73 of the Finance Act, 1994 along with interest and penalty. The aforesaid demand of service tax along with interest and penalty was confirmed vide order dated 14-1-2020 .
The petitioner seeking the benefit under the “Amnesty Scheme” filed declaration under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, however, by the due date failed to deposit tax assessed by competent authority, thus declaration became meaningless. The respondent to recover tax liability arising out of aforesaid assessment order, in exercise of power conferred by Section 87 of Finance Act, 1994 vide impugned order dated 23-3-2021 attached bank account of the petitioner.
The petitioner taking advantage of extension of limitation period by Hon’ble Supreme Court vide order dated 8-3-2021 in Suo Motu Writ Petition (Civil) No. 3 of 2020, along with mandatory pre-deposit of 7.5% of tax liability as required under Section 35F of the Central Excise Act, 1944 read with Section 83 of Finance Act, 1994, preferred an appeal before first Appellate Authority against the assessment order dated 14-1-2020.
Counsel for the petitioner contends that as per Para-4.2 of Circular dated 16-9-2014 issued by Central Board of Excise & Customs (for short ‘Board’) , no coercive step can be initiated if appeal is filed alongwith pre-deposit of 7.5%, thus, recovery proceedings initiated by respondent are bad and contrary to Board Circular which is binding upon the Respondent. He further relied upon judgment of Bombay High Court in Ramchandra A. Patankar v. UOI, 2019 (31) GSTL 58 (Bom), where similar question has been answered in favour of the assessee.
Per contra, counsel for contesting respondent though did not dispute above stated factual and legal position, however, vehemently opposed present petition on the ground that impugned order is an appealable order, thus, writ petition is not maintainable. The petitioner must be asked to file appeal before Appellate Authority in terms of Section 85 of the Finance Act, 1994.
Having heard arguments of both sides and scrutinized record of the case, HIGH COURT OF PUNJAB & HARYANA finds that it is undisputed fact that petitioner has filed an appeal before First Appellate Authority against the assessment order, whereby demand was created. It is also undisputed that Board Circulars are binding on department and as per Circular coercive measures for recovery of balance liability are not permissible if appeal is filed alongwith mandatory pre-deposit of 7.5%. Refer Para-4.2 of the Circular in para 1 of the said article.
Hon’ble Bombay High Court in Ramchandra‘ case (supra) relying upon Board Circular (supra), set aside attachment of bank account on the ground that Appellant has already filed an appeal before Tribunal alongwith mandatory pre-deposit.
In a Writ Petition filed before High Court of Judicature at Bombay by Ramchandra A. Patankar reported in 2019 (31) G.S.T.L 58 (Bom). Petitioners bank account was attached even when the 10% of the demand was deposited and the matter was pending with Tribunal. Held : Tribunal prohibited from adoption coercive proceedings where such deposits have been made and appeal is awaiting disposal.
In the present case, the contention of the respondent that petitioner must file appeal before Appellate Authority seems to be highly technical, in view of the fact that petitioner has already filed an appeal against the assessment order whereby demand was created and tax liability intended to be recovered stands stayed in view of Board Circular and judgment of Hon’ble Bombay High Court. As the liability to be recovered stands stayed, there seems no logic to file appeal against the recovery proceedings. The respondent-Department should have restrained itself from coercive recovery as soon as came to know of appeal with mandatory pre-deposit. Thus, contention of the respondent is not sustainable and accordingly rejected.
In view of above findings, present petition deserves to be allowed and accordingly allowed. The impugned order dated 23-3-2021 is hereby set aside and the respondents are directed to permit the petitioner to operate its bank account.
Here the question raised by the department was assessee should have filed appeal against recovery proceedings, when alternative remedy of appeal is available they should not have filed write petition. But as recovery proceedings were itself bad in law as per para 4.2 of Circular No 984/08/2014-CX dated the 16th September, 2014 via F. No. 390/Budget/1/2012-JC reproduced above and also as per judgment of Bombay High Court in Ramchandra A. Patankar v. UOI, 2019 (31) GSTL 58 (Bom) so assesse has rightly not filed appeal against recovery proceedings but challenged validity of recovery proceedings via writ petition and they rightly got decision in their favour.
Conclusion:
1) When Appeal is filed with pre deposit, then the department cannot initiate recovery proceedings and cannot attach bank account of the assessee in view of para 4.2 of Circular No 984/08/2014-CX dated the 16th September, 2014 via F. No. 390/Budget/1/2012-JC and also as per judgment of Bombay High Court in Ramchandra A. Patankar v. UOI, 2019 (31) GSTL 58 (Bom) and HIGH COURT OF PUNJAB & HARYANA , J.S. Grover Autos (P.) Ltd. v. Commissioner of Central Goods & Services Tax Jaswant Singh and Sant Parkash, jj. Civil Writ Petition No. 9559 of 2021 O&M), MAY 28, 2021.
2) When a circular is binding on the department & a decision of one of the High Courts was already there in favour of the tax payer then the department should not have filed recovery proceedings. Although, finally justice prevailed, but the assessee had to spend litigation fees, and we know that Litigation fees of writ petition with high courts can be really high at times. Further many decisions with the judiciary are still pending. So, now, time has come that department should act against the tax payer only after reconsidering the case to make sure that the hard earned money of the assessee is not wasted. Else litigations are increasing, cost of business is increasing due to litigation cost and instead of focussing on business, businessmen are compelled to devote time in other work which will result in to loss of business that will add up to loss of tax revenue to government on the said loss of business.
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(Prepared by CA Jinesh P. Gada, B.Com, ACA, ISA, M.B.A., DIP IFR (U.K.), email id cajineshgada@gmail.com, Mobile No 9930737859.)
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