No Recovery of Service tax under Section 87 of the Finance Act without issuance of SCN under Section 73 thereof
We are sharing with you an important judgment of the Hon’ble Allahabad High Court in the case of Exman Security Services Pvt. Ltd. Vs. The Union of India and Others [2015 (4) TMI 396 - JHARKHAND HIGH COURT] on the following issue:
Whether recovery of Service tax under Section 87 of the Finance Act without issuance of SCN under Section 73 thereof?
Facts and background of the Case:
A raid under Section 82 of the Finance Act was carried out in the premises of the Exman Security Services Pvt. Ltd. (“the Petitioner”) on March 25, 2014. Statement under Section 14 of the Excise Act was recorded of the Managing Director of the Petitioner wherein it was submitted that Service tax liability of the Petitioner exist but amount calculation will be provided later. Thereafter, Petitioner vide letter dated April 23,2014 provided calculation for Service tax liability of Rs. 4,45,97,399/- (“Impugned amount”), which was further disputed vide letter dated November 13,2014 admitting the liability of Rs. 3.05 crores approximately, upon exact calculation.
Based on the letter dated April 23, 2014, the Revenue issued Recovery Notice under Section 87 of the Finance Act for Impugned amount and confirm the demand vide order dated August 11,2014 (“Recovery Order”). Later, pursuant to Section 73(1) of the Finance Act, the Revenue issued demand-cum-SCN dated
October 17, 2014 of Rs. 6,58,90,037/-, for the period 2009-10 to 2013-14. Albeit, the Petitioner submitted the reply but the Revenue has not decided the matter raised in the SCN.
Therefore, the Petitioner filed a writ Petition before the Hon’ble Jharkhand High Court challenging the Recovery Order dated August 11, 2014.
The Hon’ble Jharkhand High Court allowed the writ petition in favour of the Petitioner and held that no recovery of Service tax under Section 87 of the Finance Act without issuance of SCN under Section 73 thereof with the following observantions:
- Small error committed by the Petitioner in writing cannot be encashed by the Revenue, specially when the Petitioner is handicapped as several registers having details of the accounts were seized during the raid;
- Calculation mistake may occur in the absence of documents. Further, mistake was corrected by the Petitioner and the Revenue was informed. Hence, burden of proof cannot be shifted and the Revenue cannot issue SCN under Section 87of the Finance Act;
- Burden of proof that liability exist is on Revenue;
- Both SCN under Section 87 of the Finance Act and Section 73(1) cannot be issued together;
- SCN dated October 17, 2014 raised demand amounting to Rs. 6,58,90,037/- which includes Impugned amount;
- Rs. 3.21 crore was deposited by the Petitioner towards the liability reveals that he is bonafide;
- Reliance was placed in case of Technomaint Contractors Pvt. Ltd Vs. Union of India [(2014) 69 VST 247 (Guj)], wherein the Hon'ble Gujarat High Court held that Notice under Section 87 of the Finance Act cannot be given by the Revenue, unless, there is determination of the amount, after issuance of the notice under Section 73 (1) or under Section 73A(1) thereof;
- Reliance was placed in case of R.V. Man Power Solution Vs. Commr. ofCus. and Central Excise [(2014) 69 VST 528 (Uttarakhand)], wherein the Hon'ble High Court of Uttarakhand held that “any amount payable”in Section 87 of the Finance Act means that amount adjudged after hearing the SCN and Section 87 thereof is one of the methods of recovery of the amount due and payable after adjudication is done;
- Directed to adjudicated the SCN as early as possible and practicable;
Here, it would not be out of place to mention that vide Union Budget 2015, Section 73 of the Finance Act has been
amended to insert a new sub-section (1B) to provide that the Service tax amount self-assessed and declared in the return but not paid (either in part or full) shall be recovered under Section 87 thereof, without Service of any notice under Section 73(1) thereof.
Further, Rule 6(6A) of the Service Tax Rules,which provides for recovery of Service tax self-assessed under Section 70(1) of the Finance Act but not paid, either in full or part, the same shall be recoverable alongwith interest in the manner prescribed under Section 87 thereof is being omitted consequent to the amendment in Section 73 for enabling such recovery.
In the light of the above amendments brought in by Union Budget 2015, with effect from the date on which the Finance Bill,2015, receives the assent of the President, recovery proceedings under Section 87 of the Finance Act can be initiated even without issuance of SCN under Section 73 thereof.
Read Other post by CA Bimal Jain
Read Other post by CA Bimal Jain