M/S Kunj Power Project Pvt. Ltd. ... vs Union Of India Thru' Secy. Deptt. ...
2015 Latest Caselaw 4762 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR
 
Court No. - 37
 

 
Case :- WRIT TAX No. - 872 of 2015
 

 
Petitioner :- M/S Kunj Power Project Pvt. Ltd. Thru' Its Director
 
Respondent :- Union Of India Thru' Secy. Deptt. Of Revenue & 2 Others
 
Counsel for Petitioner :- Nishant Mishra
 
Counsel for Respondent :- Ashok Singh
 

 
Hon'ble Tarun Agarwala,J.

Hon'ble Vinod Kumar Misra,J.

We have heard Sri Nishant Mishra, learned counsel for the petitioner and Sri Ashok Mehta, learned Senior Counsel assisted by Sri Ashok Singh, learned counsel for the respondents.

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. It appears that 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. This show cause notice was issued by the Commissioner of Service Tax, respondent no.2. 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.

The Court directed respondent nos. 2 and 3, namely, 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. We also directed the respondents to place the original records relating to the proceedings towards the attachment of the bank accounts and satisfaction so recorded. We have perused the original records and the affidavits filed by the respondents.

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. For facility, Rule 3 and Rule 4 are extracted hereunder:

3. Procedure for provisional attachment of property:

(1) If the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, is satisfied that it is necessary or expedient, for the purpose of protecting the interest of revenue, during the pendency of any proceeding under Section 73 or Section 73 of the Act, to attach provisionally any property belonging to a person on whom a notice has been served under sub-section (1) of section 73A or sub-section (3) of Section 73 A of the Act, shall after due verification of the facts, and circumstances of the case, forwarded a proposal for provisional attachment of property of such person, to the Commissioner of Central Excise, in the format annexed to these rules.

(2) The Commissioner of Central Excise, on receipt of proposal as specified in sub-rule (1), or on his own, if he is satisfied that circumstances of case justify provisional attachment, may cause service of a notice on such person for provisional attachment, with reasons for initiating action under these rules and the details of property to be attached provisionally, giving opportunity to such person to make submissions in this regard, within fifteen days of service of such notice.

(3) Upon consideration of submissions made by such person, in writing or in person or both, the Commissioner of Central Excise may pass an order in writing to attach provisionally any property belonging to such person:

Provided no such order shall be issued to attach the personal property of Proprietor or Partners or Directors, as the case may be.

4. The Property that can be attached.

(1) The provisional attachment of property shall be to the extent it requires to protect the interest of revenue, that is to say, the value of property attached shall be of value as nearly as may be equivalent to that of the amount of pending revenue against such persons.

(2) The movable property belonging to such person shall be attached only if the immovable property available for attachment is not sufficient to protect the interest of revenue.

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 (i) to Paragraph 2(v) are relevant. The said relevant portion are extracted hereunder:

2. In this connection the following guidelines are issued to maintain uniformity in its implementation by field formations.

(i) The proceedings for provisional attachment can be initiated only after issue of Show Cause Notice under Section 73 or Section 73 A of the Act.

(ii) During the pendency of the proceedings under Section 73 or 73 A of the Act, if the Central Excise Officer is of the opinion that, in order to protect the interests of revenue, it is necessary to attach the property of the notice, he shall prepare a proposal in the format prescribed under the sub-rule (1) of rule 3 of the Service Tax (Provisional Attachment of Property) Rules, 2008, issued vide Notification No. 30/2008-S.T., dated the 1st July, 2008, and forward the same to the jurisdictional Commissioner of Central Excise for his approval, except in cases where the proceedings under Section 73 or Section 73 A of the Act are pending before such Commissioner of Central Excise, in which case he shall himself make the order of attachment, in accordance with the procedure set out in para (iv) below.

(iii) It is important to note that there should be sufficient justification to hold a view that the provisional attachment of property is necessary to protect the interest of revenue. The remedy of attachment being, by its very nature, extraordinary, has to be resorted to in the utmost circumspection and with maximum care and caution. The grounds on which the Central Excise Officer entertains the reasonable belief that the notice would dispose of, or remove, the property and the sources of his information, if any, should be clearly stated while seeking the approval of the Commissioner of Central Excise. Normally, the proposal should be forwarded within one month's period of the issue of show cause notice. It may also be noted that appropriate disciplinary action shall be initiated against the officers who may be found to exercise the powers of provisional attachment of property frivolously and without sound reasons. [ Recommendation of the Standing Committee on Finance (Fourteenth Lok Sabaha) in its 27th Report.

(iv) The Commissioner of Central Excise, on receipt of proposal, or on his own, if he is satisfied that circumstances of the case justify provisional attachment, may serve a notice on the person on whom a notice is served under Section 73 or 73 A of the Act, requiring such person to make submissions, in writing or in person or both, within fifteen days of serving of the notice as to why the property belonging to such person, and as may be specified in the notice, be not provisionally attached. The said notice should also specify the condition that the notice should not sell, transfer, mortgage, charge, lease or otherwise alienate or encumber the property specified in the notice, till the decision of the said notice. In case of proposal for provisional attachment of immovable property, the notice should also be sent to the concerned registration authorities with a direction not allow any sale, transfer, mortgage etc., of the property.

(v) After due consideration of the materials before him, and after hearing the person, if such person so desires, the Commissioner of Central Excise may grant approval to the provisional attachment of the property and the Central Excise Officer before whom the proceedings under Section 73 or 73 A of the Act are pending, may, by order in writing, attach the said property. The Commissioner shall grant such approval, or, where proceedings under Section 73 or 73 A of the Act are pending before him, order the attachment of the property, within fifteen days of holding of personal hearing. A copy of the order of provisional attachment should be served by the Central Excise Officer in the same manner as prescribed under Section 37 C of the Central Excise Act, 1944, as made applicable to service tax vide section 83 of the Act.

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, we find 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, we find that the proposal submitted by the Deputy Commissioner, Respondent No. 3 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. We also find that proceedings under Section 73 of the Act had been initiated and a show cause notice had already been issued to the petitioner. 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. In our opinion the order for provisional attachment was passed without sound reasons.

Once, we found that the action of the respondents was done without cogent reasons, the Court issued a show cause to the respondent nos. 2 and 3 to show cause as to why disciplinary proceeding should not be instituted against them in terms of paragraph 2 (iii) of the Circular. We perused the replies and we find that the reasons indicated by them is a mere afterthought and an eye-wash. New grounds have been taken to justify their action which in our opinion was not available.

Considering the totality of the facts that have been brought on record we find that the action of the respondents was not malafide and consequently considering this fact, we issue only a warning to respondents 2 and 3 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. We direct 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.

Order Date :- 30.11.2015

A. Pt. Singh

(Vinod Kumar Misra, J.) (Tarun Agarwala, J.)