Whether department can freeze the bank accounts of assessee without concluding the adjudication proceedings?

PJ/CASE LAW/2015-16/3017

Case: GSP INFRATECH DEVELOPMENT LTD. Vs UNION OF INDIA

Citation: 2015 (39) S.T.R. 945 (Kar.)

Brief Facts: Petitioner when issued with a show cause notice by the Assistant Director, Directorate General of Central Excise Intelligence, Bangalore, to furnish an explanation as to why Service Tax should not be levied and recovered for the period from 1-10-2006 to 31-3-2011 exercising jurisdiction under Section 73 of the Finance Act, 1994, for short ‘Act’, was responded by a reply dated 20-11-2012 Annexure-B inter alia denying the liability.
Respondent without considering the explanation and concluding the proceeding, nevertheless addressed a correspondence dated 11-3-2013 Annexure-C to the Manager, ING Vysya Bank, Banjara Hills Branch, Hyderabad and to the Manager, ING Vysya Bank, Bangaloie, requiring the Banks to ensure that no amount is withdrawn or transferred from the said accounts maintained in the name of the petitioners until the dues are paid. Hence assessee has filed this petition

Appellant’s Contention: Appellant submitted that the Officer is required to consider the representation made by the petitioner on whom show cause notice is served under subsection (1) and determine the amount of Service Tax and thereafter the petitioner shall become liable to pay the amount so determined. According to the learned counsel such a determination having not been done and the proceeding not concluded no amount is payable by the petitioner to the credit of the Central Government and therefore, Section 87(b)(iii) of the Act could not be invoked by the respondent-Asst. Director to attach the Bank Accounts of the petitioner.
They further submitted that Section 73C of the Act is a special provision in the matter of provisional attachment by order and in writing, of any property belonging to the person on whom notice is served under subsection (1) of Section 73 and the proceeding pending and if in the opinion of the Central Excise Officer, for the purpose of protecting the interest of the revenue, it is necessary so to do subject to securing the prior approval of the Commissioner of Central Excise.
The respondent having not exercised a jurisdiction under Section 73-C of the Act, the communications Annexures-C and D addressed to the Bank not to permit the withdrawal of money from the Bank Accounts of the petitioner, it is submitted is illegal.

Respondent’s Contention: Learned counsel for the respondent-revenue seeks to sustain the impugned communications as being well merited, fully justified and not calling for interference.

Reasoning of Judgement: Show cause notice, Annexure-A was issued to the petitioner, responded by the explanation Annexure - B, and no order having been passed thereon to conclude the proceeding as required by subsection (2) of Section 73, while the proceeding, is pending before the respondent, then Section 73-C of the Act comes into play in the matter of provisional attached of the properties belonging to the petitioner. The contention that Section 87(b)(iii) of the Act is applicable, is without merit, since it applies only after a proceeding under Section 73 is concluded by an order determining the amount due and payable by the petitioner. Such a situation having not arisen as there is no conclusion of the proceeding, Section 87 is inapplicable.
In these circumstances, the respondent was not justified in invoking Section 87(b)(iii) of the Act to direct the Banks not to permit withdrawal of monies from the Accounts of the petitioner maintained in ING Vysya Bank, Hyderabad and a Branch at Bangalore by the impugned communications.
In the result, these petitions are allowed.

Decision: Petition Allowed

Comment: In this case the Department has initiated the process of Freezing of bank accounts of assessee without concluding the adjudication proceedings and determining the due amount payable by the assessee. Assessee has filed a petition before High Court. The Hon’ble High Court has allowed the petition of the assessee and held that the Section 87(b)(iii) of the Act is applicable only after a proceeding under Section 73 is concluded by an order determining the amount due and payable by the petitioner. Such a situation having not arisen as there is no conclusion of the proceeding, Section 87 is inapplicable.

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PJ/CASE LAW/2015-16/3017

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