The division bench of Delhi High Court has quashed arrest of senior official of MakeMyTrip, Ibibo group and Ebiz for alleged service tax evasion and held that, Arrest by Directorate General of Central Excise Intelligence (DGCEI) without show cause notice is unconstitutional and legally unsustainable.
The Court also directed that, DGCEI to refund Rs. 70 crore to each of the Petitioners forthwith the respective amounts deposited by them towards alleged dues and in any event not later than four weeks from today. Any delay in refund beyond the said period will make the DGCEI liable to pay simple interest at 6 % per annum on the respective amounts from the date on which they became due in terms of this order till the date of payment.
The writ petitions was filed by MakemyTrip and Ibibi group operating on-line platforms/web portals raise important questions involving the powers of the Directorate General of Central Excise Intelligence (DGCEI) of arrest, investigation and assessment of service tax under the provisions of the Finance Act, 1994.
The bench comprising of Justice S Muralidhar and Justice Vibhu Bakhru held that, “the scheme of the provisions of the Finance Act 1994, do not permit the DGCEI or for that matter the Service Tax Department to by-pass the procedure as set out in Section 73A (3) and (4) of the Finane Act before going ahead with the arrest of a person under Sections 90 and 91 of the FA”.
“The power of arrest is to be used with great circumspection and not casually. It is not to be straightway presumed by the DGCEI, without following the procedure under Section 73A (3) and (4) of the Finance Act, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government”, the bench observed.
“Where an assessee has been regularly filing service tax returns which have been accepted by the Service Tax Department or which in any event have been examined by it, as in the case of the two Petitioners, without commencement of the process of adjudication of penalty under Section 83 A of the Finane Act, another agency like the DGCEI cannot without an Show Cause Notice (SCN) or enquiry straightway go ahead to make an arrest merely on the suspicion of evasion of service tax or failure to deposit service tax that has been collected”. Section 83 A of the FA which provides for adjudication of penalty provision mandates that there must be in the first place a determination that a person is “liable to a penalty”, which cannot happen till there is in the first place a determination in terms of Section 72 or 73 or 73 A of the FA”.
“The decision to arrest a person must not be taken on whimsical grounds; it must be based on credible material‘. The constitutional safeguards laid out in D K. Basu’s case (supra) in the context of the powers of police officers under the Cr PC and of officers of central excise, customs and enforcement directorates, are applicable to the exercise of powers under the FA in equal measure. An officer whether of the Central Excise department or another agency like the DGCEI, authorised to exercise powers under the CE Act and/or the FA will have to be conscious of the constitutional limitations on the exercise of such power”, the bench added.
“In terms of CBEC’s own procedures, for the launch of prosecution there has to be a determination that a person is a habitual offender. There is no such determination in any of these cases. There cannot be a habitual offender if there is no discussion by the DGCEI with the ST Department regarding the history of such Assessee. Assuming that, for whatever reasons, if the DGCEI does not talk to ST Department, certainly it needs to access the service tax record of such Assessee. Without even requisitioning that record, it could not have been possible for the DGCEI to arrive at a reasonable conclusion whether there was a deliberate attempt of evading payment of service tax. In the case of MMT, the decision to go in for the extreme step of arrest without issuing an SCN under Section 73 or 73A (3) of the FA, appears to be totally unwarranted”.
The Court has slammed and observed that, The DGCEI acted with undue haste and in a reckless manner. None of the safeguards were observed in the present case.
The Court also granted Liberty to the officials of MMT and IBIBO to institute appropriate proceedings in accordance with law against the officers of the DGCEI in which the supplementary affidavits filed in these proceedings and the replies thereto can be relied on.
The division bench also imposed costs of Rs. 1 lakh in each petition which will be paid by the DGCEI to each Petitioner within four weeks.
Read the full text of the Judgment below.
