In a significant case, the Kerala High Court held that prior notice is not necessary to adjust refund amounts towards service tax dues as there is no such provision under Finance Act, 1994.The court held that there was no illegality in the appropriation of the refund amounts by the department, towards the outstanding dues of the proprietary concern.
Santhosh Eappen, the appellant/assessee challenged that certain amounts that were refunded to him had been adjusted against service tax dues of a proprietary concern belonging to him. In respect of a company in which he was a Director, certain amounts that were pre-deposited on behalf of the company were wrongly remitted by the appellant in his own name.
On realising the mistake, he approached the department with an application seeking a refund since the amount deposited by him was not credited in the name of the company. In the meanwhile, against a demand that had been raised against his proprietary concern, he had preferred an appeal before the First Appellate Authority and against the dismissal of that appeal a further appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
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At the time of preferring the appeal before the First Appellate Authority and the CESTAT, the assesee made pre-deposits of 7.5%/10% of the outstanding demand in that case as a condition for maintaining the appeal. Since there was no demand-cum-recovery notice issued thereafter by the Department against the proprietary concern there was no stay petition moved before the CESTAT in which any order was passed by the said forum.
The Single Judge rejected the contention of the appellant by finding that the liability of the proprietary concern was actually the liability of the appellant and in the absence of any provision in the Finance Act, 1994 requiring the issuance of any notice prior to adjusting refund amounts, the action of the department in appropriating the refund amounts due to the appellant towards the outstanding dues of the proprietary concern could not be said to be illegal. The Writ petition was therefore dismissed by the Single Judge.
The division bench of Justice A.K. Jayasankaran Nambiar and Justice K. V. Jayakumar upheld the decision of single bench wherein it was held that in the absence of any provision in the Finance Act, 1994 requiring the issuance of any notice prior to adjusting refund amounts, the action of the department in appropriating the refund amounts due to the appellant towards the outstanding dues of the proprietary concern could not be said to be illegal.
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The court held that there was no illegality in the appropriation of the refund amounts by the department, towards the outstanding dues of the proprietary concern.
The adjustment towards the outstanding demands of the proprietary concern, being in pursuance of an enabling provision under the statute that enables the department to adjust the refund amounts towards the outstanding dues of the proprietary concern, it would require a positive interdiction by a statute or an adjudicatory forum for preventing the department from resorting to an enabling provision under the statute.
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