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Extension Of Provisional Attachment Under Service Tax Provisins
May, 24th 2017

Section 73 of the Finance Act, 1994 (‘Act’ for short) provides for recovery of services tax not paid or not levied or short paid or short levied or erroneously refunded. Section 73(1) of the Act provides that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within thirty months from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of-

fraud; or
collusion; or
wilful mis-statement; or
suppression of facts; or
contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax,
by the person chargeable with the service tax or his agent, the limitation for issuing of show cause notice is three years.

On receipt of the reply from the person concerned the Central Excise Officer may suitable order, after taking into account the materials relied on by the concerned person, demanding the service tax with interest and penalty.

The service tax provisions has other provisions for the recovery of tax from the concerned person or from the third part who owes any amount to the concerned person-

provisional attachment to protect the interest of revenue under section 73C;
publication of information in respect of persons in certain cases under section 73D;
recovery of any amount due to Government under section 87;
liability under Act to be first charge under section 88.
Provisional attachment

Section 73C(1) provides that Where, during the pendency of any proceeding under section 73 or section 73A, the Central Excise Officer is of the opinion that for the purpose of protecting the interests of revenue, it is necessary so to do, he may, with the previous approval of the Principal Commissioner of Central Excise or Commissioner of Central Excise, by order in writing, attach provisionally any property belonging to the person on whom notice is served under sub-section (1) of section 73 or sub-section (3) of section 73A, as the case may be, in such manner as may be prescribed.

Section 73C(2) provides that Every such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order made under sub-section (1).

The proviso to this section provides that the Principal Chief Commissioner of Central Excise or Chief Commissioner of Central Excise may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit, so, however, that the total period of extension shall not in any case exceed two years.

For the above purposes the Government made ‘Service Tax (Provisional Attachment of Property) Rules, 2008. (‘Rule’ for short), which came into effect from 01.07.2008.

Procedure for provisional attachment

Rule 3 provides the procedure for provisional attachment of the properties.

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 73A 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 73 or sub-section (3) of section 73A of the Act, shall after due verification of the facts, and the circumstances of the case, forward a proposal for provisional attachment of property of such person, to the Commissioner of Central Excise, in the format annexed to these rules;
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.

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:
no such order shall be issued to attach the personal property of Proprietor or Partners or Directors, as the case may be.
Property that can be attached

Rule 4 provides that 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 person. 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.

Extension of provisional attachment

The property may be attached as per section 73C but the same ceases to be effect after the expiry of six months. However the Principal Commissioner may for the reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit, so however, that the total period of extension shall not in any case exceed two years. Thus it is clear the Principal Commissioner is having power to extend the provisional attachment of properties for further times. But the total extension shall not exceed two years.

In ‘Vintech Shoppe Private Limited V. Union of India’ – 2017 (2) TMI 577 - GUJARAT HIGH COURT the petitioners challenged the order of provisional attachment of the properties of the respective petitioners passed under section 73C of the Finance Act, 1994 and Service Tax (Provisional Attachment of Property) Rules, 2008. During the pendency of the petitions, subsequently the Chief Commissioner of Central Excise has extended the period of provisional attachment for a further period of one year which has also been challenged in the present petitions, which have been modified accordingly.

The petitioner is having its registered office at Surat engaging in the business of franchisee concept business under the brand ‘hrp franchise’ wherein they appointed franchisee by charging amount. The said activity is taxable service, falling under the ‘Franchise Service’ The petitioner did not register with the Department for the said service. Search was conducted at the premises of the petitioners and found that the petitioner is liable to pay ? 31.79 crores during the period from 2010-11 to 2015-2016. The petitioner voluntarily deposited ? 1.62 crores till the completion of the investigation.

A show cause notice was issued on 21.10.2015 to the petitioner. Another show cause notice was issued for the amount of ? 1.58 crores. The Commissioner was of the opinion that with a view to protect the interest of the government dues, properties of the noticee are required to provisionally attached under section 73C as it was apprehended that the respective petitioners are likely to dispose of the properties hurriedly,. A show cause notice was issued to the petitioners calling upon as to why the properties mentioned in the show cause notice should not be attached provisionally. After giving fullest opportunity, the Commissioner passed order for provisional attachment of the properties. The petitioners challenged the said order.

During the pendency of the petitioners, the Chief Commissioner passed the extension of provisional attached for a further period of one year. The Commissioner in his order observed that he has considered at length the records of the case and all relevant facts, details and statutory provisions. The material available on record demonstrates that investigations resulted in issue of demand and recovery of services tax dues amount to ? 31.79 crores. After considering all the facts and circumstances, he considered that it was essential for the purpose of protecting the interest of revenue to extend the period of attachment of specified properties for a further period of one year in terms of proviso to Section 73C (2) of the Act. Therefore by way of amendment, the petitioners have also challenged the order extending the provisional attachment.

The petitioners submitted the following before the High Court-

the impugned orders of extension of provisional attachment passed by the Chief Commissioner are ex facie illegal, bad in law, non speaking and in violation of the principles of natural justice;
no reasons have been assigned while extending the period of provisional attachment;
no opportunity of being heard has been given to the petitioners and the same are in breach of and in violation of the principles of natural justice;
the total payable tax amount is ? 1.51 crores whereas the properties attached under the impugned orders are worth more than ? 6 crores and therefore the provisional attachment of the properties worth more than ? 6 crores is wholly impermissible;
The Revenue put forth the following-

while passing the orders of provisional attachment of the properties, the Commissioner gave the fullest opportunity to the respective petitioners;
the show cause notices were issued by the Commissioner by which the petitioners were called upon to show cause as to why the properties mentioned in the show cause notices should not be provisionally attached under section73C of the Act and Rules;
After giving the fullest opportunity to the petitioners and with a view to protect the interest of revenue and it was observed and found that the petitioners are likely to dispose of the properties hurriedly with a view to defeat the demand raise, when the orders or provisional attachment have been passed, the same cannot be said to be erroneous or illegal;
The fullest opportunity was given to the petitioners as required under the Act and the Rules;
There is no such requirement of giving opportunity of being heard while passing the ordersof extension of provisional attachment;
Therefore the order extending the provisional attachment of properties cannot be said to be illegal or in breach of principles of natural justice.
The High Court considered the arguments put forth by both parties. The High Court observed that the tax due is a very huge amount and with a view to protect the interests of the Revenue the order for provisional attachment has been passed after issuing a show cause notice and giving fullest opportunity to the petitioners. Under the circumstances, it cannot be said that the orders of provisional attachment passed by the Commissioner are in any way illegal and/or de hors the provisions of the statute. In regard to the extension order the High Court observed that Section 73C (2) of the Act permits the Chief Commissioner to extend the period of provisional attachment. Under the statute, no hearing is provided before passing the order of extension of provisional attachment.

The High Court held that wherever the Legislature intended to afford hearing the same has been provided by the Commissioner. Therefore the impugned orders of extension of provisional attachment are not required to be quashed and set aside, has no substance and cannot be accepted, more particularly considering the fact that before passing order under Section 73C(1), fullest opportunity have been given to the petitioners, and thereafter the orders have been passed. The High Court dismissed the petitions filed by the petitioners.

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