[2015-TIOL-1596-HC-KAR-ST] Mrs. Prashanthi vs. The Union of India

Notices of recovery initiated u/s. 87 of the Finance Act, 1994 before the show cause notices are adjudicated is illegal and are required to be squashed.

Facts:
A writ petition was filed against the action of recovery initiated by the department u/s. 87 of the Finance Act, 1994 even before the show cause notices were adjudicated.

Held:
The Hon’ble High Court held that the words “amount payable by a person” used in section 87 of the Finance Act, 1994 will have to be considered in the background of section 73 of the Finance Act, 1994 inasmuch as, show cause notice issued u/s. 73(1) of the Finance Act, 1994 is required to be adjudicated after considering representation of the person if filed and thereafter determine the amount payable. Any deviation in this regard would be in violation of principles of natural justice – doctrine of Audi Alteram Partem would be attracted. Until and unless there is determination and adjudication either u/s. 72 or u/s. 73 of the Finance Act. 1994, section 87 of the Finance Act, 1994 cannot be invoked. Thus, the notices are illegal and require to be squashed.

Note: Readers may also note a similar decision of the Bombay High Court in the case of ICICI Bank Ltd vs. Union of India [2015-TIOL-1164-HC-MUM-ST] holding that law enforcers cannot be permitted to do what is not permitted within the four corners of law. Without there being adjudication, coercive steps cannot be taken for recovery of service tax, penalty or interest.