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Department cannot initiate proceedings for recovery of disputed dues without adjudication.
Facts
The petitioner admitted liability of service tax on specified transactions during the recording of statement. Consequently, the petitioner was arrested for non-deposit of service tax vide section 89(1)(d) of the Finance Act, 1994 i.e. for failure to deposit service tax collected beyond a period of six months from the due date. After the due process of prosecution, bail was granted and an interim order was passed directing a deposit of 25% of entire outstanding. On obtaining legal advice post prosecution it was known that service tax was not liable on material supplied free of cost. The said fact was represented to the department. However, ignoring the submissions and on the basis of statements recorded, department started adopting coercive methods to recover disputed dues. Therefore the present writ petition is filed objecting recovery of service tax by department without formal adjudication u/s. 73 of the Finance Act, 1994. The revenue contended that the matter is still under investigation and the process to issue SCN was under contemplation.
Held
The High Court held that since there was no assessment order against the petitioner, he cannot be forced to pay an amount merely because he admitted the service tax liability in statements recorded. Department has the liberty to initiate appropriate action for recovery only after service tax liability is confirmed vide adjudication order and is not deposited. In case the petitioner misuses or does not comply with the terms of bail order or interim order, department can apply for cancellation of the bail order or vacation of the interim order.
