1. Introduction :
Notification 30/2008 — Service Tax was issued on July 01,
2008, whereby Service Tax (Provisional Attachment of Property) Rules, 2008 have
been notified under Chapter V of the Finance Act, 1994 (The Act) to protect the
interests of revenue in certain cases in terms of power given u/s.94(1) and (2)
read with S. 73 C of the Act.
2. Statutory provisions :
2.1 Provisions of S. 73C :
S. 73C was introduced with effect from April 18, 2006 vide
the Finance Act, 2006. However, for the past two years no rules were prescribed
in this respect and therefore, the provisions appearing draconian in nature
remained on hold. With the prescription of the rules, the issue involving
provisional attachment of property assumes great significance. Where any
proceeding u/s.73 or u/s.73 A is pending and a notice is served on a person
u/s.73(1) or u/s.73A(3) and the Central Excise Officer forms an opinion that to
protect the interests of the Revenue, it is necessary to provisionally attach
any property belonging to such person, he may do so in the manner prescribed in
the rules notified now.
2.2 Provisions of S. 73(1) and S. 73A(3):
- S. 73(1) 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 is empowered to
issue a show-cause notice on the person charge-able with Service Tax which has
not been levied/paid or which has been short-levied/short-paid or a refund is
erroneously issued under ordinary circumstances within 1 year and in case of
fraud/collusion/willful misstatement, suppression/evasion within 5 years.
- U/s.73A(3), a show-cause notice can be served when a person liable to pay
Service Tax has collected an amount representing Service Tax from the
recipient of service either in excess of the amount determined to be payable
or has collected which is not required to be collected and has not paid to the
credit of the Central Government.
3. Position under Central Excise and Customs :
With effect from July 13, 2006, S. 11DDA and S. 28BA were
introduced in the Central Excise Act, 1944 (the excise law) and Customs Act,
1962 (the customs law), respectively, to provide for provisional attachment of
property of a person to whom show-cause notice has been served u/s.11A or
u/s.11D of the excise law or S. 28 or S. 28B of the customs law as the case may
be. These provisions are similar to the provisions of S. 73C narrated above.
However, the discussion here is restricted to the attachment under the Service
Tax law.
4. Prescribed procedure contained in the Rules :
- Provisional attachment will be rendered ineffective on expiry of six months of serving of the order for attachment.
- Only when the Chief Commissioner of Central Excise considers it necessary to extend this period, he would do so only after recording the reasons in writing. However, the total extension would not exceed two years in any case.
7. For any reason, if a person pays pending revenue amount with interest, the provisional attachment would cease to exist.
8. The person whose property is provisionally attached is obliged not to mortgage, lease, transfer or deliver the attached property in any manner except with the previous approval of the Commissioner of Central excise.
9. Some issues:
In the above background, the following questions may arise in the minds of assessees under the Service Tax law :
9.1 Whether the Department can attach bank accounts of a service provider ?
9.1A Any bank account whether current or overdraft account or even a fixed deposit is a movable property. If value of the immovable property proposed to be attached is insufficient to cover the amount of the show-cause notice, the bank account of a service provider could be attached.
9.2 It is experienced and observed by many that in case of some show-cause notices, even after filing replies for over one year or more, the Department has not adjudicated the SCN. Can the Department take recourse to provisional attachment in such cases?
9.2A Service Tax law has not prescribed any time limit for disposal of a show-cause notice. Therefore, it is true that many show-cause notices remain unadjudicated after receiving replies thereto and in some cases even after hearing the noticee in person, no order is passed for months and years. Nevertheless, the Central Excise Officer proposing provisional attachment of property of a person is required to record reasons in writing and the same is required to meet with the approval of the Commissioner of Central Excise. This approval and reasoning are however discretionary and unless is exercised in a judicious manner, can cause harm to service providing fraternity. Further, ‘protection of interests of the Revenue’ being a highly relative term, misuse of the powers by some officers cannot be ruled out. Evaluation of facts and circumstances of a case is a matter of personal judgment when no parameters for determination of the same are prescribed. Service Tax legislation is only fourteen years old. Further, drafting of the provisions lack precision and this has given rise to numerous genuine interpretation issues. The law is slowly evolving only through judicial decisions. Amidst umpteen controversies over interpretational issues, empowering bureaucracy to provisionally attach property based only on show-cause notices does not appear sound at this juncture. Professionals come across several SCNs issued frivolously or without application of mind merely in a routine manner on interpretational issues. In many cases, such notices contain no discussion whatsoever as to why and in what manner a particular taxing entry is applicable to the noticee but may contain a huge demand of Service Tax and consequential interest and penalty and such demands are considered by the Department as disputed recoveries. The demand of these huge amounts is more often than not unrealistic. For instance, in the case of Martin Lottery Agencies Ltd. v. UOI, 2007 *8)STR 561 (Sikkim), demand was shown as over rupees 2,000 crores. In the scenario, prescription of rules for provisional attachment appears premature for the fact that technically, pending adjudication attachment on provisional basis is possible. Therefore, apprehension of misuse is not out of place.
9.3 Whether property of a service provider can be provisionally attached when an adverse order is issued by the adjudicating authority and appeal is admitted by the Appellate Authority?
9.3A The rules for provisional attachment can be invoked only if proceedings are pending u/ s. 73 of the Act. S. 73 does not apply once appeal is admitted and therefore, proceeding for provisional attachment cannot be initiated for adjudicated orders pending in appeal. However, if property is already attached provisionally prior to adjudication, the appeal admitted subsequent to such attachment would not necessitate the Department to release the property attached. However, the provisions of over-all time limit as discussed above would indeed apply.
