Firms were made to deposit service tax under "coercion": HC

In a strong order against central excise authority, Delhi High Court today asked it to refund the service tax amount paid by three travel portals soon, observing that these firms were made to deposit the money under "coercion and duress" through the "unwarranted" arrest of some of their senior officials.
The direction was given by a bench of justices S Muralidhar and Vibhu Bakhru which made it clear that if the amount was not refunded to Makemytrip, Ibibo and Ebiz within four weeks, then it would make Director General of Central Excise Intelligence (DGCEI) liable to pay simple interest at six per cent per annum on it.

In a stern order, the court also directed DGCEI to pay the costs of Rs one lakh to each of the three companies within four weeks.
"The court is unable to accept that payment by the petitioners of alleged service tax arrears was voluntary. The payment of Rs 17 crores by eBIZ was not voluntary but under coercion and duress.
"Consequently, the amount that was paid by petitioners as a result of the search of their premises by the DGCEI, without an adjudication, much less a show cause notice, is required to be returned to them forthwith," the bench said.

It also said that in the case of Makemytrip (MMT) and Ebiz, "the resort to the extreme coercive measure of arrest followed by the detention" of M K Pallai, Vice President (Finance) of MMT and Pawan Malhan, Managing Director of eBiz, "was impermissible in law" and "totally unwarranted".

It told DGCEI that it has to use the power of arrest "with great circumspection and not casually" to induce fear into an assessee, as was done in these cases.
DGCEI had taken action against, Ibibo and Ebiz on the
ground that they collected service tax from customers for hotel and travel bookings but did not deposit it with the government.

The bench, in its verdicts delivered on the pleas of the three companies, said that in these cases, these firms were regularly filing service tax returns and in such a situation another agency like DGCEI "cannot, without a show cause notice or enquiry, straightway go ahead to make an arrest merely on the suspicion of evasion of service tax or failure to deposit service tax that has been collected".
The court said an enquiry ought to be conducted and the person to be arrested should be given a hearing, prior to taking any coercive action and the only exception to this was when the individual was a "habitual evader of service tax".

"There is no such determination in any of these cases," it said and added "the decision to arrest a person must not be taken on whimsical grounds, it must be based on credible material."
The court also held that the search carried out at the premises of the three companies was "unconstitutional and legally unsustainable".
The judgement came on the pleas of the three companies challenging the action taken against them by DGCEI which had accused them of evading service tax to the tune of several crore rupees.
Makemytrip and Ibibo had in their pleas also questioned the powers of DGCEI of arrest, investigation and assessment of service tax under the provisions of the Finance Act, 1994.