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Firms were made to deposit service tax under ‘coercion’: HC

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.

The court held that “DGCEI fails to make out even a prima facie case that some portion of the service tax collected by petitioners (three portals) from the customers as representing service tax or otherwise has been retained by them. Without such prima facie conclusion, it cannot be inferred that the petitioners have violated the Finance Act”. (More) PTI HMP ABA PPS .