In a significant order liable to change the way companies registered with the sales tax department are proceeded against for recovering tax liabilities, the Punjab and Haryana High Court has made it clear that a coercive step cannot be initiated if an appeal along with the pre-deposit is filed before the appellate authority.
The ruling by the Bench of Justice Jaswant Singh and Justice Sant Parkash came on a petition filed by JS Grover Autos Pvt Ltd against the Commissioner of Central Goods and Services Tax, Central Goods and Service Tax Commissionerate.
The Bench, during the course of the hearing, was told that a show-cause notice dated November 1, 2019, raising demand of service tax along with interest and penalty was issued to the petitioner, a private limited company, located at Ludhiana and Pathankot.
The notice was issued on the premise that the commissions received on account of incentive/sale promotion were liable to service tax under the category of business auxiliary services and were recoverable under the provisions of the Finance Act, 1994, along with interest and penalty.
The demand of service tax, along with interest and penalty, was confirmed. But the petitioner seeking benefit filed a declaration under Sabka Vishwas or Legacy Dispute Resolution Scheme, 2019.
The declaration, however, became meaningless as the company failed to deposit the tax assessed by the due date. The respondent, to recover tax liability arising out of the assessment order, attached the petitioner’s bank account vide an impugned order dated March 23.
The petitioner, taking advantage of extension in the limitation period by the Supreme Court, preferred an appeal before the first appellate authority against the assessment order. Appearing before the Bench, the petitioner’s counsel referred to circular dated September 16, 2014, issued by Central Board of Excise and Customs to contend that coercive step could not be initiated if an appeal was filed along with the pre-deposit of 7.5 percent. As such, the recovery proceedings initiated by respondent were bad and contrary to board circular binding on the respondent.
The Bench asserted the board circulars were undisputedly binding on department and the circular made it clear that coercive measures for recovery of balance liability were not permissible if an appeal was filed along with mandatory pre-deposit of 7.5 percent.
Allowing the petitioner to operate its bank account, the Bench asserted: “The respondent-department should have restrained itself from coercive recovery as soon as it came to know of appeal with mandatory pre-deposit.”