Recovery Of Service Tax Under Section 87 Of Finance Act,1994

Section 87 was inserted by the Finance Act, 2006 with effect from 18.04.2006. Section 87prescribes the procedure for the recovery of amount due to the Central Government. The words ‘amount due’ may be, in the context of Finance Act, 1994, as service tax due. Section 87 provides that where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made there under is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned in Section 87. The ‘tax due’ shall be ascertained liability. The tax due may ascertained by the assessee by self assessment. The tax may be ascertained by the Revenue by means of powers given under Section 73.   Section 73 gives powers to the Central Excise Officer to issue show cause notice if the assessee fails to levy or pay the service tax or short levy or short payment of service tax or erroneously refunded within eighteen months from the relevant date. The eighteen months period may be extended, if the non levy or non-payment of service tax is with the intention to evade payment of service tax, to five years. The assessee is required to give reply to the show cause notice. The Central Excise Officer may, after considering the submissions made by the assessee, determine the service tax from such person. Thus before taking action under Section 87 the service tax liability is to be ascertained. Section 87 provides the procedure for the recovery of the tax due.

In ‘R.V. Manpower Solution V. Commissioner of Customs & Central Excise’ – 2013 (4) TMI 294 - UTTARAKHAND HIGH COURT the High Court held that going by the language of Section 87 of the Act that any amount payable means that amount adjudged after hearing the show cause notice and this provision of Section 87 is one of the method of recovery of the amount due and payable after adjudication is done. 

In ‘ICICI bank Limited V. Union of India’ – 2015 (5) TMI 300 - BOMBAY HIGH COURT the Revenue coerced the assessee to pay service on threat of taking action under Section 87 of the Act which can have drastic consequences such as sealing, attaching accounts of bank etc., and when an assessee succumbs to the said pressure and deposits the same under protect the argument of the Revenue that since the payment is made the provision of Section 73 cannot be invoked.  The High Court held that if it is the view of the Revenue that the petitioners though liable to pay service tax are evading payment of service tax, they can very well take recourse to Section 73 and determine the amount of service tax payable on them.

Section 73C allows the department to make provisional attachment of the properties during the pendency of the proceedings.   In ‘Technomaint Contractors Limited V. Union of India’ – 2014 (4) TMI 882 - GUJARAT HIGH COURT the High Court held that when show cause notice was issued by the department in which the petitioners have raised their objections, recoveries in that adjudication of such disputed taxes were simply not permissible in law.   Section 73C allows the department to make provisional attachment of the properties of the assessee during the pendency of the proceedings under Section 73 of the Act for the purpose of protecting the interest of the Revenue.   Such provisions cannot be activated for seeking recovery even before adjudication. Recovery of unpaid tax is to be made as per Section 87 of the Act which provides for the power and procedure for such recoveries.

Section 87 prescribes the procedure for the recovery of the service tax due to the Central Government.

Section 87 (a) provides that the  Central Excise Officer may deduct or may require any other Central Excise Officer or any officer of customs to deduct the amount so payable from any money owing to such person which may be under the control of the said Central Excise Officer or any officer of customs;

Section 87 (b) (i) provides that  the Central Excise Officer may, by notice in writing, require any other person from whom money is due or may become due to such person, or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central Government either forthwith upon the money becoming due or being held or at or within the time specified in the notice, not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount.

Section 87 (b) (ii) provides that every person to whom a notice is issued under this section shall be bound to comply with such notice, and in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary to produce any pass book, deposit receipt, policy or any other document for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary.

Section 87 (b) (iii) provides that  in a case where the person to whom a notice under this section is sent, fails to make the payment in pursuance thereof to the Central Government, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and all the consequences of this Chapter shall follow.

By virtue of Section 87 the Department freezed the bank accounts of the assessees.  This section is considered to be the harassment caused to the assesees. In ‘R.V. Manpower Solution V. Commissioner of Customs & Central Excise’ – 2013 (4) TMI 294 - UTTARAKHAND HIGH COURT the High Court held that from the language of Section 87 (b) there is no power to freeze the bank account.  The High Court held that the impugned order freezing the bank account is not sustainable in the eye of law as this has been passed without having any jurisdiction.  The same is set aside.

Section 87 (C) provides that the Central Excise Officer may, on an authorization by the Principal Commissioner of Central Excise or Commissioner of Central Excise, in accordance with the rules made in this behalf, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; and in case, any part of the said amount payable or of the cost of the distress or keeping of the property, remains unpaid for a period of thirty days next after any such distress, may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and shall render the surplus amount, if any, to such person;

The proviso to Section 87 (C) provides that where the person (hereinafter referred to as predecessor) from whom the service tax or any other sums of any kind, as specified in this section, is recoverable or due, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in such business or trade by any other person, all goods, in the custody or possession of the person so succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs, after obtaining the written approval of the 3[Principal Commissioner of Central Excise or Commissioner of Central Excise, for the purposes of recovering such service tax or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change;

Section 87 (d) provides that the Central Excise Officer may prepare a certificate signed by him specifying the amount due from such person and send it to the Collector of the district in which such person owns any property or resides or carries on his business and the said Collector, on receipt of such certificate, shall proceed to recover from such person the amount specified there under as if it were an arrear of land revenue.  This is the common method used by various authorities to recover the dues.

The recovery under Section 87 of the Act cannot be done unless the service tax due is an ascertained liability.   The due shall be adjudged by the Adjudicating Authority.  After becoming due and the same has not been paid by the assessee then the Revenue can take recourse of Section 87.   The assessee may comply with the provisions of Finance Act, 1994 in respect of making payment of service tax regularly and correctly to avoid such action under Section 87 of the Act.