Law is supreme. No officer or any Investigating agency is above law. A recent Order passed by Honorable High Court of Delhi in the case of leading Travel portals is a reminder to principal investigative agency, the Directorate General of Central Excise Intelligence(DGCEI) that they have to work with the frame work of law.
Arrest is an extreme step which has to be taken only once the department is convinced beyond doubt that the said person is directly involved in the evasion of tax. The Service tax law makes it clear that the powers to arrest are vested with Principal Commissioner of Central Excise or Commissioner of Central Excise and he must have “reason to believe” that the said person has committed an offence specified in the law. The specified offences are if a person knowingly evades the payment of service tax or maintains false books of account or collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due. The amount in such case is also specified which was recently relaxed from 50 lakhs to two Crore. Thus its evident that arrest has to be made only in the rarest of rare circumstances. Arrest cannot be a casual affair.
CBEC lays down guidelines for the launch of prosecution and accordingly there has to be a determination that a person is a habitual offender. There cannot be a habitual offender if there is no discussion by the DGCEI with the Service Tax Department regarding the history of such Assessee or the person involved Thus, without even requisitioning that record, it could not have been possible to arrive at a reasonable conclusion whether there was a deliberate attempt of evading payment of service tax. The Delhi High Court also held that the arrest of a person is not to be dealt as a casual affair but shall be as per the provisions of law and credible material. An Excise officer or DGCEI officer duly empowered and authorised in that behalf has to be satisfied that a person has committed an offence under provisions of the Finance Act, it would require an enquiry giving an opportunity to the person sought to be arrested to explain the materials and circumstances gathered against such person, which according to the officer points to the commission of an offence. No assessee can be forced to pay any assumed amount of alleged evaded tax amount when there is no determination or issue of suitable show cause notice.
The Hon’ble High Court of Delhi instructed the DGCEI to payback the amount recovered as alleged dues to the companies with determined compensation and have also reserved their right to institute appropriate proceedings in accordance with law to recover damages and/or compensation by being aggrieved by the actions of the officials of the DGCEI. With a tax payer friendly GST round the corner, such decisions by the Courts are a welcome step. Arrest cannot be a causal affair.