The Supreme Court has upheld the decision of Delhi High Court which held that following the procedure under Section 73A(3) and (4) of the Finance Act 1994 is compulsory before arresting a person under Section 91.
Section 73A imposes the obligation to deposit service tax collected with the Central Government. If there is any default in payment, the Central Excise Officer should serve show-cause notice on the person under Section 73A(3). This has to be followed by hearing of objections by the person, if any, and passing of order determining the sum to be paid under Section 73A(4).
Section 91 deals with the power of the Principal Commissioner of Central Excise or Commissioner of Central Excise to arrest any person who is believed to have committed any offence under Section 89 of Finance Act, such as evasion of service tax, falsification of books of accounts etc.
In the judgment delivered by Delhi High Court on September 1, 2016 in Make My Trip India Ltd v Union of India, it held :
It is difficult to conceive of the DGCEI or for that matter the ST Department being able to by-pass the procedure as set out in Section 73A (3) and (4) of the FA before going ahead with the arrest of a person under Section 90 and 91 of the FA. The power of arrest is, therefore, to be used with great circumspection and not casually. It is not to be straightway presumed by the DGCEI, without following the procedure under Section 73A (3) and (4) of the FA, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government.
Challenging this, the Union of India filed appeal in the SC.
A bench of Justices A K Sikri and Abdul Nazeer, dismissed the appeal observing : "The High Court has decided, after detailed discussion, that it is mandatory to follow the procedure contained in Section 73A(3) and (4) of the said Act before going ahead with the arrest of a person under Sections 90 and 91. We are in agreement with the aforesaid conclusion and see no reason to deviate from it".
Read SC Order
Read Delhi HC Judgment