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

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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.

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