1. Makemytrip: Taxman arrests official, no show-cause notice given

Makemytrip: Taxman arrests official, no show-cause notice given

Makemytrip chairman and group CEO Deep Kalra may have been a big star in Prime Minister Narendra Modi’s Start-up India show just a few days ago — in which the PM assured firms of an easier doing-business regime — but today he’s at the receiving end of a hostile service tax department which claims his firm owes them Rs 82 crore.

By: | Updated: January 22, 2016 10:54 AM
While denying that it has evaded any tax, Makemytrip has argued that the arrest has taken place under Section 91 of the Finance Act — this in turn refers to Section 89(1) — but these sections cannot apply to an individual; it has relied upon the Sunil Mittal case versus the CBI to say that an individual cannot be seen as the alter ego of a company.

While denying that it has evaded any tax, Makemytrip has argued that the arrest has taken place under Section 91 of the Finance Act — this in turn refers to Section 89(1) — but these sections cannot apply to an individual; it has relied upon the Sunil Mittal case versus the CBI to say that an individual cannot be seen as the alter ego of a company.

Makemytrip chairman and group CEO Deep Kalra may have been a big star in Prime Minister Narendra Modi’s Start-up India show just a few days ago — in which the PM assured firms of an easier doing-business regime — but today he’s at the receiving end of a hostile service tax department which claims his firm owes them Rs 82 crore. A top official of his firm has been arrested for this — he is now out on bail — and the company is running between the Patiala House court and the Delhi High Court.

All of this, as the travel portal’s petition in the Delhi High Court points out, without even a show-cause notice, and without the due process of law being followed. “That manner in which power of arrest has been exercised by the Respondents against Mr MK Pallai is arbitrary, illegal and against mandate of Article 21 read with Article 14 of Constitution of India,” the travel portal’s petition reads.

It goes on to say that “as on date, no show-cause/demand notice has been issued by the Respondents under Section 73/ 73A of the Finance Act to the Petitioner, on this issue… That no formal charge has been framed against the Petitioner for the tax liability demanded (without issuance of show-cause/demand notice).”

The petition adds, “In any case, no basis for the figures, resulting into the imputed liability, determined by the Respondents have ever been given to the Petitioner.”

Not surprising, then, that when the case was being heard by the Delhi High Court and when the judges asked the tax department’s lawyer why a show-cause notice had not been given — the reply was that that it would be given once the investigation was over — an incensed justice S Murlidhar observed, “No show-cause notice, not even a scrap of paper to show that he owes 67 crores to you. This is a remarkable way of collecting taxes. Do you have any document to prove his liability? Now, even without a notice you have collected 40 crores. We are getting reduced to a police state, that is what is happening.”

The high court has asked the tax department to bring to it, on February 23, all the records relating to the arrest so it can ascertain how this was done without even a show-cause notice being issued. Had this been issued, the company could then have challenged it legally instead of, under threat of its official being arrested, being forced to deposit Rs 40 crore of tax.

While denying that it has evaded any tax, Makemytrip has argued that the arrest has taken place under Section 91 of the Finance Act — this in turn refers to Section 89(1) — but these sections cannot apply to an individual; it has relied upon the Sunil Mittal case versus the CBI to say that an individual cannot be seen as the alter ego of a company.

The case, which has larger ramifications for the entire e-commerce industry, revolves around the billing done by Makemytrip. The company argues that the billing done to customers is largely on account of services they avail from either hotels or airlines, so the service tax on this has to be paid by the hotels/airlines and not by it. As far as the money it makes in the transaction as a tour operator, Makemytrip says that it has paid all service taxes and there is no dispute over this.

Apart from the fact that a travel portal/tour operator cannot be asked to pay the tax on behalf of either hotels or airlines, there are different taxes applied to hotels and travel portals. If Makemytrip was indeed a hotel company and owned the hotels, it would be allowed an abatement of 60% — that is, taxes would be paid on 40% of the billing. As a tour operator, however, the abatement is a much higher 90%. So, even if it wanted, Makemytrip could not collect taxes on behalf of the hotels/airlines. Besides, the company argues, all clients don’t pay the full amount to it — some do so, while others choose to pay the portal its commission and pay the rest to the hotels/airlines.

No show-cause notice, not even  a scrap of paper to show he owes R67 cr to you … We are getting reduced to a police state, that is what is happening: Justice S Murlidhar, Delhi High Court

What Makemytrip said to court?

… manner in which … arrest has been exercised … against Mr MK Pallai is arbitrary, illegal and against mandate of Article 21 read with Article 14 of Constitution … as on date, no show-cause/ demand notice  has been issued by the Respondents under Section 73/ 73A of the Finance Act to (us) on  this issue.

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Tags: MakeMyTrip
  1. R
    RAJESH AGARWAL
    Nov 9, 2017 at 6:09 pm
    MMT is a fraud company. once you get into trouble they make sure they will you fully. I paid for 2 rooms and 2 night and on reaching Hotel no rooms was available and next 24 hours MMT was only assuring.please do not book anything at MMT as they will also beat you like Indigo beat its passenger. We are now taking legal action against this fraud company to teach them lesson.
    Reply
    1. John Paul
      Jan 22, 2016 at 3:23 am
      Most corporate use judicial system as a tool to avoid enforcement of law. Just because some corporate boss partited in a function with prime minister gives his company the right to avoid legal actions. Most telecom and service provider companies under pay the service tax they collected from their clients.
      Reply
      1. R
        Rajesh Makharia
        Jan 22, 2016 at 3:56 am
        Prime minister is talking big about business friendly governance and all.... But his executors are clueless
        Reply
        1. Murthy Suppusamy
          Jan 21, 2016 at 11:11 pm
          India needs the 4th Amendment similar to that of USA. Citizens and Residents ought to be protected from outrageous police search and seizure, without a Judicial Court order.
          Reply
          1. R
            RAJARAM PUROHIT
            May 21, 2016 at 11:47 am
            Same case in Amazon, where case is in supreme court cenvat taken by retailers but Srtellegence Officer force to calculate Liabilities , interest and penalty. which is wrong. Some Commissionerate of many states allowed to take cenvat.
            Reply
            1. A
              Aravind Ganesh
              Jan 22, 2016 at 2:08 am
              What a vlatant abuse of bureaucratic powers? This is a blatant violation of High court's judgement given in the case of Chitra Builders Private Ltd where it was ruled that tax amount collected without a proper essment order is invalid
              Reply
              1. S
                sameer
                Apr 14, 2016 at 8:50 am
                he probably bought the judicary and the IT department lawyers.cannot trust makemytrip
                Reply
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