Disapproving the manner in which officers of Directorate of Central Excise arrested an official of online travel portal makemytrip.com for alleged evasion of service tax of about Rs 67.44 crore, Delhi High Court today said such conduct cannot be “countenanced”.
“In how many cases of massive defaulters have you made arrests? This (conduct of excise department) will not be countenanced on our watch. We cannot countenance that you arrest without issuing a show cause or demand notice or without informing the person in writing..,” a bench of justices S Muralidhar and Vibhu Bakhru said.
The court directed the portal to file an affidavit naming the excise officers who were involved in the arrest of its Vice President (Finance) as well as those who allegedly made threats to coerce the company to deposit the service tax.
The bench then told the excise department that the officers named in the affidavit will have to file their responses to the allegations against them and then the court will take the matter to its “logical conclusion”.
Makemytrip was asked by the court to file its affidavit by March 10 and the excise officers concerned would have to file their replies by March 21.
The court was hearing arguments on behalf of the online portal against the arrest of its Vice President (Finance) M K Pallai as well as the service tax of Rs 67.44 crore demanded by the excise department.
The portal has contended that it is only an intermediary or a booking agent and that it could not have been asked to pay service tax on services availed by customers from hotels and flights.
The excise department contended that the portal was collecting service tax from customers and thus it was liable to deposit it with the government. Makemytrip disputed this contention and claimed it only charges a consolidated amount from customers towards booking of rooms or flights and after deducting its commission, the remaining amount is sent to the concerned hotel or airline.
It also said that the hotels then deposit the service tax with the department.
The court then asked the excise department whether it checks with the hotels as to whether they have deposited the service tax.
“Your objective is to ensure the service tax reaches your coffers,” it added.
During the hearing the court also said that the powers to arrest defaulters, provided in the Finance Act, have to be used with a high degree of responsibility and it has to be ascertained whether the person has knowingly evaded service tax.
Defending its action, the department submitted that its investigation into the alleged service tax evasion by the portal was ongoing and thus no show cause notice could be issued prior to arrest.
It also said its officers have the discretion to arrest during course of investigation.
The court had on January 20 issued interim directions restraining the excise department from taking any further coercive steps against the portal or any of its officers. This interim order was today extended by the court till the next date of hearing on March 30.