The tax authorities arrested a senior official of MakeMyTrip without even issuing a show cause notice for alleged evasion of service tax of Rs67.4 crore. The High Court remarked, we are getting reduced to a police state
The Delhi High Court has asked the Central government to file a reply on a petition filed by travel booking services provider MakeMyTrip India in a matter related with the arrest of a company officer for not depositing service tax in the treasury. The Court also directed the tax authorities not to take any coercive action against the company or its officials, says
a report from Bar & Bench .
As per the report, the Division Bench of Justice S Murlidhar and Justice Vibhu Bakhru also stated in their order that the relevant documents, which prove tax evasion of the company shall be presented in court on the next date of hearing.
The matter is related with the arrest of a senior official of MakeMyTrip for alleged evasion of service tax of Rs67.44 crore. The official was released on bail on 11 January 2016, three days after his arrest.
The Directorate General of Central Excise Intelligence (DGCEI), which had registered a case against the company, had alleged that MakeMyTrip failed to deposit service tax in government treasury, despite collecting the same from its customers.
According to the report, MakeMyTrip counsel V Lakshmikumaran, argued that arrest of the official was an example of a 'police state' because the company had not been collecting money for its own purposes. "The DGCEI has claimed that we are not paying service tax to the Government which we collect from our customers. So the charge against me is that the company have not paid service tax amounting to crores. But my submission is that the hotels that have partnered with us (the company), are liable to pay service tax to the Government and not me (the company). I (the company) have not collected any money as tax that has been deposited for my (the company) benefit. They have also not issued any show cause notice me (the company) before arresting the official,” the Counsel was quoted as saying in the news report.
Lakshmikumaran also informed the Court that MakeMyTrip had already deposited Rs40 crore towards its service tax liability since the arrest of its official.
Satish Agarwala, the counsel for the tax department informed the Court that since investigation in this matter ongoing, no show cause notice was issued.
This submission, however did not sit well with the Bench, which reprimanded the tax department for proceeding to arrest a person in the absence of any legal proof of liability, the report says.
Quoting Justice Murlidhar, the report from Bar & Bench, says, “No show cause notice, not even a scrap of paper to show that he owes Rs67 crore 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 Rs40 crore. We are getting reduced to a police state, that is what is happening."
Since no person could be arrested without a show cause notice on an allegation squarely covered under Section 73A of the Service Tax Act, the Bench also asked the tax department counsel if the arrest of MakeMyTrip official was legal.
When Adv Agarwala responded that an arrest could be made as per the said provisions, Justice Bakhru had reportedly said that it was up to the Court to decide as to what was the requirement for issuing a show cause notice according to the Act.
“You file your reply and till that time, your department will not take any coercive steps. As the law stands, you cannot enter a person’s house and arrest them because you feel that they have something wrong. This will not happen under our watch,” the Bench was quoted in the news report.
Further hearing of the matter is scheduled for next week and the tax authorities have been asked to submit its reply by that time.