Bomb

ay H

igh C

ourt

1 BA.202-14.doc

PPDINTHEHIGHCOURTOFJUDICATUREATBOMBAY

CRIMINALAPPELLATEJURISDICTION

CRIMINALBAILAPPLICATIONNO.202OF2014

KandraRameshbabuNaidu ..ApplicantVersus

1. Superintendent(A.E.)ServiceTax,MumbaiII

2. StateofMaharashtra ..Respondents

.Mr.YusufIqbalYusufa/w.Mr.NevilleMajra,Ms.TabassumAnsariAbdulRahmani/b.M/s.Yusufs&Associates,Advocatefortheapplicant.Mr.N.Natrajan,SpecialCounselforRespondentNo.1.Mr.RajeshMore,APP,fortheRespondentState.

.

CORAM :A.R.JOSHI,J.

RESERVEDON:25thFEBRUARY,2014

PRONOUNCEDON:05thMARCH,2014

ORALORDER:

1. HeardthelearnedCounselfortheapplicant.Alsoheard

the learned Special Counsel for the respondent No.1. Also

heardthelearnedAPPfortherespondentNo.2.

1 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

2 BA.202-14.doc

2. Presentapplicationforbailispreferredbytheapplicant

in the matter of offence punishable under Section 89 read

withSection90oftheFinanceAct,1994.

3. Duringtheargumentsit issubmittedonbehalfofthe

applicantthatheistheDirectorofM/s.PrashantTransport

Exchange Division, and the Managing Director of M/s.

Naidu's Infracon Private Limited. Hewas arrestedon22nd

January,2014at9:00p.m.underSection89readwithSection

90oftheFinanceAct,1994fornonpaymentofServiceTaxfor

theperiodfrom2010toDecember,2013.

4. Prior to discussing the rival submissions, the factual

position is required to be mentioned inasmuch as the

applicanthadcollectedRs.2.59CoresofServiceTaxduring

theperiod20102011to20132014buthadnotdepositedthe

saidamountexceptRs.15Lakhs. Theapplicanthadinfact

never filed anyservice tax returns andas suchknowingly

2 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

3 BA.202-14.doc

utilizedtheGovernmentmoniesforhispersonaluse.

5. The liability to pay the collected Service Tax to the

Government is not disputed by the applicant. However,

accordingtohimthereisnoauthoritytotherespondentNo.1

toarresttheapplicantinviewoftheamendedprovisionsof

Section89(1)(d)oftheFinanceAct,1994.Thesaidamended

provision came into effect from10.5.2013 and said Section

becamecognizable.Accordingtotheapplicantinviewofthe

amendedprovisionofSection89(1)(d),theoffencewasmade

cognizableasmentionedaboveandvideSection103(k)ofthe

FinanceAct,whichcameintoforceon10.5.2013,Section90

andSection91wereintroducedintheFinanceAct. Dueto

thisamendment,thepunishmentfortheoffencepunishable

underSection89(1)(d)(ii) wasenhancedfromthreeyearsto

sevenyears.

6. The relevant provisions of the Finance Act, 1994 are

3 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

4 BA.202-14.doc

reproducedhereunderforthesakeofreadyreference:

89. Offences and Penalties. (1) Whoever commits any of the following offences, namely,

(a) knowingly evades the payment of service tax under this Chapter; or

(b) avails and utilises credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter; or

(c) maintains false books of account or fails to supply any information which he is required to supply under this Chapter or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or

(d) collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, shall be punishable,

(i) in the case of an offence specified in clause (a), (b) or (c) where the amount exceeds fifty lakh rupees, with imprisonment for a term which may extend to three years;PROVIDED that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for a term of

4 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

5 BA.202-14.doc

less than six months;(ii) in the case of the offence specified in

clause (d), where the amount exceeds fifty lakh rupees, with imprisonment for a term which may extend to seven years;PROVIDED that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for a term of less than six months;

(iii) In the case of any other offences, with imprisonment for a term, which may extend to one year.

(2) ...(3) ...(4) ...

90. Cognizance of offences(1) An offence under clause (ii) of sub-section (1) of

section 89 shall be cognizable.(2) Notwithstanding anything contained in the

Code of Criminal Procedure, 1973, all offences, except the offences specified in sub-section (1), shall be non-cognizable and bailable.91. Power to arrest

(1) If the Commissioner of Central Excise has reason to believe that any person has committed an offence specified in clause (I) or clause (ii) of sub-section (1) of section 89, he may, by general or special order, authorise any officer of Central Excise, not below the rank of Superintendent of Central Excise, to arrest such person.

5 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

6 BA.202-14.doc

(2) Where a person is arrested for any cognizable offence, every officer authorized to arrest a person shall, inform such person of the grounds of arrest and produce him before a magistrate within twenty-four hours.

(3) In the case of a non-cognizable and bailable offence, the Assistant Commissioner, or the Deputy Commissioner, as the case may be, shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer in charge of a police station has, and is subject to, under section 436 of the Code of Criminal Procedure, 1973 (2 of 1974).

(4) All arrests under this section shall be carried out in accordance with the provisions of the Code of

Criminal Procedure, 1973 (2 of 1974) relating to arrests.

7. Bypointingouttheaboveprovisions,itissubmittedon

behalfoftheapplicantthattherecannotbeanyretrospective

effect to the penal provisions and as such considering the

arrestoftheapplicanton22.1.2014andconsideringthatthe

amountoftaxcollectedandrequiredtobedepositedwiththe

Government must exceed Rs.50 Lakhs and there must be

failure to pay the amount so collected to the credit of the

CentralGovernmentbeyondaperiodofsixmonthsfromthe

6 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

7 BA.202-14.doc

dateonwhichsuchpaymentbecomesdue,theapplicantwas

not liable for thearrest inasmuchas theamount collected

between10.5.2013to21.7.2013isonlyRs.5,00,887/.Inother

words, it is submitted on behalf of the applicant that the

maximumamountevaded,ifany, underSection89(1)(d)is

lessthanRs.50lakhsfortherelevantperiodandassuchthe

provisionsofSection89(1)(d)(ii)arenotapplicable.

8. Counter to the arguments advanced on behalf of the

applicant, it is submittedonbehalf of therespondentNo.1

and supported by filing an affidavit to that effect dated

5.2.2014 that the applicant had issued invoices to the

customers and charged and claimed Rs.2.59 Crores

(approximately)asServiceTaxuptoDecember,2013andonly

paidRs.15Lakhsto theCentral Governmenttreasuryand

failedtopayRs.2.44Croresapproximately. Inthebalance

sheet as on 31.3.2013, in Schedule7, the applicant has

accepted the liability to deposit the service tax of Rs.2.11

7 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

8 BA.202-14.doc

CrorestotheCentralGovernment.Inhisstatementsdated

21.1.2014and22.1.2014theaccusedhadadmittedthathehas

collectedRs.2.59CroresofServiceTax,but,hadnotdeposited

thesameexceptRs.15Lakhs.Itisfurthersubmittedthatthe

applicantisawareabouttheprovisionsoftheServiceTaxlaw

and had obtained Service Tax registration for rendering

taxable service and in the invoices issuedhe hadnot only

chargedServiceTaxbuthadalsodeclaredtheServiceTax

Registration number which is mandatory. As such, the

applicantiswellawareoftheprovisionsoflawgoverningthe

ServiceTaxandalsotheamendedprovisions. Itisfurther

thecontentionoftherespondentNo.1thatSection73Aofthe

FinanceAct,1994requiresanypersonwhohascollectedany

amount representing Service Tax to deposit the same

forthwith to the Government. As per provisions of Section

89(1)(d)(ii),ifanypersonwhohascollectedtheservicetaxin

excessofRs.50Lakhsandfailedtodepositthesamewithin

8 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

9 BA.202-14.doc

six months from the due date shall be punishable with

imprisonmentforatermuptosevenyears;andSection90of

theFinanceAct,1994specifiesthattheoffenceunderSection

89(1)(d)(ii) of the Finance Act, 1984 shall be cognizable.

AccordingtotherespondentNo.1theexactamountevadedby

theapplicantisyettobeascertainedandtheinvestigationis

continuing and is not yet completed. The applicant was

summoned to the AntiEvasion Office on 22.1.2014 and

arrestedunder Section91of theFinanceAct, 1994for

hisdirectinvolvementintheevasionoftheServiceTax.

9. Itissubmitted on behalfoftherespondentNo.1that

nondepositoftheServiceTaxwiththeCentralGovernment

afterdeductingitfromthecustomersisancontinuingoffence

andassuchtheentireamountofarrearsisrequiredtobe

construed as liable to be deposited with the Central

Governmentwhenitbecomedueanditbeingacontinuing

offencetheapplicantisliabletodeposittheentirearrears

9 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

10 BA.202-14.doc

whichisadmittedlymorethanRs.50lakhs.

10. Itisalsosubmittedonbehalfoftherespondentthatthe

presentapplicantis theManagingDirectorof M/s. Naidu's

InfraconPrivateLimited andisthepersoninvolvedinall

decision taking matters of company and as such have a

potentialtotamperwiththe officialrecordswhichneedsto

besubmittedtothebank.

11. Insupportofthesubmissionsonbehalfoftheapplicant,

thefollowingauthorityiscitedbeforetheCourt:

CRM10939OF2013

InthematterofSudipDas(petitioner)

. InthesaidmatterbeforetheCalcuttaHighCourt,the

bail was granted to the accused whohad beencharged for

commissionofoffencepunishableunderSection89(1)(d)ofthe

FinanceAct,1994

10 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

11 BA.202-14.doc

12. Oncarefullygoingthroughtheratiopropoundedbythe

aforesaid authority, it must be said that according to the

Calcutta High Court itwasthequestionofbailabilityor

nonbailability almost comes to a point of merger and,

therefore, the benefit of which should be extended to the

accusedperson. IntheearlierparagraphthatCourtheldas

follows:

On query, the learned lawyer of the Union of India could not satisfy me whether strictly custodial detention is necessary for interrogation or not vis-a-vis their prayer as embodied in the petition itself. It is correct that the offence is alive till now but it is not less than correct that when it was originated, the offence was bailable in view of the observation made by the Hon'ble Apex Court. It is also reckoned that the new Act does not have

any retrospective effect. .

. Bytheseobservationstheaccusedthereinwasgranted

bail.

11 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

12 BA.202-14.doc

13. In the considered opinion of this Court, it being

continuing offence the entire outstanding amount to be

depositedwiththeCentralGovernmentinthepresentmatter

is required to be taken into consideration inasmuch as on

10.5.2013whatwasthearrearsthenaccruedisrequiredtobe

taken into account while calculating the amount of Rs.50

LakhsascontemplatedbySection89(1)(d)(ii)ofFinanceAct,

1994.

14. Duringtheargumentsitwassuggestedonbehalfofthe

applicant that he is ready and willing to deposit all the

outstandingServiceTaxtotheCentralGovernmentbutina

timeboundprogramme. Thewrittenscheduleofpayments

wasgiventothelearned CounselfortheRespondentNo.1

andhetooktimetotakefurtherinstructionsfromtheofficeof

the respondent No.1. Subsequently, on the next date, the

learnedCounselfortherespondentNo.1statedthatthesaid

scheduleisnotacceptabletotherespondentNo.1andinsisted

12 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::

Bomb

ay H

igh C

ourt

13 BA.202-14.doc

thattheentireduesofServiceTaxes,alreadycollectedbythe

applicant,shallbedepositedwiththerespondent.

15. In the opinion of this Court considering that it is a

continuing offence and as on 10.5.2013 there were huge

outstandings definitely beyond the amount of Rs.50 Lakhs

andmoresosaidamountwasoutstandingevenatthetimeof

arrestoftheapplicant,itisnotacaseinwhichtheapplicant

canbereleasedonbailmoresowhentheinvestigationisstill

goingon. Consequently the present application for bail is

dismissedandaccordinglydisposedof.

(A.R.JOSHI,J.)

13 of 13

::: Downloaded on - 23/03/2015 15:45:59 :::