“We are getting reduced to a police state” – Delhi HC on MakeMyTrip plea against officer’s arrest

The Delhi High Court today sought a reply from the Centre on a petition filed by popular travel website MakeMyTrip India. The court directed that no coercive action should be taken by tax authorities towards the company or its officers..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 order came in the background of a plea filed by MakeMyTrip against the arrest of one of its senior officials for alleged service tax evasion of Rs. 67.44 crore. The Directorate General of Central Excise Intelligence (DGCEI) had registered a case against the company for allegedly not depositing service tax to the government which it had collected from the customers..The concerned official was arrested on January 8, and produced before the Magistrate on January 9, before being released on bail on January 11..Today, when the matter came up for hearing, V Lakshmikumaran appeared for the company and argued that the said arrest was an example of a ‘police state’, as 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 I have not paid service tax amounting to crores..But my submission is that the hotels that have partnered with us, are liable to pay service tax to the Government and not me. I have not collected any money as tax that has been deposited for my benefit. They have also not issued any show cause notice to me before my arrest.”.The company has already made a total payment of Rs. 40 crore towards service tax from the date of arrest. Lakshmikumaran submitted,.“Rs. 2.5 crore was paid by the company on 9th January, Rs. 12.5 crore was paid on 11th January and Rs. 25 crore was paid by 16th January towards service tax liability.” .Responding to this, Satish Agarwala, who appeared for the tax department, argued that only once the investigation was complete, could a show cause notice be issued..“Right now we cannot pass an order for payment of tax. It will be premature. They have collected the service tax so it is their responsibility to pay. Even the liability of 67.44 crores has been calculated on the basis of data provided by them to us.”.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. Justice 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 Bench also grilled Agarwala whether the arrest was legal, as no person could be arrested without a show cause notice on an allegation squarely covered under Section 73A of the Service Tax Act..When Agarwala responded that an arrest could be made as per the said provisions, Justice Bakhru 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.”.After issuing the said directions, the Bench granted time for the Govt to file its reply by next week and adjourned the matter for further hearing.