Service Tax - Recovery under Section 87 cannot be resorted to at Show Cause Notice stage - High Court quashes notices issued to debtors under Section 87

As mentioned in this case, the amount of service tax demanded in SCN is Rs.4.25 crore (approximately) and the assessee has paid Rs.83 lakh during the investigation.
As per Para 3.1 of CBEC’s Circular No. 984/08/2014-CX dated 16.09.2014, payment made during the course of investigation or audit, prior to the date on which appeal is filed, to the extent of 7.5% or 10% (maximum Rs.10 crore), can be considered to be deposit made towards fulfillment of stipulation u/s 35F (pre-deposit).
In this case, the amount paid during investigation is more than 7.5% / 10% of the entire demand. So, even in case of confirmation of entire demand by adjudication, if the assessee files appeal, the amount paid during the investigation to the extent 7.5% (for first appeal) of tax demanded/confirmed would be treated as pre-deposit and recovery cannot be made u/s 87 till the appeal is pending.
However, assessee can pay the tax voluntarily to save interest and to avail benefit of reduced penalty.

These are personal views.

Shvetal Parikh 21/10/2015