Delhi High Court Challenges DGCEI; Orders Return Of Fines To MakeMyTrip, Ibibo, Others

The Delhi High Court has asked the Directorate General of Central Excise and Intelligence (DGCEI) to refund the service tax collected from travel portals Ibibo, MakeMyTrip and eBiz within four weeks. According to the HC, the DGCEI had acted with “undue haste and in a reckless manner.”

The court also added that the arrest of MakeMyTrip’s Vice-president MK Pallai earlier this year was contrary to the law and violated his constitutional rights.

Tax authorities were reportedly demanding that companies such as MakeMyTrip, Yatra, Cleartrip and Expedia pay tax because they are labelled as hotel service providers. In return, the online travel portals had contested the claim, saying they were merely intermediaries. The directorate had then failed to provide the required ‘show-cause’ notice.

“This is not intended to influence the adjudication proceedings that might ensue if a show-cause notice is issued in accordance with law by the DGCEI to either petitioner,” the ruling said.

“Further, the right of the petitioners and any of their officials aggrieved by the actions of the officials of the DGCEI to institute appropriate proceedings in accordance with law to recover damages and/or compensation is reserved,” it added.

Following the agency’s claim, MakeMyTrip had to deposit $10 Mn (INR 67 Cr), the total tax demand that was raised by the agency. In its decision, the Delhi High Court has now said it would levy interest should the DGCEI delay the repayment beyond its four-week deadline.

“Any delay in refund beyond said period will make the DGCEI liable to pay simple interest at 6% per annum on the respective amounts from the date on which they became due in terms of this order till the date of payment,” the court said.

The DGCEI’s contention was that money deposited by the companies under investigation was a ‘voluntary’ deposit. In their written petition, the companies had said that the investigating authorities had required them to deposit the money and that it was not voluntary.

Commenting on the petition, Rajesh Magow, CEO, MakeMyTrip, said, “Our written petition was to challenge the extreme step of asking us to deposit the tax without a show-cause notice.The bench was trying to say that the method followed by the department was incorrect and that they should have followed the procedures laid down in the law.”

Regarding the court proceedings, he added that the ruling was limited to that particular matter and that the directorate could issue a show-cause notice if it wanted to and the company would respond to the same under the law.

This development was first reported in ET.

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