08 August 2014

NO SERVICE TAX AUDIT BY DEPARTMENT OR CAG

NO SERVICE TAX AUDIT BY DEPARTMENT OR CAG

 

In an Important judgment of the Hon’ble Delhi High Court in the case of Travelite (India) Vs. Union of India & Ors. [W.P. (C) 3774/2013, C.M. No. 7065/2013] on the Service Tax Audit issue it is held that :

 

Rule 5A(2) of the Service tax Rules is ultra vires the provisions of the Finance Act:

The Hon’ble Delhi High Court held that Rules only give effect to statute’s provisions and intent and cannot be used to create substantive rights, obligations or liabilities that are not within the contemplation of the statute. Further, the only audit within the Statute is as mentioned under Section 72A of the Finance Act, i.e. a Special Audit, when only certain circumstances are fulfilled. The Parliament thus had a clear intention to provide for only a special audit. Accordingly, Rule 5A(2) of the Service Tax Rules cannot provide for a general audit of the assessee and is ultra vires the rule making power conferred under Section 94(1) of the Finance Act.

Further, the Hon’ble Delhi High Court also held that the Service Tax Audit Manual is merely an instrument of instructions for the service tax authorities and do not have any statutory force. Therefore, Rule 5A(2) of the Service Tax Rules cannot be justified on the basis of the Service Tax Audit Manual.

 

The Instruction regarding Audit by Department is contrary to the Statue:

Further, it was held that the Instruction is also ultra vires the Finance Act since executive instructions without statutory force cannot override the law. Consequently, any notice, circular, guideline etc., contrary to statutory laws cannot be enforced since the parent statute in this regard, the Finance Act itself does not authorise a general audit of the type envisioned by the impugned Rule 5A(2) of the Service Tax Rules, and furthermore only stipulates that a Special Audit can be undertaken if the circumstances outlined in Section 72A of the Finance Act are fulfilled. The Hon’ble High Delhi Court finds that the Instruction is not only an attempt to widen the scope of the law impermissibly but also is patently contrary to the Statute. The Instruction, to the extent it provides clarifications on Rule 5A(2) of the Service Tax Rules, pertaining to Service Tax audit, is quashed.

 

It will also not be out of place to mention that recently, the Hon’ble Allahabad High Court in the case of ACL Education Centre Pvt. Ltd. & Ors. Vs. Union of India [2014-TIOL-120-HC-ALL-ST] has held that the Audit under service tax is to be conducted by Chartered Accountants/ Cost Accountants only and not by officers of the Department.

Further the Hon’ble Calcutta High Court in the case of SKP Securities Ltd. Vs. DD (RA-IDT) & Ors. [2013-TIOL-38-HC-KOL-ST] has held that no audit of private assessee can be undertaken by CAG.
CA. Vinay Mittal, Ghaziabad

1 comment:

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