Service Tax No Audit by Department or CAG Review the

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6 6 2016 Taxindiaonline com one stop destination for taxman taxpayer. audit party Rule 5A 2 of the Service Tax Rules is also impugned as ultra vires It is contended. that the powers of an assessing officer to call for records in respect of any period during which. the respondents seek to intensively scrutinize receipts etc i e a special audit can be ordered by. recourse to Section 72 A of the Finance Act 1994 Barring these the Finance Act does not. contain any substantive power to call for records for scrutiny as is permissible under Rule 5A 2 or. for the purpose of scrutiny by any authority outside of those created under the Act such as the. Comptroller and Auditor General s office, The petitioner also challenged the CBEC instruction in F No 137 26 2007 CX 4 dated. Rule 5A directs the assessee in sub rule 2 to provide records to an audit party It reads. Rule 5A Access to a registered premises, 1 An officer authorised by the Commissioner in this behalf shall have access to any. premises registered under these rules for the purpose of carrying out any scrutiny. verification and checks as may be necessary to safeguard the interest of revenue. 2 Every assessee shall on demand make available to the officer authorised under. sub rule 1 or the audit party deputed by the Commissioner or the Comptroller and. Auditor General of India within a reasonable time not exceeding fifteen working days. from the day when such demand is made or such further period as may be allowed. by such officer or the audit party as the case may be. i the records as mentioned in sub rule 2 of rule 5. ii trial balance or its equivalent and, iii the income tax audit report if any under section 44AB of the Income tax Act. 1961 43 of 1961 for the scrutiny of the officer or audit party as the case may be. The CBEC instruction in F No 137 26 2007 CX 4 dated 1 1 2008 states. A new Rule 5A has also been incorporated in the said Rules to prescribe that an. officer authorised by the Commissioner shall have access to any premises registered. under the Service Tax Rules for the purpose of carrying out any scrutiny verification. and checks as may be necessary to safeguard the interest of revenue and that the. assessee shall provide on demand the specified records including trial balance or the. equivalent It may be noted that this rule does not envisage issue of any notification. by a Commissioner for such authorisation of officers The requirement of. authorisation could be fulfilled by issue of an office order. 2 In this regard it is clarified that records documents required to be maintained. under various laws such as the Income Tax Act Companies Law the CENVAT Credit. Rules 2004 VAT and other State legislation would be acceptable and the. amendment made in the rule does not cast any additional responsibility on taxpayers. in terms of maintenance of records, 3 The list of records as required to be provided under said sub rule 2 should be. submitted once only Once filed further intimation would be required to be given only. in case there is any change in the list i e addition deletion modification in the. types of records maintained that had been furnished by the assessee. 4 A copy of the list furnished by the assessee would be sent by the jurisdictional. superintendent to the audit section, 5 The audit team or any other officer authorised by the Commissioner to visit the.
registered premises of an assessee shall give prior intimation to the assessee along. with the list of documents that he requires for the purposes of scrutiny verification. http www taxindiaonline com RC2 print story php newsid 21182 2 6. 6 6 2016 Taxindiaonline com one stop destination for taxman taxpayer. 6 That taxpayer shall provide the records as required by the authorized officer. within a period of fifteen days from the date of request In case the taxpayer is. unable to produce any of the records called for within the stipulated time he shall. intimate the same along with reasons for non production of records and the officer. may also further time for production of such records keeping in view the overall facts. into account, 7 These amendments have been made in the service tax rules to enable the duly. authorised offices to carry out audit or scrutiny as may be necessary to safeguard. the interest of revenue However it may be ensured that only such records are. demanded which are necessary for conducting such audit scrutiny or verification. The only provision in Chapter V of the Finance Act on scrutiny and audit of records of the. assessee is Section 72Aof the Finance Act 1994 which reads. 72A 1 If the Commissioner of Central Excise has reasons to believe that any. person liable to pay service tax herein referred to as such person. i has failed to declare or determine the value of a taxable service correctly or. ii has availed and utilised credit of duty or tax paid. a which is not within the normal limits having regard to the nature of. taxable service provided the extent of capital goods used or the type of. inputs or input services used or any other relevant factors as he may. deem appropriate or, b by means of fraud collusion or any wilful misstatement or. suppression of facts or, iii has operations spread out in multiple locations and it is not possible or practicable. to obtain a true and complete picture of his accounts from the registered premises. falling under the jurisdiction of the said Commissioner. he may direct such person to get his accounts audited by a chartered accountant or cost. accountant nominated by him to the extent and for the period as may be specified by the. Commissioner,The High Court observed, Section 72A envisages an audit of an assessee s records only in special circumstances namely. when there is a failure to declare or compute the value of the taxable service when the. utilization of CENVAT credit in excessive of the limit permissible or by fraud etc and when the. business operations of the assessee are dispersed across multiple locations Apart from Section. 94 the Revenue could not show any other substantive provision which justifies a probe into the. records of the assessee under conditions akin to those contemplated by Rule 5A 2 The. Revenue was also unable to show the compulsion of arming authorities with such sweeping. powers under the Rules, It is well known that if the legislature contemplates a situation and enacts or provides for a part.
of it the other parts are deemed to have been excluded The law is also well settled that a rule. acquires statutory force so long as it first conforms to the provisions of the statute under. which it is framed and second it must be within the rulemaking power of the executive authority. charged with framing the rules, The mere fact that a rule making power is phrased in terms that indicates a general delegation. of power cannot lead to the inference that such power may be exercised to make rules that. exceed the bounds of the statute Rules may only give effect to the 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, http www taxindiaonline com RC2 print story php newsid 21182 3 6. 6 6 2016 Taxindiaonline com one stop destination for taxman taxpayer. It is apparent that the only type of audit within the contemplation of the statute is that. stipulated for in Section 74A 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 The fact that. Section 74A prescribes the conditions meriting such special audit compels the necessary. inference that the Parliament did not intend to provide for a general audit that every assessee. may be subjected to on demand This Court is thus of the opinion that any attempt to include. provision for such a general audit through the back door such as through the impugned rule is. ultra vires the rule making power conferred under Section 94 1 Rule 5A 2 must consequently. be struck down, Likewise this Court finds that the impugned CBEC instruction being in furtherance of Rule 5A 2. which rule is ultra vires the Finance Act 1994 is void for the same reasons Executive. instructions without statutory force cannot possibly override the law consequently any notice. circular guideline etc contrary to statutory laws cannot be enforced. The impugned circular seeks to put in place a mechanism for audit and scrutiny of documents. with the objective of safeguarding the interests of the Revenue in furtherance of the. amendments made in the Service Tax Rules as indicated in paragraph 7 of the circular Since the. parent statute in this regard the Finance Act 1994 itself does not authorise a general audit of. the type envisioned by the impugned Rule 5A 2 and furthermore only stipulates that a special. audit can be undertaken if the circumstances outlined in Section 72A are fulfilled this Court finds. that the impugned CBEC circular is not only an attempt to widen the scope of the law. impermissibly but also is patently contrary to the statute The impugned circular to the extent it. provides clarifications on a Rule5A 2 audit is hereby quashed consequently the impugned letter. is quashed and set aside, The Service Tax Audit Manual 2011 is merely an instrument of instructions for the service tax. authorities it is but obvious that it is not a statutory instrument and has no statutory force. Thus Rule 5A 2 cannot be sought to be justified as against it. So now there is no Rule 5A the Commissioner or the CAG cannot authorize his officers to barge. into the premises of the assessee and demand records and documents for auditing The assessee. is not required to entertain any such demands, Even earlier the Allahabad High Court had in 2014 TIOL 120 HC A LL ST held that the Departmental.
officers had no power to audit, We bring you the judgement today Please see 2014 TIOL 1304 HC DEL ST. Please also see, 1 Should AG s Audit be allowed to visit factories and Premises of Service Tax Assessees. 2 AG s Audit Visit to Factories and Premises of Assessees DDT 1776. 3 CAG not authorised to visit factory of assessee in private sector. 4 No Audit of Private Enterprises by AG s Audit Calcutta High Court DDT 1951. 5 Karnataka High Court grants Interim Stay against CAG Audit of Service Tax Assessee. 6 Audit under Service Tax only by Chartered Accountants not by officers of Department. HC DDT 2283, 7 CAG s Audit should be of Revenue Departments not of Assessees. Judgement applicable throughout the country JK Mittal the Advocate who argued the case. on behalf of the assessee says that this judgement has force throughout the country as statutory. Rule was under challenge and the same is struck down He adds Throughout India members of. trade and industry have been subject to serious harassment for the last several years as central. http www taxindiaonline com RC2 print story php newsid 21182 4 6. 6 6 2016 Taxindiaonline com one stop destination for taxman taxpayer. excise officers routinely for conducting audit issuing letters seeking voluminous records for the. last 5 years as well numerous information in self specified formats which are not there under the. law and these officers visits assessee s premises for audit Similarly officers of Comptroller. Audit General of India also visit the assessee s premises for conducting audit of Service Tax and. Central Excise Assessees All this being done on the basis of so called Rule 5A 2 and internal audit. manual of the Department This has led to serious resentment among members of the trade and. industry as this practice has been followed all around the country without any check which was. not only breeding large scale corruption and frivolous demands and unnecessary litigation across. the country The matter was taken up several times with Ministry of Finance at highest level but. all in vain, At last the Court has given relief as rule 5A 2 has been struck down as ultra vires and CBEC. instruction is also declared void and it was declared audit manual of department has no statutory. What will happen to proposed Audit Commissionerates. IN the Cadre restructuring CBEC has proposed 45 Commissionerates exclusively for Audit Now. that they do not have the power to audit what will happen to these Commissionerates and about. 10 000 personnel who are to man these Commissionerates Now will the Department recruit an. army of Chartered Accountants and Cost Accountants to do the Audit job. What will the Department do now Appeal to the Supreme Court Bring in retrospective legislation. to validate Rule 5A 2, And in the meantime is the Audit wing being closed down As the advocate says the judgement.
has All India effect and assessees are no more obliged to entertain the Departmental auditors. Jurispruden tiol Thursday s cases,Service Tax, Conversion of steel plates into partially finished and fully finished boiler. components Prima facie case for waiver of demand of service tax under. Business Auxiliary Service CESTAT, THE applicant is a job worker of M s Bharat Heavy Electricals Ltd BHEL The nature of process. involved is cutting drilling pressing welding etc as per the drawings of conversion of steel. plates into partially finished and fully finished boiler components According to the Revenue the. process undertaken by the applicant would not amount to manufacture under Section 2 f of the. Central Excise Act 1944 and therefore they are liable to pay service tax under Business. Service Tax No Audit by Department or CAG Review the Cadre Review No need for Audit Commissionerates TIOL DDT 2411 06 08 2014 Wednesday MORE than ten years ago I wrote an article for a print journal that CAG had no great authority to audit the assessees at their premises that CAG is supposed to audit the Government and not private citizens or commercial concerns that the power to audit

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