17 August, 2014

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Service Tax Audit by CAG & Department–Ultra Vires !!

Delhi High Court by judgment dated 04 August 2014 in W.P.(C) 3774/2013 in the matter of TRAVELITE (INDIA) v Union of India & Others,   strike down rules empowering audit by CAG as well as Service Tax Department- big relief to Assessee from high handedness of Central excise officers.

Through out India, members of trade and industry have been suject to serious harassment for the last several years as  central excise officers routinely for conducting audit issues letters seeking voluminous records for the last 5 years as well numerous  information in self specified formats which not there under law and these officers visits assesee premises for audit. Similarly, officers of Comptroller & Audit General of India also visit the assessee premises for audit for service tax and central excise asseseees. All this being done on the basis of so called Rule 5(2) and internal audit manual of the Department.  

This has led to serious resentments among members of trade and industries as it has been practice followed all around the country without any check which was not only breading large scale corruption and frivolous demands and unnecessary litigation across country. The matters was taken up several time with Ministry of finance at highest level but all in vain.

At last Court has given relief as rule 5 (2) is struck down as ultra vires, and CBEC instruction as also declared void and it was declared audit manual of department has no statutory force.  This judgment has force through out country as statutory Rule was under challenged & same is struck down.              

In this case,  the Commissioner of Service Tax (“CST”), Delhi dated 7.11.2012,  sought its records for the years 2007-08 till 2011-12 for scrutiny by an audit party, under Rule 5A(2) of the Service Tax Rules, 1994.The Petitioner also challenges the validity of Rule 5A(2) of the Service Tax Rules, 1994, brought into force by Notification no. 45/2007 dated 28.12.2007 as well as the instruction of the Central Board of Excise and Customs (“CBEC”) no. F. No. 137/26/2007-CX.4 dated 1.1.2008.

The Delhi High Court by judgment dated 04 August 2014 in W.P.(C) 3774/2013 held as under:
“ 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.“

“12. 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....“

“15. 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. “

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