By CA.Ankit Gulgulia (Jain)
The Central Board of Excise & Customs have recently issued a Circular No. 181/7/2014-Service Tax following thenotification No. 23/2014-ST dated 5th December, 2014 in essence to neutralize the judgment of Delhi High Court in case of Travelite (India) Versus UOI And Others 2014 (35) S.T.R. 653 (Del.) which considered the service tax audit by departmental officers pursuant to Rule 5A as ultra vires the service tax statute. Below is Chronological Development of this controversy.
Brief Synopsis of Law on Service Tax Audit:-
a) Section 94 of Finance Act, 1994 empowers central government to make rules for carrying out provisions of service tax.
b) Rule 5A of Service Tax Rules, 1994 (prior to amendment vide Notification 23/2014) provided that department can (i) conduct verification (ii) Audit party authorized by commissioner or CAG can seek necessary audit documents.
c) Section 72A is the only section in Finance Act, 1994 in relation to special audit. Pursuant to this section the audit can only be conducted by authorized chartered accountant or cost accountant on other conditions being fulfilled.
d) On 26th September, 2012 – In SKP SECURITIES LTD. / INFINITY INFOTECH PARKS LTD. Versus DEPUTY DIRECTOR (RA-IDT) & ORS 2013 (29) S.T.R. 337 (Cal.) it was held by Hon’ble Calcutta HC that CAG is not empowered to conduct audit of nongovernmental-company pursuant to the provisions of service tax laws. Rule 5A was held ultra vires to section 94 in context to nongovernmental company audit by CAG while referring the case to chief justice for divisional bench adjudication. This was again upheld in case of INFINITY INFOTECH PARKS LTD. Versus UNION OF INDIA 2014 (36) S.T.R. 37 (Cal.) on 30th April,2014
e) On 4th August, 2014, Hon’ble Delhi HC in case of Travelite (India) Versus UOI And Others 2014 (35) S.T.R. 653 (Del.) struck down rule 5A as ultra vires the Section 94 providing the rule making powers of central government. It also struck down the CBEC circular 1.1.2008. Fundamentally held that there are no provisions for general audit (on demand) under service tax statute. Further such Rule prescribing general audit is ultra-vires.
f) On 6th August, 2014, the Finance Act (No.2 of 2014), introduced a fresh clause as section 94(2)(k) which explicitly empowers central government to make rules to govern any person liable to service tax for the proper levy and collection of the tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified;
g) On 5th December, 2014, A notification no. 23/2014 was released by MoF amending the Rule 5A of Service tax Rules, 1994.
h) On 10th December, 2014 vide Circular No. 181/7/2014-Service Tax, CBEC has to its views neutralized the Travelite Judgement of Delhi HC since now the Rule 5A is necessarily backed by Section 94(2)(k). CBEC interprets the ‘general audit’ as just another version of ‘verification’ pursuant to section 94(2)(k).
Remarks: – With the amendments and necessary circulars in this regard one can expect the audit swings to regain its vigour (that was imposed by Delhi HC) unless fresh round of litigation creeps in !!