‘General’ audit under Service Tax Rules – Ultra Vires – Delhi High Court – 4th August, 2014
Rule 5A(2) of the ST Rules, 1994 provides that every assessee has to provide to the officer authorized by the commissioner or CAG to produce records maintained by the assessee.
The appellant ‘Travelite (India)’ is a registered assessee under the Service Tax. It received a notice from the Commissioner of Service Tax seeking records for the earlier years. The appellant being aggrieved of the same filed a writ under Article 226 of the Constitution of India challenging the validity of the same.
The appellant relied on the decision in case of Municipal Corporation v. Birla Cotton, Spinning and Weaving Mills, AIR 1968 SC 1232andGeneral Officer, Commanding in Chief v. Subhash Chandra Yadav, (1988) 2 SCC 351 wherein it was held that a rule must conform to the statute under which it was framed, and must be within the rule making power of the authority.
Further, the appellant submitted that the said rule is not only inconsistent with Section 72A of the Finance Act, 1994 which empowers the CCEx to order an audit under Special circumstances only but it is also ultra vires the rule making power conferred on the executive under Section 94 of the Act.
It was also submitted relying on the decision in case of Sahara India v. CIT (2008) 14 SCC 151 that an audit carries civil consequences, hence the same cannot be ordered without indicating the reasons for the audit to the assessee.
Observations by Hon’ble High Court:
Hon’ble High Court observed that Section 72A envisages an audit of an assessee in special circumstances. 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 rule- making power of the executive authority charged with framing the rules relying onGeneral Officer, Commanding-in-Chief v. Dr.Subhash Chandra Yadav, (1988) 2 SCC 351 and Dr.Mahachandra Prasad Singh v. Honourable Chairman, Bihar Legislative Council and Ors., (2004) 8 SCC 747.
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 statuterelying onKunj Behari Lal v. State of H.P, (2000) 3 SCC 40 and Global Energy Ltd. v. Central Electricity Regulatory Commission, (2009)15SCC570.
Thus the Hon’ble Court held that:
“Section 72A 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 toinclude 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.”
In view of the afore-said findings, the writ petition was allowed with no order as to costs.
Aditya Singhania & Nischal Agarwal
Tags Service Tax