AUDIT BY TAX AUTHORITIES IN NEW REGIME

GST Update-15.06.2016

GST DAILY DOSE OF UPDATION:-

The much awaited draft of Central/State Goods and Services Tax Act, 2016 was officially declared on public domain for study by public and taxpayers at large on 14.06.2016. The official draft is different from the leaked GST Act, 2016 as analyzed by us in series of earlier updates. The official draft of the Central/State Goods and Services Tax Act, 2016 is comprehended in the upcoming series of our daily updates. Section 2 provides definitions of the terms used in the Act.

Section 2(14) defines the term “Audit” as detailed examination of records, returns and other documents maintained or furnished by the taxable person under this Act or rules made there-under or under any other law for the time being in force to verify, inter alia, the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or rules made there-under.

The incorporation of the definition of audit in the Draft GST Act, 2016 indicates the sound intention of the government to legalize the practice of conducting audit by departmental officers as against the present scenario in Service Tax Laws. In the present scenario, the Hon’ble Delhi High Court has recently quashed the Rule 5A (2) of the Service Tax Rules, 1994 in the case of MEGA CABS PVT. LTD. VERSUS UNION OF INDIA AND OTHERS [2016-TIOL-1061-HC-DEL-ST] enabling the service tax officers to conduct audit to verify the discharge of service tax liability by service tax assessees. The main ground for quashing the Rule is that the term ‘verify’ cannot be taken of such wide amplitude so as to include audit by service tax officers. It was concluded that audit is a special function which can be carried out by duly qualified persons such as Chartered Accountants or Cost Accountant and not by service tax officers.

It is worth noting that the old Rule 5A(2) was also quashed by the Delhi High Court in the case of TRAVELITE (INDIA) VERSUS UNION OF INDIA [2014 (35) S.T.R. 653 (DEL)] on the ground that it lacks statutory backing. Thereafter, the government introduced a new clause (k) to section 94 vide Finance Act, 2014 w.e.f. 06.08.2014 to legitimise Rule 5A (2) of the Service Tax Rules, 1994 whereby it was stated that the Rule making power included power to verify the records of the assessee.

Perhaps, the government seeks to prepare itself for the new law and does not want to inculcate the lacunae of the old legislation into new GST Act, 2016. This is also strengthened by the fact that a new Chapter XIII clearly providing a mechanism for audit by tax authorities has been incorporated in the new taxation regime.

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GST Update-15.06.2016

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