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Corporate News *   Government ignored warnings over GST rollout: sources *  GSTR 3B questionaire introduced- To be filled before filing return *  Advisory mail  to all the taxpayers received from GSTN *   Advisory group on GST submits report, suggests changes *   GST lifted oil demand on higher vehicle sales, says report *   Moody’s gives thumbs up to GST, demonetisation  *   Pass on rate cut benefits immediately, companies tell traders *   Focus will now be on simplifying forms, IT processes under GST: Sushil Modi *  Tax rates lowered on consumer goods,only luxury goods taxed @ 28% *   Businesses can revise GST transition claim form now *  Multiplex owners in UP demand clarity on refund as tax exemptions go away after GST *   GST compliance: A case of much ado about nothing *  PM hints more relief for traders & businesses to ease GST compliance burden *  Infosys deploys more people in states to ease GSTN load *   Further reforms are needed for the GST to succeed *   GST impact! Massive stock clearance discounts on apparels, gadgets likely in December *  Kerala HC releases Detained Goods since State has No Power to make Rules to regulate Inter-State movement of Goods under GST *  Infosys is to blame for GST Network glitches, say government officials *   Publishers versus authors: Who will pay GST on royalty? *   कपड़ा निर्यातकों ने कहा, जीएसटी के कारण भारत से शिपमेंट में आ सकती है भारी कमी *   Tax professionals protest over GST returns filing in Gujarat *  Publishers versus authors: Who will pay GST on royalty? *   Pilot Implementation of Paperless Processing under SWIFT *   Anti-dumping duty levied on the imports of " Color Coated/ Pre-Painted flat products of alloy or non-alloy steel " s *   Anti-dumping duty levied on the imports of "Wire Rod of Alloy or Non- Alloy Steel "   *   Exemption on goods imported by EOUs from integrated tax and compensation cess   *   Fixation of Tariff Value of Edible Oils, Brass Scrap, Poppy Seeds, Areca Nut, Gold and Sliver  *   Appointment of Common Adjudicating Authority by DGRI  *   Amendment in various Customs exemption notifications to exempt Integrated Tax/Cess on import of goods under AA/EPCG schemes  *   BCD and IGST rates on certain goods prescribed  
Subject News *   Vide the notification 71/2017-Central Tax ,dt. 29-12-2017, the Central government seeks to extend the time limit for filing FORM GSTR-1 in relation to outward taxable supplies for taxpayers having aggregate turnover upto  Rs. 1.5 Crore for the Quarter JUL-SEPT 2017 to 10th  January,2018. *   Vide the notification 72/2017-Central Tax ,dt. 29-12-2017, the Central government seeks to extend the time limit for filing FORM GSTR-1 in relation to outward taxable supplies for taxpayers having aggregate turnover more than  Rs. 1.5 Crore for the month JUL-NOV  to 10th  January,2018.   *   Vide the notification 73/2017-Central Tax ,dt. 29-12-2017the Central Government seeks to waive the late fees payable by registered person for failure in filing of FORM GSTR-4.   *   Vide the notification 74/2017-Central Tax ,dt. 29-12-2017 the government seeks to notify February 1, 2018 as the date from which the provisions of E-Way Bill Rules shall come into force. *     Vide the notification 75/2017-Central Tax ,dt. 29-12-2017 the Central Government seeks to make amendments in  Central Goods and Services Tax Rules, 2017. *   Inter - State e - way Bill to be made compulsory from 1st of February, 2018 ; system to be ready by 16th of January, 2018 *  Customs (Furnishing of Information) Rules, 2017 introduced *  GST network simplifies return filing process *   State FMs speak on GST implementation, bringing petrol under its ambit *  Shaky Budget in offing? *   GST woes dominate pre-Budget consultations to Arun Jaitley from stakeholders *   Anti-profiteering: Filing complaints against firms not an easy task *   Putting electricity in GST *   12%, 18% GST rates can be merged to new slab *  Inter state movement of rigs,tools and spares, and all goods on wheels (like cranes) would not attract IGST *   GST rate on terricotta idols is NIL rated *   All taxpayers  exempt from payment of tax on advances received in case of supply of goods *   Suppliers of services through an e-commerce platform are exempted from obtaining compulsory registration *   Refund of unutilized input tax credit of GST paid on inputs in respect of exporters of fabrics vide cicular no 18/2017 GST dt 16.11.17 *   Govt tells companies to pass on GST gains immediately *   Anti-profiteering authority to be set up under GST *   CBEC prescribes procedure for manual filing and processing of refund claims for zero rated supplies *  Changes in Tax rate of permanent transfer of Intellectual Property *  GST on Services by way of admission to protected monuments shall be exempted. *  Relevant Notification to be issued shortly, so as to be made available from 15th of November'17 *  Late fee payable for those where a tax liability arises will be Rs. 50/- per day. *  Supply of services by Composition taxpayer upto Rs 5 lakh per annum will be allowed *  Restaurants in hotel premises having room tariff of less than Rs 7500 per unit per day will attract GST of 5% without ITC. *  Restaurants in hotel premises having room tariff of Rs 7500 and above per day (even for a single room) will attract GST of 18% with full ITC. *  Job work services in relation to manufacture of those handicraft goods in respect of which the casual taxable person has been exempted from registration, shall be reduced to 5% with full ITC.  

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Publish Date: 21 Sep, 2016
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Audit by department: Justified or not?

Audit by department: Justified or not?
 

An article by:-
CA. Pradeep Jain
CA. Preeti Parihar
CA. Vaibhav Bothra

 
Introduction

“Audit” – One of the most dreaded consequence of getting registered with the service tax department. Nobody wants to get strangled in the vicious circles of departmental audit and yet, sooner or later, you have to face the dungeon of audit. Times and now, questions have been raised on the qualifications and eligibility of the officers of the department to conduct audit, but the Government has proved to be adamant in continuing the ritual despite of the poor results of such audits. This piece of articulation is on the journey of provisions related to audit in the Chapter V of the Finance Act, 1994 governing the service tax law.
 
The mysterious provisions
 

Rule 5(2) of the Service Tax Rules, 1994 It requires the Assessee to furnish to the Superintendent of Central Excise a list in duplicate of all the records prepared or maintained by him for accounting of transactions, in regard to providing any service, receipt or procurement of anybody’s service and payment of such service.
 
Types of documents that can be asked to be made available “on demand” The assessee is required to furnish following documents on demand:-
(i)    Records mentioned in terms of Rule 5(2);
(ii)   Cost Audit Reports, if any, under Section 148 of the Companies Act, 2013;
(iii)   Income Tax Audit Report, if any, under Section 44AB of the Income Tax Act, 1961.
 
Section 72A of the Finance Act (Special Audit)
 
It is only where one of the three contingencies as mentioned in Section 72A of the Finance Act exists, that the Commissioner may direct the Assessee to “get his accounts audited either by a Chartered Accountant or a Cost Accountant nominated by such Commissioner”. The extent of the audit and the period for which it should be conducted is also to be specified by the Commissioner.
 
Section 82 of the Finance Act (Power to search premises)
 
This power can be exercised when the officer has a reason to believe that:-
(i)                there are documents or books that have been secreted in a place; and  
(ii)             such documents or books are useful or relevant for any proceedings.

 
The dispute
The service tax department undertakes audit at frequent intervals and all the records maintained by the service provider are scrutinized. The outcome is in form of audit paras, some genuine and some issued for procedural lapses, almost all result into issue of show cause notice. As the audit is an unwarranted situation, some of the assessees keep their fingers crossed and some opt for legal way to avoid the same. So, the issue of legality of audit by departmental officers has been commented by various Courts.
 
Judicial pronouncements
·        The very first stone was thrown by the Hon’ble  High Court of Delhi in the case of Travelite (India) Vs. Union of India & Ors. [W.P. (C) 3774/2013, C.M. No. 7065/2013]. It very specifically held that Rule 5A(2) of the Service Tax Rules ultra vires the provisions of the Finance Act. It quashed the rule stating that no Service Tax Audit can be conducted by the Department and only Special Audit within the Statute as mentioned under Section 72A of the Finance Act can be done either by a Chartered Accountant or Cost Accountant only in specified certain circumstances”. It was further held that Service Tax Audit as envisaged in Rule 5A(2) of the Service Tax Rules does not have appropriate statutory backing of the Finance Act.
 
·        Following the same decision, the service tax audit by departmental officers was denied in the cases of ACL Education Centre Pvt. Ltd. & Ors. Vs. Union of India [2014-TIOL-120-HC-ALL-ST] and SKP Securities Ltd. Vs. DD (RA-IDT) & Ors. [2013-TIOL-38-HC-KOL-ST].
 
·        As on December 18, 2014, the Hon’ble Apex Court granted stay on the operation of the Hon’ble Delhi High Court judgment in the Travelite case. This decision has been cited at Union of India And Ors Vs. M/s Travelite (India) [2014 (12) TMI 1099 – SUPREME COURT]
 
Circulars & Notification issued to nullify the HC decisions
·        Circular No. 986/10/2014-CX dated October 9, 2014 was issued by the board which intended to clarify that judgment under the Travelite case does not deal with the issue of audit in the Central Excise. It was further clarified that there is adequate statutory backing for Audit by the Central Excise officers by virtue of Section 37(2)(x) of the Central Excise Act, 1944 and Rule 22 of the Central Excise Rules, 2002 for conducting Central Excise Audit.
 
·        Notification No. 23/2014-ST dated December 5, 2014was issued to substitute rule 5A(2) to bring within its purview the officer authorised by the Commissioner or the Audit Party deputed by the Commissioner or CAG to conduct Service Tax Audit alongwith the Chartered Accountant or a Cost Accountant.  
 
·        Circular No. 181/7/2014-ST dated December 10, 2014 was issued to clarify that by virtue of amendment made in Section 94(2)(k) of the Finance Act by Section 114(J) of the Finance Act, 2014 w.e.f. August 6, 2014; now the Rule 5A(2) of the Service Tax Rules has legal backing. Therefore, it was clarified that the judgment of Travelite (India) is not applicable.
 
·        Circular No. 995/2/2015-CX dated February 27, 2015was issued by the CBEC on the subject – “Central Excise and Service Tax Audit norms to be followed by the Audit Commissionerates”. In this circular, directions were given to field formations regarding planning and conduct of audits and audit procedures to be followed.
Thus, after judicial pronouncements quashing the validity of audit by service tax authority, amendment was made in legal provisions to nullify the effect. Subsequent circulars issued in this respect also indicate that the Revenue is not in mood of giving up the audit powers.
 
Recently held:-
Recently, in the case of Mega Cabs Pvt. Ltd. Vs. Union of India And Ors [2016-TIOL-1061-HC-DEL-ST], the Hon’ble Delhi high Court has delivered a landmark judgment covering the following issues:-
1.     Whether Service Tax Department or CAG can conduct Service Tax Audit?
2.      Whether substituted Rule 5A(2) of the Service Tax Rules, 1994 (“the Service Tax Rules”) is ultra vires the provisions of the Finance Act, 1994 (“the Finance Act”)?
In this case, M/s Mega Cabs Pvt. Ltd. (“the Petitioner”) received a letter in which it was intimated that the audit will be done of its service tax records by service tax officers in terms of rule 5(2) of the Finance Act, 1994. Being aggrieved, the Petitioner filed a petition before the Hon’ble High Court of Delhi, challenging the Impugned letter, along with Rule 5A(2) of the Service Tax Rules (as amended) on the grounds that it is beyond the rule making powers of the Central Government. The Petitioner also challenged the constitutional validity of Section 94(2)(k) of the Finance Act on the ground that it gives “plainly unguided and uncontrolled” delegated powers to the Central Government for framing rules and also the Circular No. 181 which clarifies that by virtue of amendments made by notification no. 23/2014-ST, now the audit by service tax department has legal backing.
The Delhi High Court analyzed the provisions of the Finance Act extensively and observed as under:-

  • Rule 5A(2) of the Service Tax Rules, as amended, to the extent that it authorizes the officers of the Service Tax Department, the audit party deputed by a Commissioner or the CAG to seek production of the documents mentioned therein on demand, was held as ultra vires the Finance Act and, therefore, struck it down to that extent;
  • It was held that the expression ‘verify’ in Section 94(2)(k) of the Finance Act cannot be construed as audit of the accounts of an Assessee and, therefore, Rule 5A(2) of the Service Tax Rules, cannot be sustained with reference to Section 94(2)(k) of the Finance Act;
  • Circular No. 181 was declared as ultra vires the Finance Act and was struck down.
  • It quashed the Impugned Letter addressed to the Petitioner as being unsustainable in law.
  • It declared Circular No. 995 and the Central Excise and Service Tax Audit Manual 2015 issued by the Directorate General of Audit of the CBEC, as ultra vires the Finance Act, as they do not have any statutory backing and cannot be relied upon by the Department to legally justify the audit undertaken by officers of the Service Tax Department.

 
While winding
It is pretty much clear from the recent decision that the tussle between the courts and the government is a long running drama and the end to it is no way near. On one hand the courts have understood the pain of the assessees to be assessed by ineligible auditors and on the other hand the government does not want to let the assessees breath freely. As of now the situation seems to be in favour of assessees, only until the department does not issue any such letter for audit.
P.S. the situation in favour of assessees can be said only if they opt for suit in the court of law, otherwise no benefit of these decisions is ever available to them and litigation has its own costs.

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PRADEEP JAIN, F.C.A.

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