Permissibility of Service Tax Audit Post-GST Implementation.

PJ/Case Law/2018-2019/3503

Case: M/s. Gitanjali Vacationville Private Limited
Citation:W.P. 380 (W) of 2019
Issue:Permissibility of Service Tax Audit Post-GST Implementation.
Appellant’s contention:The concerned advocates appearing on behalf of the Appellant submitted that the Central Goods and Services Tax Act, 2017 repeals Chapter V of the Finance Act, 1994. They submitted that Sections 173 and 174 of the Central Goods and Services Tax Act, 2017 have omitted the provisions of Chapter V of the Finance Act, 1994. It was submitted that in the following two cases of the same issue, the court had granted an Order of Stay namely,

2018 (17) G.S.T.L. 21 (Cal.) (Infinity BNKE Infocity Pvt. Ltd. versus Union of India).
2018 (19) G.S.T.L. 27 (Guj.) ( OWS Warehouse Services LLP Versus Union of India)

It was also mentioned that the appellant does not question the Provisions of Rule 5A of the Service Tax Rules, 1994.
Respondent’s Contention and Reasoning of Judgement: The Authorities stated that the final orders of the Court relating to challenge under Rule 5A of the Service Tax Rules, 1994 were set aside by the Hon’ble Division Bench. They relied upon the judgment and order dated December 6,

Union of India versus Infinity InfoTech Parks Ltd.
(Union of India versus Magnacon Electrical (India) Ltd.

However these matters were remanded for fresh consideration. After careful analysis it was observed that the provisions of Chapter V of the Finance Act, 1994 stands omitted by Section 173 of the Central Goods and Service Tax Act of 2017 save as otherwise provided under the Central Goods and Service Tax Act of 2017. Therefore, if any provision of the Act of 2017 allows the applicability of the Chapter V of the Finance Act, 1994, then notwithstanding the omission of the Chapter V of the Finance Act, 1994 under Section 173 the same continues to apply. Moreover Section 174 is the repeal and saving provisions. Sub-Section 1 of Section 174 repeals the provisions of the various statutes as mentioned therein. Sub-Section (2) of Section 174 stipulates that, notwithstanding the repeal of the Acts mentioned in Sub-Section (1) of Section 174 and the amendment of the Finance Act 1994, it shall not affect any pending investigation, enquiry, verification or other legal proceedings and that, such proceedings may be instituted, continued or enforced as if such Act had not been repealed. Therefore an enquiry or an investigation or even a legal proceeding under the Act of 1994 is permissible notwithstanding the coming into effect of the Act of 2017. The authorities are proposing undertake an audit for the period when the Act of 1994 was applicable. The authorities are entitled to do so.
Decision: Appeal Rejected.
Comment: The Gist of the case is that the service tax audit under Finance Act, 1994 after the GST rollout is permissible under law. Further reliance could be placed on Section 174 (2). It states that section 174(1), apart from the Repeals clearly mentioned in itself, shall not affect any pending investigation, enquiry, verification or other legal proceedings and that, such proceedings may be instituted, continued or enforced as if such Act had not been repealed.
Although the various High Courts have opined differently on this issue right beginning from Delhi High Court decision of 2014 in case of travelite (India) wehre in High Court has struck down Rule 5A(2) of Service Tax Rules but it was stayed by full bench of Supreme Court. Later this has resulted in amendment in Rule 5A and insertion of 94(2)(k) of Finance Act also. There was dispute also whether word “verify” will include audit also. But it was again struck down by Delhi High Court in case of Mega cabs. But it was again stayed by Apex Court.
Even there was litigation on conducting of audit after these stays by Apex Court. Gujarat High Court held in case of OWS warehouse services LLP that after implementation of GST there was no saving of Rule 5A in such manner that fresh proceeding for audit could be initiated in exercise of power under the above Rule.

But this present Ruling has come as a relief for the department.
Prepared by: Adit Gupta

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