2016 (7) TMI 875 - HC - Service Tax

Visit of service tax officers to the premises of the assessee - Constitutional validity of Rule 5A(1) - Held that - Upon hearing the parties prima facie the Bench perceives the challenge to Rule 5A(1) to be well founded as it seeks to override the section. It appears that Rule 5A(2) has been declared ultra vires by an Hon ble Division Bench of the Delhi High Court 2016 (6) TMI 163 - DELHI HIGH COURT . This Bench prima facie finds no reason to disagree with such decision. If the authorities cannot make any demand as envisaged in sub-rule (2) gaining access to any premises under sub-rule (1) may not serve any purpose. In that view of the matter the respondents are restrained from taking recourse to Rule 5A(1) against the petitioner and the petitioner shall also not be under any liability to place books/accounts etc. if any demand is made. The respondents shall however be free to take recourse to Section 82 of the Finance Act in accordance with law. It further appears that summons have been issued to the petitioner requiring its presence at an office in Chennai with required documents. The petitioner shall be at liberty to respond to such summons and to make available the required documents. The respondents may proceed in accordance with law but no coercive action shall be taken against the petitioner without obtaining leave of the Court. Interim order is passed in favor of petitioner assessee.

Summary

Issues:
Challenge to the vires of Rule 5A(1) of the Service Tax Rules, 1994 on the ground of inconsistency with Section 82 of the Finance Act.

Analysis:
The judgment delivered by the High Court of Calcutta pertains to the challenge against the vires of Rule 5A(1) of the Service Tax Rules, 1994, contending that it is contradictory to Section 82 of the Finance Act. The Court emphasized the principle that subordinate legislation must supplement and not supplant the parent enactment. It was noted that a subordinate legislation cannot override the parent statute, as a stream cannot rise above its source.

Upon hearing the arguments from both parties, the Bench found the challenge to Rule 5A(1) to be well-founded as it appeared to seek to override the relevant section. Additionally, the Court observed that Rule 5A(2) had previously been declared ultra vires by a Division Bench of the Delhi High Court, a decision with which the present Bench concurred. The Court highlighted that if authorities are unable to make demands as outlined in sub-rule (2), accessing premises under sub-rule (1) would serve no purpose.

Consequently, the respondents were restrained from utilizing Rule 5A(1) against the petitioner, absolving the petitioner from the obligation to provide books or accounts if any demand was made. However, the respondents were permitted to resort to Section 82 of the Finance Act within the bounds of the law. The Court also addressed the issuance of summons to the petitioner, allowing the petitioner to respond to such summons and furnish the necessary documents. It was specified that no coercive action could be taken against the petitioner without court approval, given the absence of apparent inquiry conditions in the summons and potential breaches of instructions from a circular letter.

Furthermore, the Court directed the filing of an affidavit-in-opposition within four weeks, with a subsequent reply permitted within two weeks thereafter. The writ petition was scheduled for a hearing on 1st September, 2016, indicating the procedural steps to be followed in the case.