Power to Conduct Audit under Service Tax - Scope of Rule 5A(2) of service tax Rules, 1994 r.w.s. 94(1) and 94(2)(k) - Apex Court stays the operation of the Delhi High Court judgment and order

[CA Surender Gupta]

Hon’ble Delhi High Court in the matter of Travelite (India) Versus UOI And Others [2014 (8) TMI 200 - DELHI HIGH COURT] has held that, “…..The fact 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 to include 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.”

Hon’ble Apex Court [2014 (12) TMI 1099 - SUPREME COURT] has granted unconditional stay in the above matter.

Repetition of the same story

Again, in the matter of Mega Cabs Pvt. Ltd. Versus Union of India & Ors. [2016 (6) TMI 163 - DELHI HIGH COURT], Hon’ble Delhi High Court has held that, “Tested on the above legal principles, the Court has no hesitation in concluding that Rule 5A(2) exceeds the scope of the provisions under the FA. This is the result whether Rule 5A(2) is tested vis-a-vis Section 72A of the FA which pertains to special audit or Section 72 which pertains to assessment or Section 73 which pertains to adjudication or even Section 82 which relates to searches. Under the garb of the rule making power, the Central Government cannot arrogate to itself powers which were not contemplated to be given it by the Parliament when it enacted the FA. This is an instance of the Executive using the rule making power to give itself powers which are far in excess of what was delegated to it by the Parliament.”

Again, Apex Court [2016 (9) TMI 1112 - SUPREME COURT OF INDIA] has granted unconditional stay of the operation of the impugned judgment and order

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Now since, in both the cases above, Apex Court has stayed the decision of the Delhi High Court, Service Tax Department may conduct audits as per Rule 5A(2), consequently the demand may be raised, in case any discrepancy is found during the court of revenue audit.

Let us wait for the final outcome of these cases which are now pending before the Supreme Court.