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2013 (1) TMI 549 - HC - Service TaxWrit Petition - Whether the CAG of India, has power and/or authority and/or jurisdiction to audit the accounts, service tax records or other documents of the petitioner company, which is not an undertaking of the Central Government or any State Government - Whether Rule 173(6)(c) of Central Excise Rules, 1944, which provides that Commissioner or the Comptroller and Auditor General of India would be entitled to undertake the audit of records of any assessee - The word or has to be read conjunctively or disjunctively in Rule 173(6)(c) - Special audit u/s 72A of the Finance Act 1994 Ultra Virus of Rule 5A of the Service Tax Rules Held that - In view of Single member bench notice cannot be sustained and the same is liable to be set aside. But in view of judgment rendered in case of Berger Paints India Limited in the context of Rule 173-G(6)(c) which is in para materia with Rule 5A of the Service Tax Rules, this Court is of the view that judicial propriety demands that this writ application be referred to a Division Bench for adjudication - Referred to divisional bench
Issues Involved:
1. Jurisdiction of CERA to audit non-government companies. 2. Applicability of Section 16 of the CAG Act for auditing non-government companies. 3. Validity and scope of Rule 5A of the Service Tax Rules. 4. Judicial propriety in referring the matter to a Division Bench. Detailed Analysis: 1. Jurisdiction of CERA to Audit Non-Government Companies: The writ application challenges the Notice No. RA/ST/Prog/D/18/131 dated 3rd November 2011, issued by the Office of the Principal Director of Audit, Central Kolkata for an audit by the Central Excise Revenue Audit (CERA) team. The primary question is whether CERA, under the Comptroller and Auditor General of India (CAG), has the authority to audit the service tax records of the petitioner company, which is not a government undertaking. The petitioner company, incorporated under the Companies Act, 1956, and engaged in trading stocks and securities, argued that it is not financed by the Central or State Government. The company maintains its accounts as per the Companies Act, 1956, and is subject to audits by Chartered Accountants and under the Income Tax Act. 2. Applicability of Section 16 of the CAG Act for Auditing Non-Government Companies: The duties and powers of the CAG are defined under Article 149 of the Constitution of India and the CAG Act. The petitioner argued that there is no provision in the CAG Act enabling the CAG to audit the accounts of a non-government company not funded by the government. Section 16 of the CAG Act mandates the CAG to audit all receipts payable into the Consolidated Fund of India and the States, ensuring effective checks on the assessment, collection, and proper allocation of revenue. However, this does not extend to auditing the accounts of non-government companies. The court agreed with the petitioner, stating that Section 16 does not authorize the CAG to audit non-government companies' accounts. 3. Validity and Scope of Rule 5A of the Service Tax Rules: Rule 5A of the Service Tax Rules, which is similar to Rule 173G(6)(c) of the Central Excise Rules, was scrutinized. Rule 5A(2) obliges every assessee to make available records to the officer authorized by the Commissioner or the audit party deputed by the Commissioner or the CAG within a reasonable time. The petitioner contended that Rule 5A(2) is ultra vires the rule-making power conferred by Section 94 of the Finance Act, 1994, as there is no provision in Chapter V of the Finance Act empowering the CAG to audit non-government companies. The court held that statutory rules must align with the enabling statute and cannot introduce provisions not contemplated by the statute. The court interpreted Rule 5A harmoniously, stating that while it obliges assessees to provide records for lawful audits, it does not authorize unauthorized audits by the CAG of non-government companies. 4. Judicial Propriety in Referring the Matter to a Division Bench: Given the similarity of issues with a previous case (W.P. No. 21053 (W) of 2011), where the audit was also undertaken by the CAG without a request from the President or Governor, the court deemed it appropriate to refer the matter to a Division Bench for adjudication. The court concluded that the impugned notice could not be sustained and set it aside. However, due to the judgment in the Berger Paints case and the need for judicial propriety, the writ application was referred to a Division Bench for analogous hearing along with W.P. No. 21053 (W) of 2011. Conclusion: The court found that the CAG does not have the authority to audit the accounts of non-government companies under the CAG Act, and Rule 5A of the Service Tax Rules does not extend this power. The matter was referred to a Division Bench for further adjudication to ensure judicial propriety.
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