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2017 (9) TMI 286 - HC - Service TaxPower of access the premises of the assessee - Vires of Rule 5A(1) of the Service Tax Rules, 1994 - Rule 5A(2) of the Service Tax Rules, 1994 has been declared ultra vires once. Such a Rule was amended subsequently. The amended Rule is presently under challenge - Is Rule 5A(1) of the Service Tax Rules, 1994 ultra vires the Finance Act, 1994? - Held that - Sub-section (2) of Section 82 employs the provisions of the Code of Civil Procedure, 1973 relating to searches for the searches to be made under the Act of 1994. The power to search given in Section 82, therefore, cannot be said to be unbridled. It has the checks, balances and parameters of the Code of Civil Procedure, 1973 governing its sphere of operation. Sub-rule (1) of Rule 5A of the Service Tax Rules, 1994 cannot be read to exceed the sphere of operation as circumscribed by Section 82 of the finance Act, 1994. In fact, the sub-rule does not profess to do so. It allows an officer to have access to any premises for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of the revenue. Access to the premises is a lesser power than the power to search the premises as granted under Section 82 of the Act of 1994. Sub-rule (1), therefore, cannot be construed to mean that, it is in excess of the parent power of searching the premises as granted under Section 82 of the Act of 1994 - decided against petitioner. Are the proceedings taken by the respondent no. 2 against the petitioner required to be quashed being in excess of the powers? - Held that - An enquiry is under process with regard to the alleged procurement of CENVAT credit fraudulently. The enquiry is yet to be completed. The enquiry relates to the business of the first petitioner. The first petitioner ought to participate in such enquiry. The modus operandi stated in the affidavit of the respondent no. 2 with regard to the obtaining of CENVAT credit by a insurance company is such that, the petitioner who is engaged in the business of insurance and is suspected to have indulged in such wrongful practices is required to be examined so also officers of the petitioner involved in the transactions - In such circumstances, I am not in a position to say that, the proceedings taken by the respondent no. 2 against the petitioner are required to be quashed. The second issue is answered in the negative and against the petitioner. Petition dismissed - decided against petitioner.
Issues Involved:
1. Is Rule 5A(1) of the Service Tax Rules, 1994 ultra vires the Finance Act, 1994? 2. Are the proceedings taken by the respondent no. 2 against the petitioner required to be quashed being in excess of the powers? Issue-wise Detailed Analysis: Issue 1: Is Rule 5A(1) of the Service Tax Rules, 1994 ultra vires the Finance Act, 1994? The petitioner challenged the vires of Rule 5A(1) of the Service Tax Rules, 1994, arguing that it grants unbridled power beyond the rule-making authority and travels beyond Section 82 of the Finance Act, 1994. The petitioner referred to Section 82 of the Finance Act, 1994, which outlines the power to search premises, and Section 14 of the Central Excise Act, 1944, which allows a Central Excise Officer to summon any person to give evidence or produce documents. The Court noted that Section 82 of the Finance Act, 1994, provides the Central Excise authorities the power to search premises, and Section 94 of the Finance Act, 1994, empowers the Central Government to make rules. Rule 5A(2) of the Service Tax Rules, 1994, had been previously declared ultra vires by the Delhi High Court in the cases of Travelite (India) v. Union of India and Mega Cabs Pvt. Ltd. v. Union of India. However, the appeals against these decisions were pending before the Supreme Court. The Court distinguished between sub-rule (1) and sub-rule (2) of Rule 5A, noting that sub-rule (1) permits an officer authorized by the Principal Commissioner or Commissioner to access any premises for scrutiny, verification, and checks necessary to safeguard revenue interests. In contrast, sub-rule (2) requires the assessee to make available certain documents to the authorized officer or audit party. The Court concluded that sub-rule (1) does not exceed the scope of Section 82 of the Finance Act, 1994, as it only grants access to premises, which is a lesser power than searching premises. Therefore, Rule 5A(1) is not ultra vires the Finance Act, 1994. Issue 2: Are the proceedings taken by the respondent no. 2 against the petitioner required to be quashed being in excess of the powers? The petitioner also challenged the actions taken by respondent no. 2, particularly the Summons dated July 17, 2015, and June 8, 2016, and the letter dated June 22, 2016, arguing that they were beyond the jurisdiction of the officers involved. The Court noted that the Directorate General of Central Excise Intelligence had credible intelligence that several insurance companies were taking illegal credit of Central CENVAT. The Chennai Zonal Unit initiated an investigation, and officers visited the petitioner's premises in Kolkata under Summons mode authorized by the Director General, Directorate of Central Excise Intelligence, New Delhi. The Summons were issued under Section 14 of the Central Excise Act, 1944, which empowers a Central Excise Officer to summon any person to give evidence or produce documents. The Summons were acknowledged by the petitioner's Chief Finance Officer, who provided documents and made statements that were found to be evasive and at variance with the documents provided by dealers during the investigation. The Court found that the officers acted within their jurisdiction as the Chennai Directorate has all-India jurisdiction. The explanation provided by the authorities regarding the production of documents at Kolkata was plausible and accepted. The enquiry into the alleged procurement of CENVAT credit fraudulently was ongoing, and the petitioner was required to participate in the investigation. Therefore, the Court concluded that the proceedings taken by respondent no. 2 were not in excess of their powers and did not require quashing. Conclusion: The Court dismissed the writ petition, answering both issues in the negative and against the petitioner. The request for a stay of the judgment was considered and refused.
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