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2021 (2) TMI 12 - HC - Service TaxPower of CAG to conduct service tax audit of private party - Central Excise Revenue Audit (CERA) - Validity of notice intimating that petitioner s case has been selected for scrutiny / audit - petitioner s primary assertion is that the impugned notice / intimation seeking audit of petitioner s accounts is without jurisdiction i.e it has been issued without invoking the provisions of statutory laws under which a special audit as purported can be conducted - interpretation and application of Section 16 of the CAG s (DPC) Act read with Articles 148 149 and 151 of the Constitution of India dealing with CAG - HELD THAT - It may be mentioned that the accounts will be audited by a Chartered Accountant or a Cost Accountant to be appointed by the Commissioner. In Clause (2) to Section 72A it is stated that the Chartered Accountant or Cost Accountant will submit a report duly signed and certified by him to the Commissioner. In Clause (4) it is stated that the person liable to pay tax shall be given an opportunity of being heard in respect of any material gathered on the basis of the audit under sub-section (1) and proposed to be utilized in any proceeding. Copy of the audit report may be made available to the assessee and a proper opportunity will also be provided to him as per law. Rule 5A sub-rule (2) states that every assessee shall on demand make available to the officer authorised or the audit party records trial balance and income-tax audit report if any. The officer may demand the documents to ensure correctness of the books of accounts and ultimately the audit will be conducted by the audit party headed by the Chartered Accountant/Cost Accountant as the case may be deputed by the Commissioner. It is Commissioner on whose behalf the officer will collect the material and the auditor will perform the audit. In any case the final report duly signed by the Chartered Accountant will be submitted to the Commissioner. In case of government autonomous bodies the function of audit has been assigned to CAG - From the above it is crystal clear that in case of a private assessee Commissioner will refer the matter to an officer to collect the material or Chartered Accountant for the purpose of audit. Thus for the purpose of audit material can be collected either by the officer authorized by the Commissioner or by the auditor himself. But audit will be performed only by the Chartered Accountant. It is the pious duty of the assessee to make available the record as mentioned in Rule 5A i.e. trial balance or its equivalent; and the Income-tax audit report if any under Section 142(2A) of the Income Tax Act 1961 for the scrutiny of the officer or the audit party as the case may be. Admittedly in the present case the impugned notice / intimation dated 10.01.2019 seeking audit of petitioner s accounts is not contemplated under the provisions of Rule 5A of the Service Tax Rules 1994. On the contrary it is the assertion of the respondents that these have been issued under section 16 of CAG s (DPC) Act. Interpretation and application of Section 16 of the CAG s (DPC) Act read with Articles 148 149 and 151 of the Constitution of India dealing with CAG - whether CERA an audit wing of the Principal Director of Audit (Control) Kolkata under the CAG has power to and / or authority and / or jurisdiction to audit the account of the petitioner company under Section 16 of the CAG s (DPC) Act where admitedly the petitioner company is not an undertaking of the Central Government or of any State Government and is prely a private entity? - HELD THAT - It is clear that the statutory responsibility of the CAG is to audit receipts of the Union and States. These receipts include both direct and indirect taxes. It is duty of the Central Excise Revenue Audit (CERA) to see that sums due to the Government are properly assessed realized and credited to the Government account. The scheme enacted and envisaged in Chapter III of the CAG s (DPC) Act 1971 begins with the word Comptroller or Auditor General to compile accounts of Union and or States. The statutory scheme clearly states that the CAG shall from the accounts compiled by him or by the Government or any person responsible prepare in each year accounts showing under the respective heads the annual receipts and disbursement for the purpose of the Union each State or each Union Territory and shall submit the same to the President or the Governor or the Administrator as the case may be. It is in such context that the provisions of Section 16 pertaining to audit of all receipts which are payable into the Consolidated Fund of India and each State and of each Union Territory is required to be construed with respect to the accounts maintained in the Government departments / Corporations belonging to the Government. In view of the mandate of Section 16 of the CAG S (DPC) Act 1971 CERA audit cannot be extended to call for audit of a private entity such as the petitioner company. Petition allowed.
Issues Involved:
1. Jurisdiction of CERA to audit private entities. 2. Applicability of Section 16 of the CAG’s (DPC) Act. 3. Compliance with statutory provisions for special audit. 4. Validity of the impugned notice/intimation dated 10.01.2019. Issue-wise Detailed Analysis: 1. Jurisdiction of CERA to audit private entities: The petitioner contended that the impugned notice seeking audit of its accounts was without jurisdiction as there was no statutory provision enabling such an audit from a private entity. The respondents argued that CERA had the authority under Section 16 of the CAG’s (DPC) Act to conduct such audits. The court examined the statutory framework and concluded that the power of the CAG to audit is confined to government accounts and does not extend to private entities unless specifically requested by the President or Governor under Section 20 of the Act. The court found the respondents' reliance on Section 16 misplaced and held the impugned notice to be without jurisdiction. 2. Applicability of Section 16 of the CAG’s (DPC) Act: The petitioner argued that Section 16 of the CAG’s (DPC) Act does not authorize the CAG to audit private companies unless requested by the President or Governor under Section 20. The court agreed, stating that Section 16 pertains to auditing receipts payable into the Consolidated Fund of India and does not extend to private entities. The court emphasized that the statutory scheme under Chapter III of the CAG’s (DPC) Act is limited to government accounts and does not cover private entities like the petitioner. 3. Compliance with statutory provisions for special audit: The petitioner highlighted that specific statutes like the Companies Act, Income Tax Act, Central Excise Act, and Finance Act contain provisions for special audits, which were not invoked in this case. The court noted that the impugned notice did not comply with the procedural requirements under these statutes. The court underscored that any special audit must be traceable to a relevant statutory provision and conducted by a Chartered Accountant or Cost Accountant appointed by the Commissioner, not by CERA. 4. Validity of the impugned notice/intimation dated 10.01.2019: The court examined the impugned notice and found it to be issued without jurisdiction, as it was not supported by any statutory provision authorizing CERA to audit the petitioner’s accounts. The court also noted that the respondents failed to show any request or sanction from the President or Governor for such an audit under Section 20 of the CAG’s (DPC) Act. Consequently, the court quashed the impugned notice as ex-facie illegal and unconstitutional. Conclusion: The court allowed the writ petition, quashing the impugned notice dated 10.01.2019, and held that CERA does not have the jurisdiction to audit the accounts of a private entity like the petitioner under Section 16 of the CAG’s (DPC) Act. The court emphasized the need for statutory backing for any special audit and highlighted the procedural requirements under relevant statutes.
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