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TMI Blog2013 (1) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this writ application be referred to a Division Bench for adjudication - Referred to divisional bench - W.P. No. 21053 (W) of 2011 & W.P. No. 20517 (W) of 2012 - - - Dated:- 26-9-2012 - Indira Banerjee, J. Appellants Rep. by : Mr. J. K. Mittal, Mr. Abhratosh Majumder, Mr. Paritosh Sinha, Mr. Amitava Mitra, Ms. Anupa Banerjee, Ms. Dolon Dasgupta Respondents Rep. by : Mr. Tapas Kr. Hazra, Mr. Sandip Bhattacharya Mr. Indrajit Dasgupta Mr. J. K. Mittal, Mr. Paritosh Sinha, Mr. Amitava Mitra Ms. Anupa Banerjee, Ms. Dolon Dasgupta Ms. Ranjana Guha Mr. K. K. Maiti JUDGEMENT Per: Indira Banerjee: 1. This writ application has been filed inter alia challenging a 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 audit, by the Central Excise Revenue Audit (CERA) team, an audit team under the Comptroller and Auditor General of India, of the service tax records, accounts and other related documents of the petitioner company. The audit was proposed to be held between 12th December, 2011 and 16th December, 2011 and the petitioner company was required to provide suitable accommodation f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent. Its annual accounts and annual report are published and circulated inter alia amongst its shareholders. The Accounts and Annual Reports are required to be filed with the Registrar of Companies and are available for inspection. All books of accounts of a company are available for inspection at its Registered Office. 8. Some of the statutes by which the petitioner company is governed contain provisions for special audit. Under Section 233A of the Companies Act, 1956, where the Central Government is of the opinion that the affairs of the company are not being managed in accordance with sound business principles or prudent commercial practices or that any company is being managed in a manner likely to cause serious injury or damage to the interests of the trade, industry or business to which it pertains or that the financial position of any company is such as to endanger its solvency, the Central Government might by the same or a different order direct that a special audit of the company's accounts for such period or periods as may be specified in the order, shall be conducted and may by the same or by different order appoint either a Chartered Accountant as defined in Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard] 12. Similarly, Section 14A of the Central Excise Act, 1944 provides as follows : SPECIAL AUDIT IN CERTAIN CASES (1) If at any stage of enquiry, investigation or any other proceedings before him, any Central Excise Officer not below the rank of an Assistant Commissioner or Deputy Commissioner of Central Excise, having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or determined by a manufacturer or any person, he may, with the previous approval of the Chief Commissioner of Central Excise, direct such manufacturer or such person to get the accounts of his factory, office, depots, distributors or any other place, as may be specified by the said Central Excise Officer, audited by a cost accountant or chartered accountant, nominated by the Chief Commissioner of Central Excise in this behalf. (2) The cost account or Chartered Accountant, so nominated shall, within the period specified by the Central Excise Officer, submit a report of such audit duly signed and certified by him to the said Central Excise Officer mentioning therein such other particulars as may be spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned and certified by him to the said Commissioner mentioning therein such other particulars as may be specified by him. (3) The provisions of sub-section (1) shall have effect notwithstandidng that the accounts of such person have been audited under any other law for the time being in force. (4) 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 under the provisions of this Chapter or rules made thereunder. Explanation For the purposes of this section,- (i) chartered accountant shall have the meaning assigned to it in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949); (ii) cost accountant shall have the meaning assigned to it in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959)]. 14. It is now well settled by judicial pronouncements that an order for special audit is required to be made upon compliance with principles of natural justice. Reference may in this context be made to the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a Constitutional Authority appointed under Section 148 of the Constitution of India. The duties and powers of the Comptroller and Auditor General of India are circumscribed by Article 149 of the Constitution of India, set out herein below for convenience : Section 149 - Duties and powers of the Comptroller and Auditor General. The Comptroller and Auditor General shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States as were conferred on or exercisable by the Auditor-General of India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and of the Provinces respectively. 21. Article 148(5) of the Constitution of India provides as follows : Article 148(5) - Subject to the provisions of this Constitution and of any law made by Parliament, the conditions of service of persons serving in the Indian Audit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empowers the Comptroller and Auditor General of India to conduct the audit impugned in the writ application. Before adverting to Section 16 it could perhaps be pertinent to refer to Sections 13 to 15 of the CAG Act wherefrom it will be absolutely clear that the primary duty and function of the Comptroller and Auditor General of India is to audit expenditure from the Consolidated Fund of India and of each State and of each Union territory having a Legislative Assembly and to ascertain whether the moneys shown in the accounts as having been disbursed were legally available for and applicable to the service or purpose for which they have been applied or charged and whether the expenditure conforms to the authority which governs it. 28. The Comptroller and Auditor General of India is required to audit all transactions of the Union and of the States relating to Contingency Funds and Public Accounts and also audit all trading, manufacturing, profit and loss accounts and balance sheets and other subsidiary accounts kept in any department of the Union or of a State. 29. In addition, where anybody or authority is substantially financed by grants or loans from the Consolidated Fund of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and other amount which has been collected and are payable into the Consolidated Fund of India or the Consolidated fund of the State or of a Union Territory having a Legislative Assembly. In course of such audit the Comptroller and Auditor General of India is to satisfy himself that the rules and procedures are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed, and to make, for this purpose, such examination of the accounts as the Comptroller and Auditor General of India might deem fit and make a report thereon. The word Accounts is to be read and construed in the light of the definition of accounts in Section 2(A) of the CAG Act. Unless the context otherwise requires, accounts in relation to commercial undertakings of a Government are to include trading, manufacturing and profit and loss accounts and balance sheets and other subsidiary accounts. In the absence of any enabling provision which empowers the Comptroller and Auditor General of India to audit the accounts of a non-government company, Section 16 of the CAG Act is to be construed to empower the Comptroller and Auditor General of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Territory. 39. The condition precedent for audit of a nongovernment body is a request from the President of India, Governor of the State concerned or the Administrator of a Union Territory concerned after consultation with the Comptroller and Auditor General of India. The conditions precedent for an audit by the office of the Comptroller and Auditor General of India are wholly absent in the facts and circumstances of the case. 40. In exercise of power conferred by Subsection (1) read with Sub-section (2) of Section 94 of the Finance Act, 1994 the Central Government has made the Service Tax Rules, 1994. Section 94(1) of the Finance Act, 1994 empowers the Central Government to make rules for carrying out the provisions of Chapter V of the said Act, by notification in the official gazette. Sub-section (2) of Section 94 enumerates the matters for which rules might be made. The power conferred under Sub-section (2) of Section 94 to make rules in respect of the matters enumerated in the said Sub-section is without prejudice to the generality of Section 94 Sub-section (1) whereby the Central Government has power to make rules for carrying out the provisions of Chapter V. 41. Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Commissioner in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue. (2) Every assessee shall, on demand, make available to the officer authorised under subrule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, within a reasonable time not exceeding fifteen working days from the day when such demand is made, or such further period as may be allowed by such officer or the audit party, as the case may be, - (i) the records as mentioned in sub-rule (2) of rule 5; (ii) trial balance or its equivalent; and (iii) the income-tax audit report, if any, under Section 44AB of the Income-tax Act, 1961 (43 of 1961), for the scrutiny of the officer or audit party, as the case may be.] 43. As observed above the Central Government derives the power to make rules from Section 94 of the Finance Act, 1994. Section 94 empowers the Central Government to make rules for carrying out the provisions of Chapter V of the said Act and without prejudice to the generality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules which provide for audit by the Comptroller and Auditor General of India or any audit team under his control of an assessee which is not a government company. 49. It is well settled principle of interpretation that statutory rules must be construed in harmony with the rule making power, in exercise of which, the statutory rule has been made. If it were possible to interpret the statutory rule in more ways than one, the Courts would prefer that interpretation which would make the statutory rule workable and intra vires, to that interpretation which would render the rule untra vires and invalid. 50. On a plain reading of Rule 5A(2) of the Service Tax Rules, the said Rule does not empower the CAG to audit the accounts of any assessee. While Sub-rule (1) of Rule 5A provides for access of any officer authorized by the Commissioner to any premises registered under the service tax Rules, for carrying out any scrutiny, verification or check, as may be necessary to safeguard the interest of revenue, Sub-rule (2) of Rule 5A only casts an obligation on the assessee to make the records and documents as specified in the said Rule available to the officer authorized by the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication. 53. The Court noted the following points for adjudication: 1. 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, has vested both the authorities, namely, Commissioner of Central Excise and the Comptroller and Auditor General of India to undertake respective audits of the records of any assessee by interpreting the word or conjunctively as argued by the respondents. 2. If the answer to point no (1) is yes , that is, the word or has to be read conjunctively, to empower both the said authorities to conduct respective audits, whether the notice for audit issued could be assailed in the writ jurisdiction. 3. Whether writ challenging a notice of audit is maintainable, when such notice to audit does not fix any liability, but is only a procedural check-up by audit of the accounts and other documents as contemplated in the impugned notice, and causes no prejudice. 54. From the judgment in Berger Plaints (supra) it appears that the main thrust of the argument was that a Special Audit having be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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