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TMI Blog2014 (12) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... is a "taxable service". 3. The impugned notice, issued on the allegation that the petitioner had not paid service tax on the amount collected as premium during the years 2007-2008, 2008-2009, 2009-2010 and 2010-2011, has been challenged on the ground of the same being barred by limitation, and therefore, without jurisdiction. There is no demand towards Service Tax on rent. 4. Section 73 of the Finance Act, 1994 provides as follows : "73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. - (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of - * ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, and the period of "one year" referred to in sub-section (1) shall be counted from the date of receipt of such information of payment. Explanation 1. - For the removal of doubts, it is hereby declared that the interest under Section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer but for this sub-section. Explanation 2. - For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service tax under this sub-section and interest thereon. (4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of - * (a) fraud; or * (b) collusion; or * ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; (i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid - (a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed; (b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules; (c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder; * (ii) in a case where the service tax is provisionally assessed under this Chapter or the rules made thereunder, the date of adjustment of the service tax after the final assessment thereof; * (iii) in a case where any sum, relating to service tax, has erroneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Act read with Rule 6 of the said rules with intent to evade payment of Service Tax. Moreover, for delayed payment of Service Tax, they are liable to pay interest at appropriate rate as per Section 75 of the said Act." 8. The allegation against the petitioner is that the petitioner did not disclose the material fact that the petitioner had engaged in providing taxable services and had suppressed facts with intention to evade payment of service tax on the service of "Renting of Immovable Property". It is alleged that the assessee had thus failed to comply with the requirements of the statutory provisions of the Finance Act, 1994 and the rules made thereunder and had wilfully suppressed facts related to providing/receiving of the said service with intent to evade payment of service tax. 9. The show cause notice has apparently been issued pursuant to the observations made by Central Excise Revenue Audit (CERA) Team of the Office of the Comptroller and Auditor General of India which had visited the premises of the petitioner. 10. As argued by Mr. Mittal the CERA Audit Team of the office of the Comptroller and Auditor General of India had no power and/or authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial 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 Clause (b) of sub-section (1) of Section 2 of the Chartered Accounts Act, 1949 or the company's auditor himself, to conduct such special audit. 15. The special auditor appointed by the Central Government under Section 233A of the Companies Act, has the same power and duties in relation to special audit as an auditor of a company under Section 227 of the Companies Act. The only difference is that in spite of making his report to the members of the company the special auditor submits its report to the Central Government. 16. Section 233B of the Companies Act provides, that where in the opinion of the Central Government, it is necessary so to do, in relation to any company required under Section 209 to include in its books of account, the particulars referred to therein, the Central Government might by order direct th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominated 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 specified : Provided that the Central Excise Officer may, on an application made to him in this behalf by the manufacturer or the person and for any material and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (1) is received by the manufacturer or the person. (3) The provisions of sub-section (1) shall have effect notwithstanding that the accounts of the manufacturer or person aforesaid have been audited under any other law for the time being in force or otherwise. (4) Deleted (5) The manufacturer or the person shall be given an opportunity of being heard in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artered 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)." 18. 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 judgment of the Supreme Court in Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I and Another reported in (2008) 14 SCC 151 = 2008 (266) E.L.T. 22 (S.C.). The Supreme Court held that the expression "civil consequences" not only encompasses infraction of property or personal rights but also civil liberties, material deprivations and non-pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella. 19. Section 142(2A) of the Income-tax Act, 1961 was held to entail civil consequences and the rule of audi alterem partem was held to be a necessary prerequisite for an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides that the reports of the Comptroller and Auditor-General of India relating to the accounts of the Union are to be submitted to the President, who is to cause them to be laid before each House of Parliament and the reports of the Comptroller and Auditor-General of India relating to the accounts of the State are to be submitted to the Governor who is to cause them to be laid before the Legislature of the State. 24. In view of Article 149 of the Constitution of India the Comptroller and Auditor-General of India is to 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. 25. None of the statutes referred to above, namely, the Companies Act, 1956, the Income-tax Act, 1961, the Central Excise Act, 1944 or the Finance Act, 1994 as amended from time to time contain any provision for audit by the Comptroller and Auditor-General of India or any audit team subordinate to the Comptroller and Auditor-General of India, of any company incorporated or existing under the Companies Act, 1956, except a government company within the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 14(2) of the CAG Act provides that notwithstanding anything contained in sub-section (1) the Comptroller and Auditor-General might, with the previous approval of the President, or the Governor of a State, or the Administrator of a Union territory having a Legislative Assembly, as the case may be, audit all receipts and expenditure of anybody or authority, where the grants or loans to such body or authority from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly, as the case may be, in a financial year is not less than rupees one crore. This section admittedly also has no application. 32. Under Section 16 it is the duty of the Comptroller and Auditor-General to audit all receipts which are payable into the Consolidated Fund of India and of each State and of each Union territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf 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 he thinks fit and report thereon. 33.&emsp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any request either from the President of India or the Governor of the State, as observed by this Court by its judgment and order dated 26th September, 2012 in WP No. 21053 (W) of 2011, SKP Securities Ltd. v. Deputy Director (RA-IDT) & Ors. (supra). The aforesaid writ petition has been referred to a Larger Bench. 38. Section 19(3) of the CAG Act provides as follows : "The Governor of a State or the Administrator of a Union territory having a Legislative Assembly may, where he is of opinion that it is necessary in the public interest so to do, request the Comptroller and Auditor-General to audit the accounts of a corporation established by law made by the Legislature of the State or of the Union territory, as the case may be, and where such request has been made, the Comptroller and Auditor-General shall audit the accounts of such corporation and shall have, for the purposes of such audit, right of access to the books and account of such corporation : Provided that no such request shall be made except after consultation with the Comptroller and Auditor-General and except after giving reasonable opportunity to the corporation to make representations with regard to the proposa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G(6)(c) of the Central Excise Rules, 1944 and Rule 5A of the Service Tax Rules are set out herein below for convenience : "Rule 173G(6)(a) : Every assessee shall, on demand make available to the Central Excise Officer or the audit party deputed by the Commissioner or the Comptroller and Auditor-General of India : (i) the records maintained or prepared by him in terms of clause (a) of sub-rule (5); (ii) The cost audit reports, if any, under Section 233B of the Companies Act, 1956; and (iii) The income-tax audit report, if any, under Section 44AB of the Income-tax Act, 1961 for the scrutiny of the officer or audit party, as the case may be; * (a) Every assessee who is having more than one factory and maintains separate records in respect of every factory for the purpose of audit then, he shall produce the said records for audit purposes. * (b) Where the Commissioner or the Comptroller and Auditor-General of India decide to undertake the aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or audit party, as the case may be." 45. 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 of the power to make rules for carrying out the provisions of Chapter V, to make rules in respect of the matters enumerated in sub-section (2) of Section 94 of the Finance Act. 46. The Central Government has no power and/or authority under Section 94 of the Finance Act, 1994 to frame rules for any purpose other than those specified in sub-section (2) of Section 94 of the Finance Act or for any purpose other than carrying out the provisions of Chapter V of the said Act. 47. Mr. Mittal submitted that Rule 5A(2) of the Service Tax Rules which provides that every assessee shall, on demand, make available to the officer authorized by the Commissioner, or the audit party deputed by the Commissioner or the Comptroller and Auditor-General of India, the records and documents, as specified in the said Section, within reasonable time, is ultra vires the rule making p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Commissioner, or the audit party deputed by the Commissioner or the Comptroller and Auditor-General of India within a reasonable time not exceeding 15 working days from the date of demand. 52. On a harmonious reading of Rule 5A of the Service Tax Rules with the provisions of Chapter V of the Finance Act, 1994, as amended, it may be deduced that any officer authorized by the Commissioner would have to be interpreted to include the members of an audit team, an auditor or an accountant authorized by the Commissioner, and they would all have access to any premises registered under the Rules, for the purpose of carrying out scrutiny, verification and checks as might be necessary, including auditing of accounts, to safeguard the interest of Revenue. 53. It is, however, pertinent to note the difference in the language and tenor of sub-rule (2) of Rule 5A under which every assessee is required, on demand, to make available to the officer auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly that, the vague assertion that the petitioner had wilfully suppressed facts pertaining to providing/receiving the services with intent to evade payment of service tax was unfounded. 58. A notice was issued by the Office of the Commissioner, Service Tax, Kolkata dated 13th April, 2009 calling upon the petitioner to submit copies of lease agreements including list of long-term lease agreements. The requisites of the aforesaid notice dated 13th April, 2009 appear to have been complied with. 59. The requisites of the notice dated 13th April, 2009 having been complied with and the list of long-term lease agreements having been furnished, it is doubtful whether the extended period of limitation can be invoked after almost three years, when the bona fides of the petitioner was never questioned at any earlier point of time. 60. Once the information is supplied pursuant to the directions of the Revenue Authority and information so supplied has not been questioned, a belated demand has to be held to be barred by limitation. This proposition finds support from the judgment of the Supreme Court in Commissioner of Central Excise, Chandigarh v. Punjab Laminates Pvt. Ltd. rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if, [***] for the words "one year", the words "five years" were substituted : * * * * * Explanation. - Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case may be." 64. The question of whether the proviso to Section 11A of the Central Excise Act, 1944 could be invoked to realize a demand that arose pursuant to retrospective amendment of the law was considered, by the Supreme Court in J.K. Spinning and Weaving Mills Ltd. & Anr. v. Union of India & Ors. reported in 1987 (32) E.L.T. 234 (S.C.). A Three Judge Bench of the Supreme Court held : "31. Under Section 11A(1) the Excise authorities cannot recover duties not levied or not paid or short-levied or short-paid or erroneously refunded beyond the period of six months, the proviso to Section 11A not being applicable in the present case. Thus although Section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11A would be rendered meaningless since all cases of non-payment of tax result in loss of Revenue, and in a sense tantamount to contravention of Chapter V of the Finance Act and the Rules framed thereunder. 67. In Collector of Central Excise, Hyderabad v. Chemphar Drugs and Liniments, Hyderabad reported in (1989) 2 SCC 127 = 1989 (40) E.L.T. 276 (S.C.) the Supreme Court held :- "In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to sub-section (1) of Section 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew to evade tax. 71. The proposition which emerges from the judgments of the Supreme Court referred to above, is that mere failure to disclose a transaction and pay tax thereon or a mere misstatement or mere contravention of the Central Excise Act or the Finance Act, 1994, as amended or any rules framed thereunder, is not sufficient for invocation of the extended period of limitation. There has to be a positive, conscious and deliberate action intended to evade tax, for example, a deliberate misstatement or suppression pursuant to a query, in order to evade tax. 72. There is substance in Mr. Mittal's submission that in view of the Delhi High Court judgment in Home Solution Retail (supra) holding that service tax was not payable on rent of immovable property per se, the petitioner was not liable for Service Tax on premium. In any case, there was room for doubt as to whether renting per se was taxable, for which the law had to be amended. 73. The petitioner claims to have been under the impression that no service tax would be payable on premium and/or salami, on its interpretation of the law, which was a possible interpretation accepted by the Delhi High Court in Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of limitation prescribed in the Finance Act, 1994. 81. In M/s. Raza Textiles Ltd., Rampur v. The Income Tax Officer, Rampur reported in AIR 1973 SC 1362, the Supreme Court held that no authority, much less a quasi-judicial authority, could confer jurisdiction on itself by deciding the jurisdictional fact wrongly. The question of whether the jurisdictional fact had rightly been decided or not was a question open to examination by the High Court in an application under Article 226 of the Constitution of India. 82. In M/s. Raza Textiles Ltd., Rampur (supra) the Supreme Court held that where the Income Tax Officer had assumed jurisdiction by deciding a jurisdictional fact erroneously, the assessee would be entitled to a writ of certiorari as prayed for, since it was incomprehensible to think a quasi-judicial authority could erroneously decide a jurisdictional fact and impose a levy. 83. In Shrisht Dhawan v. Shaw Brother reported in (1992) 1 SCC 534 the Supreme Court followed its earlier judgment in M/s. Raza Textiles Ltd. and reiterated the proposition that a Court or Tribunal cannot confer jurisdiction to itself by deciding a jurisdictional fact wrongly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the rules made thereunder with intent to evade payment of service tax by the person chargeable with the service tax or his agent, the Commissioner is bound to disclose the reasons for formation of such belief. 88. As observed above, mere contravention of provision of Chapter V or Rules framed thereunder does not enable the Service Tax Authorities to invoke the extended period of limitation. The contravention necessarily has to be with intent to evade payment of service tax. 89. On a perusal of the impugned notice it appears to this Court that the Commissioner proceeded on the basis that there had been contravention, as a result of which, some tax payable had not been paid. The Commissioner of Service Tax did not address the issues, which were required to be addressed, for issuing a notice by invoking the extended period of limitation. 90. Moreover, it appears that the demand raised by issuance of the impugned show cause notice has been pre-determined. When a demand is pre-determined the same does not remain in the realm of a show cause notice as held by the Supreme Court in Siemens Ltd. v. State of Maharashtra reported in 2007 (207) E.L.T. 168 (S.C.) = 2007 (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limitation is not invocable. This proposition find support from the judgment of the Supreme Court in Collector of Central Excise, Jaipur v. Alcobex Metals reported in (2003) 4 SCC 630 = 2003 (153) E.L.T. 241 (S.C.). 93. The entire claim except at best for, may be, four receipts is barred by limitation. It is well-settled inter alia by the decisions of the Supreme Court in M/s. Raza Textiles Ltd. (supra), Calcutta Discount Company Ltd. (supra) and Shrisht Dhawan (supra) that an authority cannot invoke jurisdiction to exercise power by deciding jurisdictional facts wrongly. In exercise of the power of judicial review under Article 226 of the Constitution of India, this Court might examine the existence and/or correctness of the jurisdictional facts on the basis of which jurisdiction to exercise power is invoked. 94. For the reasons discussed above, this Court is of the view that the conditions precedent for exercise of jurisdiction to invoke the extended period of limitation were wholly absent. The Commissioner has not properly and independently applied his mind to the question of whether the conditions for invoking the extended period of limitation existed, but has acted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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