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TMI Blog2021 (2) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... to 2017-18 to the officers of CERA for audit. 3. Central Excise Revenue Audit (for short 'CERA') is conducted under the overall supervision of the Principal Director of Audit, (Central) Kolkata in the Indian Audit Department of Government of India. 4. 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. The period for which the accounts are sought to be audited appear differently in the covering letter and the annexure to the intimation letter. There is no enabling statutory provision available to the respondents to seek information pertaining to pre and post GST era for CERA audit from a private entity; such action suffers from a jurisdictional error since power to audit being a statutory power traceable to the relevant statute being absent in the present case. In the affidavit-in-reply respondents have contended that power to conduct CERA audit has been invoked under the provisions of Section 16 of the Comptroller and Auditor General's (Duties, Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other communication from the Department; (ix) All ledger accounts in respect of related party transactions; (x) List of fire cases / theft, cases / destroyed, goods / records ceased by the department along with related correspondences with the department and insurance companies; (xi) Job work register; (xii) Cost sheet for goods captively consumed; (xiii) List of exempted goods / services option exercised, value and notification under which exemption claimed (Rule 6 of Cenvat Credit Rules, 2004); (xiv) Tran-1 return and list of invoices on which transitional credit claimed; (xv) GSTR-3B of July 17 to March 18. 5.5. By letter dated 20.02.2019 petitioner sent a reply, inter alia, stating that CERA audit cannot be conducted for the period prior to introduction of GST. Rule 5A of the Service Tax Rules did not apply to the petitioner's case and that audit being a special function cannot be carried out by officers of the Department and required appointment of Chartered Accountant or Cost Accountant. However, it was not responded. 5.6. Aggrieved, the present writ petition has been filed to challenge the impugned notice / intimation and annexure, both dated 10.01.2019, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as per accounting standards laid down by the Institute of Chartered Accountants of India (ICAI). For preparation of accounts all companies maintain running account and books of all sales and receipts. Under the Companies Act and the rules and regulations framed thereunder, the accounts so maintained are required to be audited by a Chartered Account and presented in the manner prescribed in the Companies Act. In addition, the petitioner company is also required to have its accounts audited in terms of Section 44AB of the Income Tax Act. All its activities have to transparent. Its annual accounts and annual report are published and circulated, inter alia, amongst its share holders. 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. 8.2. Some of the statutes governing the petitioner company contain provisions for special audit; viz,:- (i) Under Section 233A of the Companies Act, 1956 (for short 'the Companies Act') where the Central Government is of the opinion that the affairs of the company are not being managed in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 (for short 'the Finance Act') if the Commissioner of Central Excise has reasons to believe that any person liable to pay service tax has failed to declare or determine the value of taxable service correctly or for such other reasons specified under the said Section, he may direct such person to get his accounts audited by a Chartered Accountant or Cost Accountant to the extent and for the period as specified. 8.3. Aforesaid statutes governing the petitioner company can be invoked for conducting special audit in compliance with the principles of natural justice. Admittedly no such case has been made out or permission obtained for carrying out special audit of the petitioner company as required under the above statutes. As none of the aforesaid provisions have been invoked, impugned letter / action seeking special audit of the accounts of petitioner for the period 2015-16 to 2017-18 is wholly without jurisdiction. 8.4. In reply to respondents' stand that impugned action is invoked under the provisions of Section 16 of the CAG's (DPC) Act, Petitioner asserts that none of the statutes referred to above contain any provision for conducting audit / special audit by the CAG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore CERA has called for records of the petitioner for the period 2015-16 to 2017-18 which it is legitimately entitled to audit. Every private party such as the petitioner is bound to provide all records and documents called for by CAG in CERA audit. Petitioner company being selected for audit / scrutiny, CERA is authorized under the provisions of Section 16 of the CAG's (DPC) Act to conduct audit of the concerned government department and as a part of which examination of records of the petitioner has become necessary. Reliance is placed on the provisions of Section 16 of the CAG's (DPC) Act relating to audit of receipts of Union or of States in the Consolidated Fund of India. It is contended that there is no merit in the writ petition and the same be dismissed. 10. Submissions made by learned counsel for the parties have been duly considered. Material on record has been perused. 11. Section 72A of the Finance Act, 1994, which relates to special audit reads as under:-- "72A. Special audit. - (1) If the Commissioner of Central Excise, has reasons to believe that any person liable to pay Service Tax (herein referred to as "such person"),-- (i) has failed to declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. 12. Rule 5A of the Service Tax Rules, 1994 is to facilitate the above-mentioned provision. It reads thus:- "5A. Access to a registered premises. - (1) An officer authorised 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 sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, within a reasonable time not exceeding fifteen w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of India dealing with CAG. The question involved is 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. 16. In the above backdrop, we may briefly refer to the relevant statutory provisions. 16.1. Comptroller and Audited General of India (CAG) is an authority constituted under the provisions of Article 148 of the Constitution of India. 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 and Accounts Department and the administrative powers of the Comptroller and Auditor - General shall be such as may be prescribed by rules made by the President after consultation with the Comptroller and Auditor- General." 16.2. Duties and powers of CAG are circumscribed by Article 149 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the Union, of each State and of each Union territory having a Legislative Assembly, and shall submit those accounts to the President or the Governor of a State or Administrator of the Union territory having a Legislative Assembly, as the case may be on or before such dates as he may, with the concurrence of the Government concerned, determine. 12. The Comptroller and Auditor-General shall, in so far as the accounts, for the compilation or keeping of which he is responsible, enable him so to do, give to the Union government, to the State Governments or to the Governments of Union Territories having Legislative Assemblies, as the case may be, such information as they may, from time to time, require, and render such assistance in the preparation of their annual financial statements as they may reasonably ask for. 13. It shall be the duty of the Comptroller and Auditor- General- (a) to audit all 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 to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .(1)The duties and powers of the Comptroller and Auditor-General in relation to the audit of the accounts of Government companies shall be performed and exercised by him in accordance with the provisions of the Companies Act, 1956 (1 of 1956). (2) The duties and powers of the Comptroller and Auditor-General in relation to the audit of the accounts of corporations (not being companies) established by or under law made by Parliament shall be performed and exercised by him in accordance with the provisions of the respective legislations. (3) 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 accounts of such corporation. 20.(1) Save as otherwise provided in section 19, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CAG to compile accounts of the Union and the States / Union Territories and states that the CAG shall be responsible for keeping the accounts of the Union and each State from the initial and subsidiary accounts rendered to the audit and accounts offices under his control by treasuries, offices or departments responsible for keeping such accounts. 17.2. The term "accounts" is defined under Section 2(a) of the Act and refers to the accounts in relation to commercial undertakings of a Government, include trading, manufacturing, profit and loss accounts, balance-sheets and other subsidiary accounts. Pertinently definition of "accounts" under the Act clearly envisages that it is not in relation to any private entity but it is in relation to commercial undertakings of a Government. 17.3. Sections 11 and 13 refer to the statutory scheme whereby the CAG is required to prepare and submit accounts to the President, Governors of States and Administrators of Union Territories having Legislative Assembly. Section 11 states that the CAG shall from accounts compiled by him or by the Government or any other person responsible in that behalf, prepare in each year accounts (including, in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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. The provisions of Section 16 are clear and unambiguous in as much that it shall be the duty of the CAG to audit all receipts which are payable into the Consolidated Fund of India 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 to make for this purpose such examination of the accounts as he thinks fit and report thereon. The legislative scheme of Section 16 requires the CAG to audit all receipts which are payable into the Consolidated Fund and not receivables. The entire data base with respect to receipts which are payable into the Consolidated Fund of India are available with the respective departments. It is these receipts payable into the Consolidated Fund of India that the CAG is required to audit and follow the scheme as prescribed. Section 16 makes it clear that the exercise is undertaken for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty of the CAG which is contemplated under Section 20 of the CAG's (DPC) Act. Section 20 states that if the CAG is requested by the President of India or by the Governor of a State or by the Administrator of an Union Territory, as the case may be, to undertake the audit of accounts of any body or authority on such terms and conditions as may be agreed upon, then the CAG shall undertake such an exercise. This special power of audit of any body or authority which has not been entrusted in the CAG by or by any law made by Parliament is the only provision under which the CAG is empowered either by the President or by the Governor or by the Administrator to undertake the exercise of audit of accounts of any body or authority. But on a reading of this provision it is quite evident that even this provision would extend to a body or authority which undertakes the functions of the Government. 18.2. It has been asserted by the petitioner that though Section 20 applies to audit of accounts of any body or authority not been entrusted to the CAG by or under any law made by Parliament, assuming at the highest that the petitioner (though a private limited company) is covered by the definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority and / or jurisdiction to audit the accounts, service tax records or other documents of the petitioner company therein, which was not an undertaking of the Central Government or any State Government. It was an admitted position in that case that the petitioner company was not run out of funds or loans provided by the Central Government or by any State Government or by any other Government Undertaking or organization. In this backdrop, after considering governance of the petitioner company by the provisions of the Companies Act, 1956 containing provisions for special audit, the learned Single Judge in paragraphs 47 to 49 of the said decision made the following observations:- "47. In the absence of any provision in Chapter V of the Finance Act, 1994 for audit of the accounts of a non-government company by the Comptroller and Auditor General of India or any team under him, the Central Government could not have framed, and has not framed any 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. 48. It is well settled principle of interpretation that statutory rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of audit. Thus, for the purpose of audit, the 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. 26. It is 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. 27. Thus, we find that there is no inconsistency in Rule 5A and Section 72A of the Finance Act, 1994. The said provision is not arbitrary. The manner for conducting the audit is as per the accounting standard provided by the Institute of Chartered Accountant of India. The audit report will be made available to the assessee, as per law." 22. Petitioner's submission that there are specific statutory provisions under which special audit of accounts of the petitioner company can be conducted by following the due process of law therefore needs to be accepted. Case of the respondents in the affidavit-in-reply that the impugned communication has been issued under the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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