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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 ..... missioner. 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, Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax diligently and had been filing ST-3 returns periodically as required. 5.3. By email dated 10.01.2019, office of respondent No.3 i.e. Assistant Commissioner of Central Tax, intimated the petitioner that CERA audit was being conducted for the period from January 2019 to March 2019 and that petitioner's case was selected for scrutiny / audit by LAP-XII CERA (GSTA). Petitioner was called upon to submit information / records for the period 2015-16 to 2017-18 as per annexure attached to the letter directly to the officers of CERA. It may be mentioned that from July, 2017 the Goods and Services Tax (GST) regime came into force and the erstwhile service tax stood subsumed in GST. 5.4. Annexure to the impugned letter called upon petitioner to produce the following record for the period 2015-16 to 2017-18: (i) Annual financial statement viz. Profit & Loss Account, Balance Sheet, Trial Balance; (ii) Tax Audit Report, Cost Audit Report; (iii) Cenvat register containing details of Cenvat credit availed and utilised; (iv) List of MOUs, contract / agreements signed with other companies to whom services have been provided / received from which is having its office outside India; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... munication calling for audit of petitioner company for the period 2015-16 to 2017-18 being traceable to no such power is wholly without jurisdiction. Respondent's reliance on the provisions of Section 16 of the CAG's (DPC) Act to conduct audit of accounts of petitioner company is wholly misplaced as Section 16 does not authorise the CAG or any audit team under the control of CAG to audit accounts of a non-government company unless the CAG is requested to do so by the President of India or the Governor of the State or the Administrator of Union Territory as prescribed under Section 20 of the Act. In the absence of such permission seeking audit of a non-government company, impugned notice / intimation to petitioner is ex-facie without jurisdiction, illegal, unconstitutional and therefore be quashed. 8.1. Petitioner company being incorporated under the Companies Act, 1956, it is governed by the provisions of the Companies Act, 1956 and is thus required to maintain its accounts in the manner prescribed by the Companies Act, 1956. The accounts are required to be maintained in a manner that gives a true and proper picture of the affairs of the company. With the amendment of Section 209 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he particulars referred to therein, the Central Government may by order direct a special audit of cost accounts and appoint a Cost Accountant for the same; (iii) Under Section 142(2A) of the Income Tax Act, 1961 (for short 'the Income Tax Act') under the Assessing Officer at any stage of the proceedings before him having regard to the nature and complexity of the accounts of the assessee and the interest of revenue, is of the opinion that it is necessary to do so, may with the previous approval of the Chief Commissioner or Commissioner direct the assessee to get the accounts audited by an accountant after following the principles of natural justice and furnish the report of such auditing of accounts in the prescribed form; (iv) Under Section 14A of the Central Excise Act, 1944 (for short 'the Central Excise Act') if at any stage of inquiry, investigation or any other proceeding before the Central Excise Officer not below the rank of Assistant Commissioner or Deputy Commissioner of Central Excise, the Officer is of the opinion that the value has not been correctly declared or determined by a manufacture or any person, he may with the previous approval of the Chief Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial authority, could confer jurisdiction on itself by deciding the jurisdictional fact wrongly. The case of Shrisht Dhawan Vs. Shaw Brother (1992) 1 SCC 534, is referred to wherein the Apex Court while following its earlier judgment in M/s. Roza Textiles Ltd., held that a Court or Tribunal cannot confer jurisdiction on itself by deciding a jurisdictional fact wrongly. Reliance is also placed on the Constitution Bench judgment of the Apex Court in the case of Calcutta Discount Company Ltd. Vs. Income Tax Officer, Companies District - I, Calcutta & Anr. AIR 1961 SC 372, wherein it is held that where the action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts would issue appropriate orders or direction to prevent the same. 9. PER CONTRA, Mr. Jetly, learned Senior counsel appearing on behalf of the respondents submitted that the impugned communication issued under the provisions of Section 16 of the CAG's (DPC) Act provides for audit by the CAG of all receipts payable into the Consolidated Fund of India and of each State and each Union Territory having a legislative ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Commissioner, submit a report duly signed 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 notwithstanding 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)." 11.1. The above-mentioned section is applicable, where the assessee is not maintaining the books of account properly to ascertain the liability of service tax. To determine the correct tax, books will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. 13. 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. 14. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State are to be submitted to the Governor who is to cause them to be laid before the Legislature of the State. 16.4. The Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 i.e. CAG's (DPC) Act is an Act to determine the conditions of service of the CAG and prescribe his duties and powers and for matters connected therewith or incidental thereto. Duties and powers of the CAG are enumerated in Chapter III of the CAG's (DPC) Act. The relevant provisions contained in Chapter III i.e. Sections 10 to 20 of the Act are extracted as under :- "10. (1) The Comptroller and Auditor-General shall be responsible- (a) for compiling the accounts of the Union and of each State from the initial and subsidiary account rendered to the audit and accounts offices under his control by treasuries, offices or departments responsible for the keeping of such accounts; and (b) for keeping such accounts in relation to any of the matters specified in clause (a) as may be necessary: (2) ………. (3) ………. 11. The Comptroller and Auditor-General shall from the accounts compiled by him or by the Government or any other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his purpose such examination of the accounts as he thinks fit and report thereon. 17. The Comptroller and Auditor-General shall have authority to audit and report on the accounts of stores and stock kept in any office or department of the Union or of a State. 18.(1) The Comptroller and Auditor-General shall in connection with the performance of his duties under this Act, have authority- (a) to inspect any office of accounts under the control of the union or of a State, including treasuries, and such offices responsible for the keeping of initial or subsidiary accounts, as submit accounts to him; (b) to require that any accounts, books, papers and other documents which deal with or form the basis of or an otherwise relevant to the transactions to which his duties in respect of audit extend, shall be sent to such place as he may appoint for his inspection; (c) to put such questions or make such observations as he may consider necessary, to the person in charge of the office and to call for such information as he may require for the preparation of any account or report which it is his duty to prepare. (2) The person in charge of any office or department, the accounts of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such audit is necessary because a substantial amount has been invested in, or advanced to, such body or authority by the Central or State Government or by the Government of a Union territory having a Legislative Assembly, and on such request being made, the President or the Governor or, the Administrator, as the case may be, may empower the Comptroller and Auditor-General to undertake the audit of the accounts of such body or authority. (3) The audit referred to in sub-section (1) or sub-section (2) shall not be entrusted to the Comptroller and Auditor-General except where the President or the Governor of a State or the Administrator of a Union territory having a Legislative Assembly, as the case may be, is satisfied that it is expedient so to do in the public-interest and except after giving a reasonable opportunity to the concerned body or authority to make representations with regard to the proposal for such audit." 17. The impugned notice / intimation dated 10.01.2019 calling on the petitioner to submit its records to the officers of CERA for audit will have to be considered with reference to the above provisions of the CAG's (DPC) Act. The CAG's (DPC) Act is enacted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the expenditure conforms to the authority which governs it, to audit all transactions of the Union and of the States relating to Contingency Funds and Public Accounts, to 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 and in each case to report on the expenditure, transactions or accounts so audited by him. Section 13 envisages audit of all expenses from the Consolidated Fund of India, Contingency Fund and Public Accounts. The key words "……..kept in any department of the Union or of a State …….." clearly define the intent of the legislation in unambiguous words and certainly the audit exercise cannot therefore extend to a private entity though the audit may pertain to the accounts receipts of a private party kept in any government department. 17.5. Audit of receipts and expenditure of bodies or authorities financed from Union or State revenues and the functions of the CAG in case of grants or loan given to other authorities or bodies is covered under Sections 14 and 15 of the CAG's (DPC) Act. 17.6. Section 16 of the Act pertains to audit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point for his inspection; (c) to put such questions or make such observations as he may consider necessary, to the person in charge of the office and to call for such information as he may require for the preparation of any account or report which it is his duty to prepare. Section 18(2) further makes it clear that the person in charge of any office or department, the accounts of which have to be inspected and audited by the CAG shall afford all facilities for such inspection and comply with requests for information in as complete a form as possible and with all reasonable expedition. 18. From the above it is clearly discernible that the power of the CAG under Chapter III extends to any office or department of the Government and cannot be construed to extend to a private entity. The provisions of Chapter III envisage that for the purpose of audit it shall be the duty of the CAG to conduct audit of the receipts payable into the Consolidated Fund of India of the Union or a State as applicable and to put such questions or make such observances as the CAG may consider necessary to the person in-charge of the office or to call for such information as required for preparation of any a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a period of three years by respondent No.3. Such a detailed audit can only be called for under relevant and specific statutes. It is settled law that jurisdiction goes to the root of a matter and power of any authority invoking such jurisdiction to call for special audit needs to be traceable to the relevant statutory provision. In the absence of statutory backing, such an exercise of power would be invalid and nonest. In the present case, the impugned notice / letter dated 10.01.2019 calls for CERA audit and respondents in their affidavit-in-reply have relied on the provisions of Section 16 of the CAG's (DPC) Act to justify the impugned communication. If that be the case then as discussed hereinabove, the respondent's action is wholly without jurisdiction and unconstitutional. 20. In the case of SKP Securities Ltd Vs. Deputy Director (Ra-IDT) 2013(1) TMI 549, a single Judge of the Calcutta High Court was considering a challenge to a notice 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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." 20.1. In the above case, Court accepted the statement of the petitioner that Section 16 of the CAG's (DPC) Act does not authorize the CAG or any audit team under the control of CAG to audit the accounts of a non-government company, that too, in the absence of any request either from the President of India or Governor of the State in which the company is having its operation. 21. In a subsequent decision in the case of A.C.L. Education Centre (P) Ltd Vs. Union of India & Ors. 2014(1) TMI-1562, a Division Bench of the Allahabad High Court considered the challenge to the vires of Rule 5A(2) of the Service Tax Rules, 1994, inter alia, on the ground that the said rule was contrary to the provisions of Section 72 of the Service Tax Act and rejected the said challenge. However, since in the facts of the said case, inquiry and investigation for special audit was specifically invoked under the provisions of Rule 5A of the Service Tax Rules, 1994 in the case of a private assessee i.e the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 24. In view of the above discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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