The Supreme Court of India recently stayed Delhi High Court verdict declaring Empowering Officers from CAG to conduct Audit of Service Tax Assessee is ulra vires to Finance Act.
On 3rd June 2016, the division of bench of Delhi High Court declared that, Rule 5A(2) as amended in terms of Notification No. 23/2014- Service Tax dated 5 th December 2014 of the Central Government, to the extent that it authorises the officers of the Service Tax Department, the audit party deputed by a Commissioner or the CAG to seek production of the documents mentioned therein on demand is ultra vires to the Finance Act, 1994.
The Delhi High Court ruled that, “Rule 5A(2) exceeds the scope of the provisions under the Finance Act. This is the result whether Rule 5A(2) is tested vis-a-vis Section 72A of the FA which pertains to special audit or Section 72 which pertains to assessment or Section 73 which pertains to adjudication or even Section 82 which relates to searches. Under the garb of the rule making power, the Central Government cannot arrogate to itself powers which were not contemplated to be given it by the Parliament when it enacted the FA. This is an instance of the Executive using the rule making power to give itself powers which are far in excess of what was delegated to it by the Parliament”. The Court also observed that, Section 94(2)(k) does not permit the exercise of audit to be undertaken by an officer of the Department, the attempt in the circular to recognise such powers in the officers of the Central Excise and Service Tax Departments is held to be ultra vires the FA and, therefore, legally unsustainable. The bench also held that, the expression verify in Section 94 (2) (k) of the FA cannot be construed as audit of the accounts of an Assessee and, therefore, Rule 5A(2) cannot be sustained with reference to Section 94(2)(k) of the FA.
While issuing notice, the bench comprising of Justice Madan B Lokur and Justice D Y Chandrachud granted stay of the operation of the impugned judgment.
Read the full text of the order below.
