SERVICE TAX AUDIT UNDER RULE 5A OF SERVICE TAX RULES 1994 IS ULTRAVIRUS
August, 13th 2014
SERVICE TAX AUDIT UNDER RULE 5A OF SERVICE TAX RULES 1994 IS ULTRAVIRUS (CA SOHRABH JINDAL)
By: CA SOHRABH JINDAL
August 7, 2014
It is a general practice for Service Tax Department to conduct audit of service tax assessee for the last five years by deputing their own officers of the rank of inspector and superintendent Service Tax Department also seeks voluminous details and seeks information in self-specified format / annexure of about 32 pages, which are not prescribed under the law.
On several occasions, the courts have held that the Department has to give the reason and opportunity of hearing before conducting an audit under the law even when the Parliament has given them the power to conduct special audit.
However, Service Tax Department without assigning any reasons routinely conducts audit even when it is not prescribed under the law and not conducting special audit.
There was a time when the Audit wings of the department were specialised units with senior inspectors. They even used to get a special pay. And many of the assessees happily welcomed these departmental audit officers who were very knowledgeable and could help the assessees in clarifying several doubts. Over the years greed and incompetent arrogance replaced decency and erudition and these officers became a big nuisance and most unwelcome in the premises of the assessees. They became an impediment for the normal work of the assessee's offices and it became prohibitively expensive to entertain these auditors. While Central Excise assessees accept Audit as an unavoidable evil, Service Tax assessees who are relatively new to the vagaries of Audit cannot understand why the Departmental auditors should come to their premises and audit their accounts when no other department does that.
The Notice of audit received from the Service tax department indicates that this audit is required to be done Under Rule 5A of the Service Tax Rules-1994
Rule 5A of the Service Tax Rules-1994 has been reproduced below--
5A. (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 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, -
the records as mentioned in sub-rule (2) of rule 5;
trial balance or its equivalent; and
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.]
In a recent writ petition by "Travelite (India) Versus UOI And Others" [2014 (8) TMI 200 - DELHI HIGH COURT ], The Hon'ble Delhi High Court has struck down Rule 5A of theService Tax Rules 1994. (Judgement dated 4-8-2014)
According to HC, The Service Tax department has no authority to conduct audit underRule-5A of the Service Tax Rules-1994. The Service Tax audit can be done undersection 72A of the Finance Act-1994 (known as Service Tax Act).
In this matter, the assessee before approaching to the High Court had approached the Department for seeking reasons and under which law the Department has sent them the number of forms to be filled up; however, the Department did not respond and insisted for all such documents/information even by issuing summons. The assessee has then approached the High Court.
POWER OF SERVICE TAX AUDIT
Now the Hon’ble Delhi HC has made it clear that Service Tax audit can be initiated by the Service Tax Department only under the authority of Section 72A of the Finance Act-1994(known as Service Tax act) and to initiate this power of audit the commissioner must have reasons to believe that any person liable to pay service tax (herein referred to as "such person"),--
has failed to declare or determine the value of a taxable service correctly; or
has availed and utilised credit of duty or tax paid -
which is not within the normal limits having regard to the nature of taxable service provided, the extent of capital goods used or the type of inputs or input services used, or any other relevant factors as he may deem appropriate; or
by means of fraud, collusion, or any wilful mis-statement or suppression of facts; or
has operations spread out in multiple locations and it is not possible or practicable to obtain a true and complete picture of his accounts from the registered premises falling under the jurisdiction of the said Commissioner,
he may direct such person to get his accounts audited by a chartered accountant or cost accountant nominated by him, to the extent and for the period as may be specified by the Commissioner.
This Judgement given by Hon’ble Delhi HC is of a great importance and a major relief for the Service Tax assessee all over India specially registered in Delhi.
Now if there is any service tax audit notice is received or any notice is pending with the assessee, then in my opinion by taking the benefit of this Judgement, the assessee can safely argue with the department.
Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.
Thanks and Best Regards
CA SOHRABH JINDAL
F-14B, Ground Flr, Street No-29,
Madhu Vihar, Patparganj,
Mobile: +91 9810216640
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By: CA SOHRABH JINDAL - August 7, 2014
Discussions to this article
The excise/service tax returns are now filed on line and no documents of input credit/input service credit or sale invoices or copy of any trial balance/balance sheet, details of valuation etc are provided on regular basis until called by the department.
Hence, if Audit are not conducted how will the department know whether credit availed correctly and on proper documents, and whether duty has been paid under RCM and proper abatement availed etc. by the assessee.
By: Naveed S Dated: 08/08/2014
Dear Naveed g,
The Govt. has already prescribed all the procedures and law. and it is expected that every person is following the law as prescribed.
now it is upon the assessee to follow all rules and pay the tax as per law. if the assessee has bad intention, then the legislature has given the power to the service tax department to initiate audit proceedings u/s 72A on satisfaction of certain conditions.
If the assessee is following the law as prescribed, then why he should be harrased by the department.