The Delhi High Court held that Section 174(2)(e) of the CGST Act, 2017 specifically empowers the authorities to institute any investigation, inquiry, verification, assessment proceedings, adjudication, etc. under Rule 5A of the Service Tax Rules.

The Petitioner, Vianaar Homes Pvt. Ltd. is a company engaged in the business of construction of residential complexes since its incorporation.

The officers of Central Goods and Service Tax, Audit-II visited the business premises of the Petitioner, directed the production of certain documents and sought information in relation to the disputed period.

In addition thereto, the officers also demanded information pertaining to several group companies of the Petitioner. Despite Petitioner’s compliance with the above and submission of the requisite information, the officers visited the business premises again.

Their conduct exhibits the intention to continue with the visits, conduct audit/verification proceedings, and give further directions for production of documents and information.

The Petitioner has challenged the letter by virtue the Respondents have commenced the audit/verification, on the ground that the same is void ab initio, being wholly without jurisdiction as well as without any statutory or legal authority.

The primary hypothesis for assailing the action of the Respondents is founded on the premise that with effect from 01.07.2017, by the advent of the CGST Act, the Respondents cannot take recourse to a subordinate legislation i.e. Rule 5A Service Tax Rules, 1994 framed under Chapter V on the Finance Act, 1994, which, by virtue of Section 173 of CGST Act, stands omitted.

According to the Petitioner, the repeal and saving provision in relation to Section 174 does not specifically save Rule 5A of the Service Tax Rules, 1994.

It was contended that the saving provision and Section 6 of the General Clauses Act, 1897 saves only those cases where the obligation or liability stood incurred or accrued prior to the date of repeal. The duty, tax etc. that is within contemplation of the saving clause is only that which falls within the ambit of section 72 and 73 of the Finance Act, 1994.

Section 5A proceedings are in the nature of a roving enquiry that would not result in tax becoming due, and therefore cannot be resorted to in the facts of the present case.

The material question raised was whether the audit/verification contemplated under Rule 5A is saved despite the repeal of Chapter V.

The division bench of Justice Sanjeev Narula and Justice Manmohan noted that the obligation to pay service tax arose at the time of rendering taxable service, which fell during the disputed period, at which time Chapter V was very much in force.

The court took into consideration the decision of the Apex Court in the case of State of Punjab v. Harnek Singh wherein it was held that while interpreting the words “anything duly done or suffered thereunder” used in clause (b) of Section 6 of GCA which are also found in Section 174(2)(b) of the CGST Act, has observed that these words used by the legislature in a saving clause are intended to provide, unless a different intention appears, that the repeal of an Act would not affect anything duly done or suffered thereunder.

Thus, the court having regard to the language used in the saving clause of the CGST Act as well as Sections 6 and 24 of the General Clauses Act, along with the legislative intent behind the repeal and enactment, held that Rule 5A of Service Tax Rules, 1944 framed under the repealed or omitted chapter V of the Finance Act, 1994, is saved.