Grounds of Appeal
1. The challenge in this petition by Mega Cabs Private Limited is to Rule 5A(2) of the Service Tax Rules, 1994 (ST Rules) as amended by the Service Tax (Third Amendment) Rules, 2014 made by the Central Government in terms of a Notification No. 23/2014-Service Tax dated 5th December 2014 in exercise of the powers conferred under Section 94(1) read with Section 94 (2)(k) of the Finance Act, 1994 (FA) to the extent that the amended Rule 5A(2) empowers deputing departmental officers or officers from the Comptroller and Auditor General of India (CAG) to ‘demand’ documents mentioned therein. It is contended that this is in conflict with Section 72A of the FA and beyond the rule making power of the Central Government.
2. The Petitioner has also challenged the constitutional validity of Section 94(2)(k) of the FA on the ground that it gives ‘plainly unguided and uncontrolled’ delegated powers to the Central Government for framing rules. It is stated that Section 94(2)(k) of the FA suffers from the vice of excessive delegation.
3. Also challenged is the Circular No. 181/7/2014-ST dated 10th December 2014 issued by the Central Board of Excise and Customs (CBEC) stating that since a clear statutory backing for conducting audit is available under Section 92(4)(k) of the FA, the Departmental Officers would be directed to audit service tax Assessee in terms of the departmental instructions already issued.
4. Lastly, the petition challenges a letter dated 30th April 2015 issued by the Commissioner of Service Tax, Audit-1, New Delhi (Respondent No.2) informing the Petitioner that a team of officers of Circle-4, Group-1 of the said Commissionerate comprising three Superintendents and an Inspector would be verifying the relevant records of the Petitioner‘s business in terms of Rule 5A to the ST Rules read with Section 94(1), 94 (2)(k) and 94(2)(n) of the FA as amended, during the first week of May 2015 for the financial years 2010-11 to 2013-14. The Petitioner was asked to cooperate and facilitate the officers in conducting the audit and verification.
Analysis of the provisions of the FA
At the outset it requires to be noticed that unlike the Income Tax Act, 1961 or even the Delhi Value Added Tax Act, 2004 there is no provision in the FA for re-assessment of a service tax return. There can be a self-assessment in which case the return filed by the Assessee is accepted as such and the tax amount indicated therein is accepted as being correct. However under Section 72 of the FA two scenarios are envisaged. Section 72 reads as under:
“72. Best judgement assessment:-
If any person, liable to pay service tax,-
(a) fails to furnish the return under section 70;
(b) having made a return, fails to assess the tax in accordance with the provisions of this Chapter or rules made there under,
the Central Excise Officer, may require the person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, shall by an order in writing, after giving the person an opportunity of being heard, make the assessment of the value of taxable service to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.”
Under Section 72 of the FA, one scenario is where a person who is liable to pay service tax fails to furnish a return under Section 70. The second is where such person has filed a return but “fails to assess the tax in accordance with the provisions of this Chapter or rules thereunder‖. The Assessing Officer (AO) is in the either scenario empowered to require the production of such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, give an order in writing after complying with the rules of natural justice. The assessment in such circumstance is made on the value of the taxable service ―to the best of his judgment‖. The AO determines the sum payable by the Assessee or refundable to the Assessee on the basis of such assessment. Therefore, even for the purpose of Section 72 a prima facie satisfaction is to be arrived at that the return filed by the Assessee fails to assess the tax in accordance with law. Even in such an instance the calling for the accounts, documents and other evidence is not to be undertaken by an AO mechanically.
The second important factor to be noted as far as Section 72 of the FA is concerned is that it is not any or every officer of the service tax department who can exercise the power thereunder. The function of making an assessment has to be assigned to such officer. It is only such officer who is entrusted with such power who can proceed to ask for the documents, records, accounts etc.
Section 72 A of the FA, which deals with the 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 declare or determine the value of a taxable service correctly; or
(ii) has availed and utilised credit of duty or tax paid-
(a) 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
(b) by means of fraud, collusion, or any wilful misstatement or suppression of facts; or
(iii) 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 hi m, to the extent and for the period as may be specified by the Commissioner.
(2) The chartered accountant or cost accountant referred to in sub-section (1) shall, within the period specified by the said 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 utilised 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;
(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.”
The scheme of Section 72A is that in the first instance the Commissioner has to record ―reasons to believe‖ that the person who is liable to pay service tax has:
