Audit by officers of Central Excise have adequate statutory backing (CBEC Circular NO.986/10/2014-CX., Dated: October 9, 2014) – An Analysis
INTRODUCTION:
Recently, the CBEC has come out with a circular bearing No.986/10/2014-CX, Dated October 9, 2014 to clarifying on powers of Central Excise Officers to conduct audit. CBEC Clarifies that the Travelite (India) case [TS-310-HC-2014(DEL)-ST], Judgment does not deal with issue of audit in Central Excise and there is adequate statutory backing for conducting audit by Excise officers, Therefore, Central Excise Officers to continue conduct of audit, as provided in statute.
JUDICIAL BACKGROUND FOR ISSUING CIRCULAR BY CBEC:
This Circular issued in the background of a recent judgment of Hon’ble High Court of Delhi dated 04.08.2014 in case of M/s Travelite (India) [2014-TIOL-1304-HC-DEL-ST] wherein the Hon’ble court has held that the powers to conduct audit as envisaged in rule 5A (2) of the Service Tax Rules, 1994, does not have appropriate statutory backing and therefore quashed the rule. It is further clarified that in Central Excise there is adequate statutory backing for audit by the Central Excise Officers. The statutory provisions relevant for audit is clause (x) of Section 37(2) and rule 22 of the Central Excise Rules, 2002.
LEGISLATIVE HISTORY AND RELEVANT STATUTORY PROVISIONS:
1) Section 37: Power of the Central Government to make rules –
“37(2)(x) : impose on persons engaged in the production or manufacture, storage or sale (whether on their own account or as brokers or commission agents) of salt, and, so far as such imposition is essential for the proper levy and collection of the duties imposed by this Act, of any other excisable goods, the duty of furnishing information, keeping records and making returns, and prescribe the nature of such information and the form of such records and returns, the particulars to be contained therein, and the manner in which they shall be verified; “
2) Rule 22 of the Central Excise Rules, 2002 provides that the Commissioner may empower
an Officer or depute an audit party for carrying out scrutiny or verification of records of the assessee. The rule also obliges an assessee to make available records for such Scrutiny.
3) The statutory backing for rule 22 thus flows from clause (x) of section 37(2) and the general rule making powers under section 37(1) of the Central Excise Act, 1944. Clause (x) of section 37(2) empowers the Central Government to make rules for verification of records and returns to check the correctness of levy and collection of duty which in the present regime of self-assessment would mean verification of correctness of self-assessment and payment of duty by the assessee . It may be noted that the expression “verification” used in the section is of wide import and would include within its scope, audit by the Departmental officers, as the procedure prescribed for audit is essentially a procedure for verification mandated in the statute.
4) F. No.137/26/2007-CX.4 dated 1st January,2008 for Maintenance and furnishing of records in service tax
1. Rule 5 of the Service Tax Rules, 1994 prescribes, inter alia, that records (including computerized records) maintained by the taxpayer in accordance with various laws are acceptable. In this rule, a new sub-rule (2) has been incorporated vide Notification No.45/2007-ST dated 28.12.07 to prescribe that the assessee while filing first return or the 31st day of January 2008, whichever is later, would furnish a list of following records maintained by him for accounting of transactions in regard to providing any service, whether taxable or exempted; receipt or procurement of input services and payment for such input services; receipt, purchase, manufacture, storage, sale, delivery or, as the case may be, in regard of inputs and capital goods; other activities, such as, manufacture and sale of goods, if any, all financial records and statements. A new rule 5A has also been incorporated in the said Rules to prescribe that an officer authorized by the Commissioner shall have access to any premises registered under the Service Tax Rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue and that the assessee shall provided, on demand, the specified records including trial balance or the equivalent. It may be noted that this rule does not envisage issue of any notification by a Commissioner for such authorization of officers. The requirement of authorization could be fulfilled by issue of an office order.
2. In this regard, it is clarified that records/documents required to be maintained under various laws such as the Income ax Act, Companies Law, the CENVAT Credit Rules, 2004, VAT and other State legislation would be acceptable, and the amendment made in the rule does not cast any additional responsibility on taxpayers in terms of maintenance of records.
3. The list of records, as required to be provided under said sub-rule(2) should be submitted once only. Once filed, further intimation would be required to be given only in case there is any change in the list (i.e. addition, deletion, modification in the types of records maintained) that had been furnished by the assessee.
4. A copy of the list furnished by the assessee would be sent of the jurisdictional Superintendent to the audit section.
5. The audit team or any other officer authorized by the Commissioner to visit the registered premises of an assessee shall give prior intimation to the assessee along with the list of documents that he requires for the purpose of scrutiny, verification or audit.
6. The taxpayer shall provide the records as requested by the authorized officer within a period of fifteen days from the date of request. In case, the taxpayer is unable to produce any of the records called for within the stipulated time, he shall intimate the same along with reasons for non-production of records, and the officer may allow further time for production of such records keeping in view the overall facts into account.
7. These amendments have been made in the service tax rules to enable the duly authorized officer to carry out audit or scrutiny as may be necessary to safeguard the interest of revenue.
Analysis of Circular:
Recently in the case of M/s Travelite (India) [2014-TIOL-1304-HC-DEL-ST], Delhi HC struck down Rule 5A(2) of Service Tax Rules requiring production of records to audit party on demand and CBEC Circular dated January 1, 2008 pertaining to general audit, as ultra vires the Finance Act. It held that Parliament had clear intention to provide for only special audit u/s 72A of Finance Act on fulfilment of special circumstances, and it did not contemplate a general audit that “every assessee” may be subjected to “on demand”.
However, now the CBEC has issued Circular clarifying on powers of Central Excise Officers to conduct audit. This Circular Clarifies that the Travelite (India) Judgment does not deal with issue of audit in Central Excise and there is adequate statutory backing for conducting audit by Excise officers.
It can be interpreted from this circular that This circular applicable to only for conducting Excise Audit and not applicable for Service tax and decision of Hon’ble Delhi high Court which deal with the issue of audit in Service Tax is bind for Department and assesee.
CONCLUSION:
According to Delhi High Court Decision in case of M/s Travelite (India) [2014-TIOL-1304-HC-DEL-ST] it can be interpreted that department cannot check records of Service Tax of assessee and accept the details as submitted by assesse, But on other side Department has extreme powers to issue summon under Section 14 of Central Excise Act (applicable to Service tax) and call for records, search and seizure of records of assessee and even arrest the assessee. Department has another option for approaching Supreme Court for stay against this Delhi high court judgment but it seems to be difficult in view of Statutory provisions and Strong case law on this subject matter.
Circular bearing No.986/10/2014-CX, Dated October 9, 2014 deals for Central Excise and there is adequate statutory backing for audit by the Central Excise Officers under the statutory provisions relevant for audit is clause (x) of Section 37(2) and rule 22 of the Central Excise Rules, 2002 but after issuing this circular, We can conclude that these Circular not applicable for Service tax Audit and applicable only for Excise Audit.
(Shailendra Saxena, B.Com, CS, FCMA, FCA, DISA (ICAI) , OM P. Maheshwari & Associates, Chartered Accountants, Cell:09377410260, Email: omp20535@gmail.com)
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