Chartered Accountant or Cost Accountant nominated to conduct Service Tax Audit by Amendment in Rule 5A(2) of the Service Tax Rules, 1994
The Central Government vide Notification No. 23/2014-ST dated December 5, 2014 had substituted Rule 5A(2) of the Service Tax Rules, 1994 (the Service Tax Rules) with the following:
“(2) Every assessee, shall, on demand make available to the officer empowered under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, or a cost accountant or chartered accountant nominated under section 72A of the Finance Act, 1994,-
(i) the records maintained or prepared by him in terms of sub-rule (2) of rule 5;
(ii) the cost audit reports, if any, under section 148 of the Companies Act, 2013 (18 of 2013); and
(iii) 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 the audit party, or the cost accountant or chartered accountant, within the time limit specified by the said officer or the audit party or the cost accountant or chartered accountant, as the case may be.”
Therefore, a Chartered Accountant or a Cost Accountant may be nominated by the Commissioner for the purpose of Special Audit under Section 72A of the Finance Act, 1994 (“the Finance Act”) has also been added amongst the list of authorized persons having access to the records of the Assessee.
Further, the time limit of 15 days for making available the requisite documents by the Assessee has been dispensed with.
Here, we would like to draw your attention towards the judgment of the Hon’ble High Court of Delhi in the case of Travelite (India) Vs. Union of India & Ors. [W.P. (C) 3774/2013, C.M. No. 7065/2013] (“the Travelite case”) wherein the Hon’ble High Court while holding Rule 5A(2) of the Service Tax Rules as ultra vires the provisions of the Finance Act, clearly held that No Service tax audit can be conducted by the Department and only Special audit within the Statute as mentioned under Section 72A of the Finance Act can be done either by a Chartered Accountant or Cost Accountant only in specified certain circumstances. It was further held that Service tax audit as envisaged in Rule 5A (2) of the Service Tax Rules does not have appropriate statutory backing.
In the background of the Travelite case, the Central Board of Excise and Customs (“CBEC”) vide Circular No. 986/10/2014-CX dated October 9, 2014 had clarified that the said judgment does not deal with the issue of audit in the Central Excise. It was further clarified that in Central Excise there is adequate statutory backing for audit by the Central Excise officers by virtue of Section 37(2)(x) of the Central Excise Act, 1944 and Rule 22 of the Central Excise Rules, 2002.
Even the Hon’ble Allahabad High Court in the case of ACL Education Centre Pvt. Ltd. & Ors. Vs. Union of India [2014-TIOL-120-HC-ALL-ST] has held that the Audit under Service tax is to be conducted by Chartered Accountants/ Cost Accountants only and not by officers of the Department.
Further the Hon’ble Calcutta High Court in the case of SKP Securities Ltd. Vs. DD (RA-IDT) & Ors. [2013-TIOL-38-HC-KOL-ST] has also held that no audit of private assessee can be undertaken by CAG.