TaxTMI 
TaxTMI 
TaxTMI 
Related provisions:
Section 72A of the Finance Act, 1994
Rule 5A(2) of the Service Tax Rules, 1994
Decision:
M/S A.C.L. Education Centre (P) Ltd. and others [2014 (1) TMI 1562 - ALLAHABAD HIGH COURT]
Writ petition was filed before the Allahabad High Court challenging the virus of Rule 5A(2) and raising the following question:
“The petitioners-assessees objected and also challenged the vires of Rule 5A(2) of the Service Tax Rules, 1994 interalia on the ground that the provision of Rule 5(A)(2) are contrary to the provision of Section 72A of the Service Tax Act.”
Hon’ble High Court dismissed the petition stating that:
“Rule 5A(2) is not ultra vires, as the same is in consonance to Section 72A of the Finance Act, 1994 and the same was enacted by the competent authority.”
High Court has observed that:
Rule 5-A, sub-rule (2) states that every assessee shall, on demand, make available to the officer authorised or the audit party, records, trial balance and income-tax audit report, if any. So here, the officer will demand the documents just to facilitate the correctness of books of accounts and ultimately, the audit will be conducted by the Audit Party headed by the Chartered Accountant/Cost Accountant, as the case may be, deputed by the Commissioner.
It is Commissioner on whose behalf, the officer will collect the material and the Auditor will perform the audit. In any case, the final report duly signed by the Chartered Accountant will be submitted to the Commissioner. In case of Government Autonomous Body, the function of the audit has been assigned to the Comptroller of Auditor General of India.
From the above, it is crystal clear that in case of private assessee, the Commissioner will refer the matter to an officer to collect the material or Chartered Accountant for the purpose of audit. Thus, for the purpose of audit, the material can be collected either by the officer authorized by the Commissioner or by the Auditor himself. But, audit will be performed only by the Chartered Accountant.
It is pious duty of the assessee to make available the record as mentioned in Rule 5A i.e. trial balance or its equivalent; and the income-tax audit report, if any, under Section 142(2A) of the Income Tax Act, 1961, for the scrutiny of the officer or the Audit Party, as the case may be.
Thus, we find that there is no inconsistency in Rule 5A and Section 72-A of the Finance Act, 1994. The said provision is not arbitrary. The manner for conducting the audit is as per the accounting standard provided by the Institute of Chartered Accountant of India. The audit report will be made available to the assessee, as per law.
Assurance by the Government:
Before the High Court Additional Solicitor General has assured that, the audit will be performed by a qualified Chartered Accountant and as per accounting standard. After the audit report, the assessee will get the copy of the report, as per law.
Outcome of the decision:
For the purpose of audit, the material can be collected either by the officer authorized by the Commissioner or by the Auditor himself. But, audit will be performed only by the Chartered Accountant.
From the outcome of the decision, this decision may be seen as a professional opportunity by the Chartered Accountants or Cost Accountants, as the case may be, but there is no respite to the assessee from Audit.
See:
M/S A.C.L. Education Centre (P) Ltd. and others [2014 (1) TMI 1562 - ALLAHABAD HIGH COURT]
Also see:
An article on Power of CAG to conduct audit under Service Tax