2014 (1) TMI 1562 - HC - Service Tax

Court upholds Rule 5A(2) of Service Tax Rules, 1994 & audit procedures under Finance Act, 1994

M/s ACL. Education Centre (P) Ltd. And Others Versus Union Of India Thr. Secy. Deptt. Of Revenue, New Delhi & Others

M/s ACL. Education Centre (P) Ltd. And Others Versus Union Of India Thr. Secy. Deptt. Of Revenue, New Delhi & Others - 2014 (33) S.T.R. 609 (All.) , ... Issues Involved:1. Challenge to the vires of Rule 5A(2) of the Service Tax Rules, 1994.2. Quashing of the impugned intimation for conducting Central Excise Service Tax Audit under EA-2000.3. Request for mandamus to regulate the audit process under the Finance Act, 1994.4. Request for costs of the writ petition.Detailed Analysis:1. Challenge to the vires of Rule 5A(2) of the Service Tax Rules, 1994:The petitioners-assessees challenged the vires of Rule 5A(2) on the grounds that it is contrary to Section 72 of the Service Tax Act and beyond the rule-making power conferred by the statute. They argued that the rule is ultra vires as it allows departmental officers to conduct audits, which should be done by a qualified Chartered Accountant as per Section 72-A of the Finance Act, 1994. The court examined the rule-making power under Section 94 of the Finance Act, 1994, and concluded that Rule 5A(2) is not ultra vires. The court found that the rule facilitates the audit process by allowing officers to collect necessary documents, but the actual audit is conducted by a Chartered Accountant, ensuring compliance with Section 72-A.2. Quashing of the impugned intimation for conducting Central Excise Service Tax Audit under EA-2000:The petitioners-assessees sought to quash the impugned intimation, arguing that it was issued without authority and required them to provide documents for an audit by departmental officers. The court found that the intimation was issued to collect documents necessary for the audit, which would be conducted by a qualified Chartered Accountant. The court held that there was no reason to interfere with the impugned intimation as it was in accordance with the law and necessary for facilitating the audit process.3. Request for mandamus to regulate the audit process under the Finance Act, 1994:The petitioners-assessees requested a mandamus directing the authorities to regulate the audit process by prescribing specific provisions, norms for selection, qualifications for officers, and the format of the audit report. The court found that the existing provisions under Section 72-A and Rule 5A(2) were sufficient to regulate the audit process. The court noted that the audit would be conducted by a qualified Chartered Accountant as per accounting standards, and the audit report would be made available to the assessee, ensuring transparency and fairness.4. Request for costs of the writ petition:The petitioners-assessees requested the court to award costs in their favor. However, the court dismissed all the writ petitions, including the request for costs, as it found no merit in the arguments presented by the petitioners-assessees.Conclusion:The court dismissed all the writ petitions, upholding the validity of Rule 5A(2) of the Service Tax Rules, 1994, and the impugned intimation for conducting the audit. The court found that the rule and the intimation were in consonance with Section 72-A of the Finance Act, 1994, and necessary for ensuring proper audit and assessment of service tax. The audit process was found to be regulated adequately by existing provisions, and the petitioners-assessees were assured that the audit would be conducted by a qualified Chartered Accountant, with the audit report made available to them as per the law.