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of <h1>Court questions CAG's audit power under Rule 5A, halts Service Tax audits</h1> <h3>M/s OWS WAREHOUSE SERVICES LLP THROUGH ASADULLAH SIDDIQUE S/O VASIULLAH SIDDIQUE Versus UNION OF INDIA</h3> M/s OWS WAREHOUSE SERVICES LLP THROUGH ASADULLAH SIDDIQUE S/O VASIULLAH SIDDIQUE Versus UNION OF INDIA - 2018 (19) G. S. T. L. 27 (Guj.) , [2019] 64 G ... Issues:Challenge to communication by Comptroller and Auditor General of India for Service Tax audit; Validity of Rule 5A of Service Tax Rules, 1994; Effect of amendment to Rule 5A; Repeal and saving clauses under Central Goods and Service Tax Act, 2017.Analysis:The petitioner, a limited liability partnership firm providing services to polymer industries, challenged a communication from the Comptroller and Auditor General of India (CAG) for a Service Tax audit. The CAG relied on Rule 5A of the Service Tax Rules, 1994, which was previously struck down by the Delhi High Court as unconstitutional in the case of Travelite (India) v. Union of India. The petitioner highlighted a stay granted by the Gujarat High Court in a similar case involving Sadbhav Engineering Limited, questioning the authority of CAG for such audits. The Court raised concerns about the validity of Rule 5A and the powers of the Commissioner to authorize such audits, especially by external parties.The petitioner's counsel noted that Rule 5A was subsequently amended and challenged in the case of Mega Cabs Pvt. Ltd. v. Union of India, where the Delhi High Court again struck down the rule. However, the Supreme Court stayed the Delhi High Court's judgment in the Mega Cabs case. Additionally, the petitioner argued that with the introduction of the Goods and Service Tax Act, the Service Tax provisions stand repealed, citing Section 174 of the Central Goods and Service Tax Act, 2017. The counsel contended that the Saving Clause in the CGST Act would not save Rule 5A to enable fresh audit proceedings.The Court analyzed Section 174 of the CGST Act, which contains Repeal and Saving Clauses. It noted that the Saving Clause does not specifically save Rule 5A in a manner that allows for initiating fresh audit proceedings under the said Rule. The Court expressed serious doubts about the CAG's authority to conduct compulsory Service Tax audits of private agencies like the petitioner under Rule 5A. Consequently, the Court issued a Notice returnable on 28.11.2018 and stayed the impugned order dated 09.10.2018, preventing further Service Tax audits by the CAG on the petitioner until further proceedings.
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