TaxTMI 
TaxTMI 
2013 (1) TMI 549
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.... proposed to be held between 12th December, 2011 and 16th December, 2011 and the petitioner company was required to provide suitable accommodation for the audit team. 2. The short question involved in this writ application is whether CERA, an audit wing of the Principal Director of Audit (Central), Kolkata under the Comptroller and Auditor General of India, has power and/or authority and/or jurisdiction to audit the accounts, service tax records or other documents of the petitioner company, which is not an undertaking of the Central Government or any State Government. 3. The petitioner company, incorporated under the Companies Act, 1956, is engaged in the business inter alia of trading in stocks and securities. The petitioner company is a member of the Bombay Stock Exchange as well as the National Stock Exchange. Admittedly, the petitioner company is not run out of funds or loan provided by the Central Government or any State Government or any other Government Undertaking or organization. 4. The petitioner company has since 2004 been registered with the service tax authorities under the categories of 'stock broking service', 'banking and other financial services' and 'bu....
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....ied in the order, shall be conducted and may by the same or by different order appoint either a Chartered Accountant as defined in Clause (b) of sub-section (1) of Section 2 of the Chartered Accounts Act, 1949 or the company's auditor himself to conduct such special audit. 9. The special auditor appointed by the Central Government under Section 233A of the Companies Act, has the same power and duties in relation to special audit as an auditor of a company under Section 227 of the Companies Act. The only difference is that in spite of making his report to the members of the company the special auditor submits its report to the Central Government. 10. Section 233B of the Companies Act provides that where in the opinion of the Central Government it is necessary so to do in relation to any company required under Section 209 to include in its books of account the particulars referred to therein, the Central Government might by order direct that an audit of cost accounts of the company shall be conducted in such manner as may be specified in the order by an auditor who shall be a Cost Accountant within the meaning of the Cost and Works Accounts Act, 1959. If the Central Government ....
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....al Excise Officer, submit a report of such audit duly signed and certified by him to the said Central Excise Officer mentioning therein such other particulars as may be specified: Provided that the Central Excise Officer may, on an application made to him in this behalf by the manufacturer or the person and for any material and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (1) is received by the manufacturer or the person. (3) The provisions of sub-section (1) shall have effect notwithstanding that the accounts of the manufacturer or person aforesaid have been audited under any other law for the time being in force or otherwise. (4) Deleted (5) The manufacturer or the person shall be given an opportunity of being heard in respect of any material gathered on the basis of audit under subsection (1) and proposed to be utilised in any proceedings un....
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....ll have the meaning assigned to it in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949); (ii) "cost accountant" shall have the meaning assigned to it in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959)]. 14. It is now well settled by judicial pronouncements that an order for special audit is required to be made upon compliance with principles of natural justice. Reference may in this context be made to the judgment of the Supreme Court in Sahara India (Firm), Lucknow Vs. Commissioner of Income Tax, Central-I and Another reported in (2008) 14 SCC 151. The Supreme Court held that the expression "civil consequences" encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella. 15. Section 142(2-A) of the Income Tax Act, 1961 was held to entail civil consequences and the rule of audi alteram partem was held to be a necessary prerequisite for an order of special audit under Section 142(2-A) o....
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....h duties and exercise such powers in relation to the accounts of the Union and of the States as were conferred on or exercisable by the Auditor-General of India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and of the Provinces respectively." 21. Article 148(5) of the Constitution of India provides as follows : "Article 148(5) - Subject to the provisions of this Constitution and of any law made by Parliament, the conditions of service of persons serving in the Indian Audit and Accounts Department and the administrative powers of the Comptroller and Auditor-General shall be such as may be prescribed by rules made by the President after consultation with the Comptroller and Auditor-General." 22. Article 151 of the Constitution of India provides that the reports of the Comptroller and Auditor General of India relating to the accounts of the Union are to be submitted to the President, who is to cause them to be laid before each House of Parliament and the reports of the Comptroller and Auditor General of India relating to the accounts of the State are to be submitted to the Governor who is to cause th....
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.... applied or charged and whether the expenditure conforms to the authority which governs it. 28. The Comptroller and Auditor General of India is required to audit all transactions of the Union and of the States relating to Contingency Funds and Public Accounts and also audit all trading, manufacturing, profit and loss accounts and balance sheets and other subsidiary accounts kept in any department of the Union or of a State. 29. In addition, where anybody or authority is substantially financed by grants or loans from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly, the Comptroller and Auditor General shall subject to the provisions of any law for the time being in force, applicable to the body or authority, as the case may be, audit all receipts and expenditure of that body or authority and report on the receipts and expenditure audited by him. 30. As observed above, it is nobody's case that the petitioner was financed by, or is run out of any loan from the Union of India or any State Government or any Union Territory. 31. Section 14(2) of the CAG Act provides that notwithstanding anything contained in sub-section (1) th....
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....of the definition of "accounts" in Section 2(A) of the CAG Act. Unless the context otherwise requires, "accounts" in relation to commercial undertakings of a Government are to include trading, manufacturing and profit and loss accounts and balance sheets and other subsidiary accounts. In the absence of any enabling provision which empowers the Comptroller and Auditor General of India to audit the accounts of a non-government company, Section 16 of the CAG Act is to be construed to empower the Comptroller and Auditor General of India to examine the accounts of the government, in the context of his duty to audit all receipts of the government which are payable into Consolidated Fund of India or of the Consolidated Fund of a State or of a Union Territory having a Legislative Assembly. 35. This Court accepts the submission of Mr. Mittal that Section 16 of the CAG Act does not authorize the Comptroller and Auditor General of India or any audit team under the control of the Comptroller and Auditor General of India to audit the accounts of a non-government company and that too in the absence of any request either from the President of India or the Governor of the State. 36. Section 19(3....
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...., 1994 empowers the Central Government to make rules for carrying out the provisions of Chapter V of the said Act, by notification in the official gazette. Sub-section (2) of Section 94 enumerates the matters for which rules might be made. The power conferred under Sub-section (2) of Section 94 to make rules in respect of the matters enumerated in the said Sub-section is without prejudice to the generality of Section 94 Sub-section (1) whereby the Central Government has power to make rules for carrying out the provisions of Chapter V. 41. Mr. Hazra appearing on behalf of the respondent authorities submitted that rule 5A of the Service Tax Rules, 1994, which is almost in pari materia with Rule 173G(6)(c) of the Central Excise Rules, 1994 provides for audit by an audit team deputed by the Comptroller and Auditor General of India. 42. Rule 173G(6)(c) of the Central Excise Rules, 1944 and Rule 5A of the Service Tax Rules are set out herein below for convenience: "Rule 173G(6)(a) : Every assessee shall, on demand make available to the Central Excise Officer or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India: (i) the recor....
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....made, or such further period as may be allowed by such officer or the audit party, as the case may be, - (i) the records as mentioned in sub-rule (2) of rule 5; (ii) trial balance or its equivalent; 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 audit party, as the case may be.]" 43. As observed above the Central Government derives the power to make rules from Section 94 of the Finance Act, 1994. Section 94 empowers the Central Government to make rules for carrying out the provisions of Chapter V of the said Act and without prejudice to the generality of the power to make rules for carrying out the provisions of Chapter V, to make rules in respect of the matters enumerated in Subsection (2) of Section 94 of the Finance Act. 44. The Central Government has no power and/or authority under Section 94 of the Finance Act, 1994 to frame rules for any purpose other than those specified in Sub-section (2) of Section 94 of the Finance Act or for any purpose other than carrying out the provisions of Chapter V of the said Act. 45. In thi....
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....utory rule workable and intra vires, to that interpretation which would render the rule untra vires and invalid. 50. On a plain reading of Rule 5A(2) of the Service Tax Rules, the said Rule does not empower the CAG to audit the accounts of any assessee. While Sub-rule (1) of Rule 5A provides for access of any officer authorized by the Commissioner to any premises registered under the service tax Rules, for carrying out any scrutiny, verification or check, as may be necessary to safeguard the interest of revenue, Sub-rule (2) of Rule 5A only casts an obligation on the assessee to make the records and documents as specified in the said Rule available to the officer authorized by the Commissioner, or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India within a reasonable time not exceeding 15 working days from the date of demand. 51. On a harmonious reading of Rule 5A of the Service Tax Rules with the provisions of Chapter V of the Finance Act, 1994, as amended, it may be deduced that any officer authorized by the Commissioner would have to be interpreted to include the members of an audit team, an auditor or an accountant authorized by the Co....
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....nterpreting the word "or" conjunctively as argued by the respondents. 2. If the answer to point no (1) is "yes", that is, the word "or" has to be read conjunctively, to empower both the said authorities to conduct respective audits, whether the notice for audit issued could be assailed in the writ jurisdiction. 3. Whether writ challenging a notice of audit is maintainable, when such notice to audit does not fix any liability, but is only a procedural check-up by audit of the accounts and other documents as contemplated in the impugned notice, and causes no prejudice. 54. From the judgment in Berger Plaints (supra) it appears that the main thrust of the argument was that a Special Audit having been conducted under the Central Excise Act, further audit could not be conducted by the Office of the Comptroller and Auditor General. It was emphatically argued that the use of the word "or" should be construed disjunctively. The power of the Comptroller and Auditor General to conduct an audit of a non-government Company, in the absence of request from the President of India or the Governor of a State, was not questioned and hence not in issue. In the....