TaxTMI 
TaxTMI 
2014 (12) TMI 36
X X X X Extracts X X X X
X X X X Extracts X X X X
....r for furtherence of, business or commerce is a "taxable service". 3. The impugned notice, issued on the allegation that the petitioner had not paid service tax on the amount collected as premium during the years 2007-2008, 2008-2009, 2009-2010 and 2010-2011, has been challenged on the ground of the same being barred by limitation, and therefore, without jurisdiction. There is no demand towards Service Tax on rent. 4. Section 73 of the Finance Act, 1994 provides as follows : "73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. - (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or er....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of "one year" referred to in sub-section (1) shall be counted from the date of receipt of such information of payment. Explanation 1. - For the removal of doubts, it is hereby declared that the interest under Section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer but for this sub-section. Explanation 2. - For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service tax under this sub-section and interest thereon. (4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of - • (a) fraud; or • &n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any case where the service tax had become payable or ought to have been paid before the 14th day of May, 2003. (6) For the purposes of this section, "relevant date" means, - • (i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid - (a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed; (b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules; (c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder; • (ii) in a case where the service tax is provisionally assessed under this Chapter or the rules made thereunder, the date of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proviso to Section 73(1) is invokable for extended period of time and they are liable for penal action under section 78 of the said Act. 10. Thus, it appears that the said assessee has violated the provisions of Section 68 of the said Act read with Rule 6 of the said rules with intent to evade payment of Service Tax. Moreover, for delayed payment of Service Tax, they are liable to pay interest at appropriate rate as per Section 75 of the said Act." 8. The allegation against the petitioner is that the petitioner did not disclose the material fact that the petitioner had engaged in providing taxable services and had suppressed facts with intention to evade payment of service tax on the service of "Renting of Immovable Property". It is alleged that the assessee had thus failed to comply with the requirements of the statutory provisions of the Finance Act, 1994 and the rules made thereunder and had wilfully suppressed facts related to providing/receiving of the said service with intent to evade payment of service tax. 9. The show cause notice has apparently been issued pursuant to the observations made by Central Excise Revenue Audit (CERA) Team of the Office of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... accordance with sound business principles or prudent commercial practices or that any company is being managed in a manner likely to cause serious injury or damage to the interests of the trade, industry or business to which it pertains or that the financial position of any company is such as to endanger its solvency, the Central Government might, by the same or a different order, direct that a special audit of the company's accounts for such period or periods as may be specified 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. 15. 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. 16. Section 233B of the Companies Act provides....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommissioner of Central Excise, direct such manufacturer or such person to get the accounts of his factory, office, depots, distributors or any other place, as may be specified by the said Central Excise Officer, audited by a cost accountant or chartered accountant, nominated by the Chief Commissioner of Central Excise in this behalf. (2) The cost account or Chartered Accountant, so nominated shall, within the period specified by the Central 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ven an opportunity of being heard in respect of any material gathered on the basis of the audit under sub-section (1) and proposed to be utilized in any proceeding under the provisions of this Chapter or rules made thereunder. Explanation. - For the purposes of this section, - (i) "chartered accountant" shall 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)." 18. 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 v. Commissioner of Income Tax, Central-I and Another reported in (2008) 14 SCC 151 = 2008 (266) E.L.T. 22 (S.C.). The Supreme Court held that the expression "civil consequences" not only encompasses infraction of property or personal rights but also civ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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." 23. 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 them to be laid before the Legislature of the State. 24. In view of Article 149 of the Constitution of India the Comptroller and Auditor-General of India is to perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament. 25. None of the statutes referred to above, namely, the Companies Act, 1956, the Income-tax Act, 1961, the Central Excise ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eing 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. 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) the Comptroller and Auditor-General might, with the previous approval of the President, or the Governor of a State, or the Administrator of a Union territory having a Legislative Assembly, as the case may be, audit all receipts and expenditure of anybody or authority, where the grants or loans to such body or authority from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly, as the case may be, in a financial year is not less than rupees one crore. This section admittedly also has no application. 32. Under Section 16 it is the duty of the Comptroller and Auditor-General to audit all receipts which are payable into the Consolidated Fund of India and of each State and of each U....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Fund of a State or of a Union territory having a Legislative Assembly. 37. As argued by Mr. Mittal, 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, as observed by this Court by its judgment and order dated 26th September, 2012 in WP No. 21053 (W) of 2011, SKP Securities Ltd. v. Deputy Director (RA-IDT) & Ors. (supra). The aforesaid writ petition has been referred to a Larger Bench. 38. Section 19(3) of the CAG Act provides as follows : "The Governor of a State or the Administrator of a Union territory having a Legislative Assembly may, where he is of opinion that it is necessary in the public interest so to do, request the Comptroller and Auditor-General to audit the accounts of a corporation established by law made by the Legislature of the State or of the Union territory, as the case may be, and where such request has been made, the Comptroller and Auditor-General shall audit the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es for carrying out the provisions of Chapter V. 43. Mr. Roychowdhury 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, 1944 provides for audit by an audit team deputed by the Comptroller and Auditor-General of India. 44. 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 records maintained or prepared by him in terms of clause (a) of sub-rule (5); (ii) The cost audit reports, if any, under Section 233B of the Companies Act, 1956; and (iii) The income-tax audit report, if any, under Section 44AB of the Income-tax Act, 1961 for the scrutiny of the officer or audit party, as the case may be; • (a) &n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; (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." 45. 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 sub-section (2) of Section 94 of the Finance Act. 46. 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 p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and invalid. 51. 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, which is a non-government company, not in receipt of finance, aid or assistance from any Government or Government organization. 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. 52. 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 aud....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of the said assessee and unearthed material facts, the assessee would have been continuing the evasion. Therefore, proviso to Section 73(1) is invocable for extending time. It, however, appears to this Court that the reasons for invoking the extended period of limitation, as disclosed, are totally vague and devoid of material particulars. 57. There is no whisper in the impugned notice of the facts which have allegedly been suppressed. Mr. Mittal emphatically argued and perhaps rightly that, the vague assertion that the petitioner had wilfully suppressed facts pertaining to providing/receiving the services with intent to evade payment of service tax was unfounded. 58. A notice was issued by the Office of the Commissioner, Service Tax, Kolkata dated 13th April, 2009 calling upon the petitioner to submit copies of lease agreements including list of long-term lease agreements. The requisites of the aforesaid notice dated 13th April, 2009 appear to have been complied with. 59. The requisites of the notice dated 13th April, 2009 having been complied with and the list of long-term lease agreements having been furnished, it is doubtful whether the extended period....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if, [***] for the words "one year", the words "five years" were substituted :    *   *   *   *   * Explanation. - Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case may be." 64. The question of whether the proviso to Section 11A of the Central Excise Act, 1944 could be invoked to realize a demand that arose purs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Finance Act, 1994. 66. Mr. Roychowdhury's submission that the extended period of limitation had rightly been invoked, as there was loss of Revenue and contravention of the provisions of Chapter V of the Finance Act, and the Rules made thereunder, is difficult to accept. If Mr. Roychowdhury's argument that the extended period would be invocable when there was non-payment of tax and consequential loss of Revenue and/or contravention of Chapter V of the provisions of the Finance Act, were to be accepted, Section 11A would be rendered meaningless since all cases of non-payment of tax result in loss of Revenue, and in a sense tantamount to contravention of Chapter V of the Finance Act and the Rules framed thereunder. 67. In Collector of Central Excise, Hyderabad v. Chemphar Drugs and Liniments, Hyderabad reported in (1989) 2 SCC 127 = 1989 (40) E.L.T. 276 (S.C.) the Supreme Court held :- "In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to sub-section (1) of Section 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Central Excise, Aurangabad v. Bajaj Auto Ltd. reported in 2010 (260) E.L.T. 17 (S.C.) the Supreme Court referred to and followed its earlier judgments in Collector of Central Excise, Hyderabad v. Chemphar Drugs and Liniments, Hyderabad (supra), Cosmic Dye Chemical v. Collector of Central Excise, Bombay (supra), Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut, (supra) and held that it was settled that mere failure to declare would not amount to wilful suppression. There must be some conscious, deliberate act with a view to evade tax. 71. The proposition which emerges from the judgments of the Supreme Court referred to above, is that mere failure to disclose a transaction and pay tax thereon or a mere misstatement or mere contravention of the Central Excise Act or the Finance Act, 1994, as amended or any rules framed thereunder, is not sufficient for invocation of the extended period of limitation. There has to be a positive, conscious and deliberate action intended to evade tax, for example, a deliberate misstatement or suppression pursuant to a query, in order to evade tax. 72. There is substance in Mr. Mittal's submission that in view of the D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ew of Mr. Roychowdhury's argument that the petitioner had an efficacious alternative remedy of recourse to adjudication by replying to the show cause notice. 79. It is well settled that existence of an alternative remedy is not in itself a bar to entertaining a writ petition. A writ petition can certainly be entertained when a notice is impugned as without jurisdiction. 80. There can be no dispute that the question of limitation is a question of jurisdiction and that the Commissioner has no authority and/or jurisdiction to issue notice after the period of limitation prescribed in the Finance Act, 1994. 81. In M/s. Raza Textiles Ltd., Rampur v. The Income Tax Officer, Rampur reported in AIR 1973 SC 1362, the Supreme Court held that no authority, much less a quasi-judicial authority, could confer jurisdiction on itself by deciding the jurisdictional fact wrongly. The question of whether the jurisdictional fact had rightly been decided or not was a question open to examination by the High Court in an application under Article 226 of the Constitution of India. 82. In M/s. Raza Textiles Ltd., Rampur (supra) the Supreme Court held that where the Income Tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been refunded by reason of fraud or collusion or wilful suppression or misstatement or wilful contravention of the provisions of the Central Excise Act or the Finance Act, 1994 as the case may be or any rules framed thereunder to evade payment of tax. 87. Where the Commissioner asserts that there are reasons to believe that service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud; or collusion; or wilful misstatement; or suppression of facts; or contravention of any of the provisions of this chapter or of the rules made thereunder with intent to evade payment of service tax by the person chargeable with the service tax or his agent, the Commissioner is bound to disclose the reasons for formation of such belief. 88. As observed above, mere contravention of provision of Chapter V or Rules framed thereunder does not enable the Service Tax Authorities to invoke the extended period of limitation. The contravention necessarily has to be with intent to evade payment of service tax. 89. On a perusal of the impugned notice it appears to this Court that the Commissioner proceeded on the basis that there ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Commissioner of Service Tax apparently issued show cause notice in view of the CERA audit team's observations. It is well-settled that quasi-judicial authority must act independently as held by the Supreme Court in Orient Paper Mills Ltd. v. Union of India reported in 1978 (2) E.L.T. J345 (S.C.). 92. When a notice is issued in support of transactions spread over a period of time and it is found that the extended period of invocation has been invoked, the notice cannot be treated as within limitation for some of the same transactions, once it is found that the extended period of limitation is not invocable. This proposition find support from the judgment of the Supreme Court in Collector of Central Excise, Jaipur v. Alcobex Metals reported in (2003) 4 SCC 630 = 2003 (153) E.L.T. 241 (S.C.). 93. The entire claim except at best for, may be, four receipts is barred by limitation. It is well-settled inter alia by the decisions of the Supreme Court in M/s. Raza Textiles Ltd. (supra), Calcutta Discount Company Ltd. (supra) and Shrisht Dhawan (supra) that an authority cannot invoke jurisdiction to exercise power by deciding jurisdictional facts wrongly. In exercise of th....