Whether Rule 5A(2) of Service Tax Rules, 1994 Is ultra-vires section 94 as the only type of audit contemplated under Finance Act is under section 72A i.e. special audit?

Travelite   (India)  vs. Union  of India [2014] 48 taxmann.com  227 (Delhi)

 

 

 

The  appellant   challenged   the  letter  of  Commissioner seeking  records  for  scrutiny  by audit  party  under  Rule 5A (2) of the  Service  Tax Rules  1994 and the  validity of the said Rule as well as the CBEC instruction  No. F.  No.  137/26/2007-CX.4   dated 01-01-2008.   Department contended that the rule authorising   audit  was  made pursuant  to  power  conferred   u/s.  94 of the Finance Act, 1994 and not u/s. 72A.  It was  contended  that  the Rule  must  conform  to  the  statute  under  which  it was framed and must be within the rule making power of the authority and that Instructions/Circulars  cannot widen the scope of law.

 

HELD:

The  provisions   related   to  scrutiny   and  audit  of  the assessee  are  provided  only  in section  72A of  Finance Act,  1994 which  envisages  audit of assessee's  records under special circumstances,  the High Court considered Rule 5A(2)  as an attempt  to include  provision  for such a general  audit through back-door is ultra-vires the rule making power conferred u/s. 94(1) and hence, struck the same down. Consequently, any notice, circular, guideline etc. contrary  to statutory  laws  issued  under  Rule 5A is also  held unenforceable.