By Puloma Dalal, Jayesh Gogri, Mandar Telang Chartered Accountants
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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? Held, Yes.
Facts:
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. For this proposition, the High Court relied upon the decision of the Apex Court in the case of Dr. Mahachandra Prasad Singh vs. Honourable Chairman, Bihar Legislative Council [2004] 8 SCC 747 elucidating concept of delegated legislation.
