VISITS BY OFFICERS TO PREMISES OF SERVICE TAX ASSESSEES

[Dr. Sanjiv Agarwal]

Central excise officers are empowered to pay visits to the premises of the assessees. Such visits shall be subject to the following rules:

(i)  All visit to the premises of service tax assessees will be made by central excise officers only after giving a notice in writing explaining therein the purpose of such visit.

(ii)  The officers will clearly indicate the documents which may be required by them during their visits.

(iii) No such visits will be made without giving a clear notice of 15 days to the assessee.

(iv) Such visits will be made only with the prior approval of the commissioner.

The above guidelines would not apply to cases where the department has in its possession or has received any specific information/intelligence regarding evasion of service tax or contravention of law by an assessee. In such cases, the process of law will be followed and action will be taken accordingly.

To curb unrestricted access to the premises of the tax payers by officers, instructions have been issued by CBEC whereby inspectors and above officers will be allowed access to taxpayers premises only after duly authorized written permission. (Board Letter No. 137/26/2007 CX-4 dated 15.12.2008).

Rule 5A of Service Tax Rules, 1994 provides that Commissioner or audit team of comptroller and Auditor General of India can also visit the assessee for audit purposes

Audit / Visit by CAG

In SKP Securities Ltd. v. Deputy Director (RA- IDT) 2013 (1) TMI 549 - CALCUTTA HIGH COURT, it was held that scope of Rule 5A includes members of audit team, auditor or accountant authorized by Commissioner, and they would all have access to registered premises of assessee for carrying scrutiny, verification and checks as might be necessary, including auditing of accounts, to safeguard interest of revenue. Rule 5A (2) does not empower the CAG to audit accounts of any assessee. It is more so as it is framed under power from section 94(2) of the Finance Act, 1994 which does not empower the Central Government to frame rules for such audit. It only casts obligation on assessee to make records and documents as specified therein available to officer authorized by the commissioner, or audit party deputed by the Commissioner or CAG.

It was further held that Rule 5A(2) of the Service Tax Rules, 1994 cannot be interpreted to authorize audit of records of a private company by audit team of CAG. Such audit team under CAG may only demand records of assessee in course of audit of receipts of Government.

Comptroller and Auditor General (CAG) conducts audit of corporations directly and also collect audit fees. Such audit fee shall not be subject to levy of Service Tax under any category. CBEC has clarified vide Circular No. 159/10/2010-ST dated 19.6.2012 that CAG audit is not covered under practicing chartered accountants services as CAG is not covered under the definitions of chartered accountant. Also CAG is a constitutional authority and not a concern. Such services are also not covered under support services of business and commerce as CAG audit is not an outsourced function.

It may be noted that the Office of Comptroller and Auditor General of India (CAG) cannot audit the books of accounts of private business entities. Calcutta High Court in W.P No. 21053/2011 of SKP Securities Ltd. held that there is no provision under Central Excise Act, 1944 or the Finance Act, 1994 empowering CAG to undertake audit of private enterprises which are not funded or grants given by the Government. The High Court further held that Rule 5A(2) of the Service Tax Rules, 1994 is ultra vires to the extent of its directing every assessee to provide records to audit party of CAG.

Thus, only in case of special audit as envisaged under section 72A of the Finance Act, 1994 or section 14A or 14AA of the Central Excise Act, 1944, assessee is required to provide records, and not otherwise, to the audit party. Similar view has been taken in W.P. No. 20517/2012 of Infinity InfoTech Park Ltd, Calcutta by the Calcutta High Court.