TMI Blog2014 (12) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... mething not contemplated in the statute, from which it derives its rule making power. 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 Commissioner, and they would all have access to any premises registered under the Rules, for the purpose of carrying out scrutiny, verification and checks as might be necessary, including auditing of accounts, to safeguard the interest of Revenue. The obligation to provide records to the audit party deputed by the Comptroller and Auditor-General is to be construed as an obligation to provide documents and records, when those documents and records are necessary for audit in accordance with law, subject to the provision of the CAG Act, for example, audit of the receipts of the Government meant for deposit in the Consolidated Fund of India or, may be, an audit on the request of the Governor or the President as indicated above. Maintainability of writ petition - Held that:- It is well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for invoking the extended period of limitation existed, but has acted mechanically, swayed by the report of the CERA team, which in itself appears to be illegal and unsustainable. The Commissioner of Service Tax has not properly applied his mind to the issues required to be addressed for invoking the extended period of limitation. The impugned show cause notice has been issued by wrongful invocation of jurisdiction. - Decided in favour of assessee. - W.P. No. 21549 (W) of 2012 - - - Dated:- 30-4-2014 - Indira Banerjee, J. Shri J.K. Mittal, Abhrotosh Majumder, Paritosh Sinha, Amitava Mitra, Ms. Anupa Banerjee and Ms. Dolon Dasgupta, for the Petitioner. Shri N.C. Roychowdhury, K.K. Maiti and Ms. Ranjana Guha, for the Respondent. JUDGMENT This writ petition has been filed challenging show cause notice-cum-demand being C. No. V(3) 222/SCN/Adjn/Infinity/ST/11/457, dated 18th April, 2012 wherein it has been alleged that service tax amounting to ₹ 9,53,69,284/- including cess was due and payable by the petitioner-company for the service of renting of immovable property during the periods 2007-2008, 2008-2009, 2009-2010 and 2010-2011. 2. Under Section 65(105 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined : [xxx] (3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax, refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid : Provided that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which in his opinion remains to be paid by such person and shall proceed to recover such amount in the manner specified in sub-section (1). Explanation. - For the purposes of this sub-section and Section 78, specified records means records including computerized data as are required to be maintained by an assessee in accordance with any law for the time being in force or where there is no such requirement, the invoices recorded by the assessee in the books of account shall be considered as the specified records. (5) The provisions of sub-section (3) shall not apply to 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed the facts of providing/receiving the said services with intent to evade payment of Service Tax. Had the audit team not visited the premises of the said assessee and unearthed the material fact, the said assessee would have been continuing the evasion. Therefore 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 suppres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the petitioner company is governed contain provisions for special audit. Under Section 233A of the Companies Act, 1956, where the Central Government is of the opinion that the affairs of the company are not being managed in 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or determined by a manufacturer or any person, he may, with the previous approval of the Chief Commissioner 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial 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 civil liberties, material deprivations and non-pecuniary damages. Anything which affects a citizen in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 Act, 1944 or the Finance Act, 1994 as amended from time to time contain any provision for audit by the Comptroller and Auditor-General of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Union territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf are designed to secure an effective check on the assessment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 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 accounts of such corporation and shall have, for the purposes of such audit, right of access to the books and account of such corporation : Provided that no such request shall be made except after co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G(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) Every assessee who is having more than one factory and maintains separate records in respect of every factory for the purpose of audit then, he shall produce the said records for audit purposes. (b) Where the Commissioner or the Comptroller and Auditor-General of India decide to undertake the audit of the records of any assessee, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les 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 purpose other than carrying out the provisions of Chapter V of the said Act. 47. Mr. Mittal submitted that Rule 5A(2) of the Service Tax Rules which provides that every assessee shall, on demand, make available to the officer authorized by the Commissioner, or the audit party deputed by the Commissioner or the Comptroller and Auditor-General of India, the records and documents, as specified in the said Section, within reasonable time, is ultra vires the rule making power conferred on the Central Government by Section 94 of the Finance Act, 1994, since there is no provision in Chapter V of the Finance Act, 1994 which empowers the CAG to audit the accounts of an assessee, which is a non-government company, not in receipt of any aid or assistance from any Government or Government entity. 48. As rightly argued by Mr. Mittal, there is no provision in Chapter V of the Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 auditor or an accountant authorized by the Commissioner, and they would all have access to any premises registered under the Rules, for the purpose of carrying out scrutiny, verification and checks as might be necessary, including auditing of accounts, to safeguard the interest of Revenue. 53. It is, however, pertinent to note the difference in the language and tenor of sub-rule (2) of Rule 5A under which every assessee is required, on demand, to make available to the officer authorized by the Commissioner or the Comptroller and Auditor-General of India the records and documents specified in the said Rule, within a reasonable time. The obligation to produce records is in harmony with the power conferred on the Central Government to make rules for carrying out the provisions of Chapter V of the Finance Act, 1994 including collection and recovery of Service Tax, determination of amount of value of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of limitation can be invoked after almost three years, when the bona fides of the petitioner was never questioned at any earlier point of time. 60. Once the information is supplied pursuant to the directions of the Revenue Authority and information so supplied has not been questioned, a belated demand has to be held to be barred by limitation. This proposition finds support from the judgment of the Supreme Court in Commissioner of Central Excise, Chandigarh v. Punjab Laminates Pvt. Ltd. reported in 2006 (202) E.L.T. 578 (S.C.). 61. In this context, reference may also be made to the judgment of the Supreme Court in Commissioner of Central Excise, Chennai v. Chennai Petroleum Corporation Ltd. reported in 2007 (211) E.L.T. 193 (S.C.) where the Supreme Court in effect held that where the Department was aware of the activities of the assessee and nothing prevented the Department from visiting the assessee s site to make enquiries, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pursuant to retrospective amendment of the law was considered, by the Supreme Court in J.K. Spinning and Weaving Mills Ltd. Anr. v. Union of India Ors. reported in 1987 (32) E.L.T. 234 (S.C.). A Three Judge Bench of the Supreme Court held : 31. Under Section 11A(1) the Excise authorities cannot recover duties not levied or not paid or short-levied or short-paid or erroneously refunded beyond the period of six months, the proviso to Section 11A not being applicable in the present case. Thus although Section 51 of the Finance Act, 1982 has given retrospective effect to the amendments of Rules 9 and 49, yet it must be subject to the provision of Section 11A of the Act. We are unable to accept the contention of the learned Attorney General that as Section 51 has made the amendments retrospective in operation since February 28, 1944, it should be held that it overrides the provision of Section 11A. If the intention of the Legislature was to nullify the effect of Section 11A, in that case, the Legislature would have specifically provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wiful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. 68. In Cosmic Dye Chemical v. Collector of Central Excise, Bombay reported in (1995) 6 SCC 117 = 1995 (75) E.L.T. 721 (S.C.) the Supreme Court held :- Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as misstate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vade tax. 72. There is substance in Mr. Mittal s submission that in view of the Delhi High Court judgment in Home Solution Retail (supra) holding that service tax was not payable on rent of immovable property per se, the petitioner was not liable for Service Tax on premium. In any case, there was room for doubt as to whether renting per se was taxable, for which the law had to be amended. 73. The petitioner claims to have been under the impression that no service tax would be payable on premium and/or salami, on its interpretation of the law, which was a possible interpretation accepted by the Delhi High Court in Home Solution Retail (supra). 74. In Commissioner of Income Tax v. Panbari Tea Co. Ltd. reported in AIR 1965 SC 1871 the Supreme Court in the context of the Income-tax Act, 1961, found a distinction between premium or salami, being the price paid for transfer of a right to enjoy the property and the rent paid periodically to the lessor. The Supreme Court held that while the price paid for transfer of the interest of the lessor was premium or salami, the periodical payments made for the continuous enjoyment of the benefits under the lease were in the nature of rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt held that where the Income Tax Officer had assumed jurisdiction by deciding a jurisdictional fact erroneously, the assessee would be entitled to a writ of certiorari as prayed for, since it was incomprehensible to think a quasi-judicial authority could erroneously decide a jurisdictional fact and impose a levy. 83. In Shrisht Dhawan v. Shaw Brother reported in (1992) 1 SCC 534 the Supreme Court followed its earlier judgment in M/s. Raza Textiles Ltd. and reiterated the proposition that a Court or Tribunal cannot confer jurisdiction to itself by deciding a jurisdictional fact wrongly. 84. In Calcutta Discount Company Ltd. v. Income Tax Officer, Companies District I, Calcutta Anr. reported in AIR 1961 SC 372, a Constitution Bench of the Supreme Court held that where the action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, would issue appropriate orders or directions to prevent the same. 85. In Calcutta Discount Company Ltd. (supra) the Constitution Bench of the Supreme Court held : the expression reason to believe postulates belief and the existen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravention, as a result of which, some tax payable had not been paid. The Commissioner of Service Tax did not address the issues, which were required to be addressed, for issuing a notice by invoking the extended period of limitation. 90. Moreover, it appears that the demand raised by issuance of the impugned show cause notice has been pre-determined. When a demand is pre-determined the same does not remain in the realm of a show cause notice as held by the Supreme Court in Siemens Ltd. v. State of Maharashtra reported in 2007 (207) E.L.T. 168 (S.C.) = 2007 (5) S.T.R. 3 (S.C.). The Supreme Court held : 10. Although ordinarily a writ Court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a notice to show cause unless the same inter alia appears to have been without jurisdiction as has been held by this Court in some decisions including State of Uttar Pradesh v. Brahm Datt Sharma and Anr. [AIR 1987 SC 943], Special Director and Another v. Mohd. Ghulam Chouse and Another [(2004) 3 SCC 440] and Union of India and Another v. Kunisetty Satyanarayana [2006 (12) SCALE 262], but the question herein has to be considered from a different angle, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of India, this Court might examine the existence and/or correctness of the jurisdictional facts on the basis of which jurisdiction to exercise power is invoked. 94. For the reasons discussed above, this Court is of the view that the conditions precedent for exercise of jurisdiction to invoke the extended period of limitation were wholly absent. The Commissioner has not properly and independently applied his mind to the question of whether the conditions for invoking the extended period of limitation existed, but has acted mechanically, swayed by the report of the CERA team, which in itself appears to be illegal and unsustainable. The Commissioner of Service Tax has not properly applied his mind to the issues required to be addressed for invoking the extended period of limitation. The impugned show cause notice has been issued by wrongful invocation of jurisdiction. 95. The writ application is allowed for the reasons discussed above. The impugned show cause notice is set aside and quashed. 96. Photostat certified copy of this judgment, if applied for, be supplied to the parties expeditiously, subject to compliance with the requisite formalities. - - TaxTMI - TMITa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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