TMI Blog2020 (11) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... and, it s non-inclusion by title, in the saving clause, would not have a bearing on the applicability of the saving statute. The Court has come to the conclusion that Section 174 of the CGST Act, 2017 expressly seeks to preserve the powers of the central authority to, inter alia, institute or continue an investigation, inquiry etc. and no contrary intention is exhibited from the said provision. The Court purposely delved into the effect of Section 6 of the General Clauses Act and held that the power of the competent authority stood preserved also by virtue of the said provision. JUDGMENTS OF KOLHAPUR CANESUGAR AND AIR INDIA [2000 (2) TMI 823 - SUPREME COURT] - HELD THAT:- The Air Corporation Act was revoked by way of a repealing Act. Further, the Section 8 of the 1994 Act, which was the subject matter of the controversy in the said case, did not contain a repeal and saving provision, as observed in para 10: Section 8 of the 1994 Act does not in express terms save the said Regulations, nor does it mention them. The limited saving enacted in Section 8 does not, in our opinion, extent to the said Regulations. The observation in para 9 are being read completely out of context. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alongwith reenactment was necessary to update the law to make it most suitable to the contemporary concept of indirect taxation. Overnight, the nation switched over to the GST system, which of course required massive calibrations of the entire accounting system, both at the end of the Government as well as the taxpayers. However it did not mean that all investigations, enquiries, audits, assessment proceedings, adjudications and other legal proceedings which form the subject matter of the Service Tax Rules stood abrogated the moment the new law was enacted, or that the officers carrying out the above exercise were stripped of their power to continue with the same because the Service Tax Rules were purportedly not saved - the CGST Rules, 2017 cannot be understood to have superseded the Service Tax Rules, 1994. The service tax rules will continue to govern and apply for the purpose of Chapter V of the Finance Act, 1994. Any interpretation to the contrary would do violence to the repeal and saving clause and section 6 of the General Clauses Act. AUTHORITY OF CENTRAL EXCISE OFFICERS - HELD THAT:- Nothing has been shown by the Petitioner to establish that the officers carrying out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -11-2020 - HON BLE MR. JUSTICE MANMOHAN AND HON BLE MR. JUSTICE SANJEEV NARULA Petitioner Through: Mr. Raghvendra Singh, Advocate. Respondents Through: Mr. Harpreet Singh, Senior Standing Counsel. JUDGMENT SANJEEV NARULA, J. 1. By way of the present petition, a challenge is laid to the jurisdiction, authority and legality of the action of the Respondents initiated in terms of Rule 5A of the Service Tax Rules, 1994, read with Section 174(2)(e) of the Central Goods and Services Tax Act, 2017 [hereinafter referred to as the CGST Act ], for conducting audit/verification of documents and records at the business premises of the Petitioner for the period of F.Y. 2014-15 to 2016-17 (up to June 2017) or for the period since last audited [hereinafter referred to as the disputed period ]. Brief facts: 2. As averred in the petition, the facts of the case in brief are that the Petitioner is a company engaged in the business of construction of residential complexes since its incorporation on 25.05.2013. The Petitioner claims to be a regular and timely taxpayer under both the Service Tax and GST regime. It has never been subjected to any general or specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation for early hearing (C.M. No. 22774/2020) was listed. At that stage, Mr. Harpreet Singh, learned senior standing counsel for the respondents contended that in view of the judgment rendered by this Court in the case of Aargus Global Logistics Pvt. Ltd. v. Union of India and Anr., [2020] 116 Taxmann.com 381 (Delhi), the legal ground challenging the action of the Respondent does not survive. Mr. Raghvendra Singh, learned counsel for the Petitioner sought time to go through the aforesaid judgment and make submissions on the same. In view of the aforesaid, the application was allowed and the petition was directed to be listed for final disposal. We then proceeded to hear the counsels at length. At the outset, Mr. Raghvendra Singh, learned counsel for the Petitioner contended that the grounds raised in the present petition subsist, and merit consideration, notwithstanding the judgment of this Court in Aargus Global (supra). He insisted that although the court has rejected the contention that Rule 5A of the Service Tax Rules, 1994 does not survive the enactment of the CGST Act, yet the stances urged in the present petition call for a fresh and independent consideration. The conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been accrued or incurred and no right of privilege has been acquired by the respondents, the exercise being carried out by the audit party is nothing more than a hope or a mere expectation that some adverse findings will be made in the process and then a notice would be issued under Section 73 of the Finance Act, 1994. The proceedings, for the purpose of acquiring grounds to begin a fresh proceeding, is beyond what was contemplated under Section 6 of the General Clauses Act. In support of this submission, reliance was placed on Bansidhar and Ors. v. State of Rajasthan and Ors., (1989) 2 SCC 557. (v) That Section 174(2)(e) of the CGST Act saves only those proceedings which stood already instituted at the time of omission of Chapter V of Finance Act, 1994, and not proceedings instituted thereafter. (vi) That in terms of the saving clause under the CGST Act, an investigation, legal proceeding or remedy could have been initiated only in terms of the provisions of Finance Act, 1994. However, an audit under Rule 5A of the Service Tax Rules cannot be conducted, as subordinate legislation is not saved. The expression duty, tax, surcharge, fine, penalty, interest as are du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the circumstances with which we are presently confronted. If after verification under Rule 5A it is found that any tax has not been paid/short paid, the necessary adjudicatory process would follow which will ultimately lead to tax becoming due . The import of the saving clause is to deal with proceedings that are initiated after the CGST Act, 2017 has come into force. Analysis and findings: 6. Since much has been said about the decision rendered by this Court in Aargus Global (supra) to which one of us (Sanjeev Narula, J) was a party, we need to first evaluate the findings returned by this Court in the said judgment. This can be easily examined by referring to the judgment itself, which holds as under: 13. The submission of learned Senior Counsel for the Petitioner is that Chapter V of the Finance Act, 1994 - which brought in the service tax regime, stands omitted. Thus, the provisions of Chapter V of the Finance Act, 1994 do not survive the enactment of the CGST Act. He further submits that Clauses (d) and (e) of Sub Section (2) of Section 174 have to be read in conjunction. Therefore, what is not affected by the omission of Chapter V of the Finance Act, 1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Parliament was clearly to save not only ongoing investigation, inquiry, verification etc. but also to specifically enable the initiation of fresh investigation, inquiry verification etc. in respect of acts and omissions relating to inter alia, the erstwhile service tax regime. 14. The further submission of learned Senior Counsel for the Petitioner is that there is no provision in Section 174 to save the Service Tax Rules, as it is only Chapter V of the Finance Act, 1994 which has been saved for the specific purposes mentioned in Clauses (a) to (f) of Section 174 (2). The failure of the Parliament to mention the word Rules , along with the Finance Act, 1994 in Section 174 (2), according to the Petitioner, means that the Service Tax Rules were not saved even for the purpose of enforcing the saving provisions. We find this submission to be completely meritless. Firstly, the Parliament omitted Chapter V of the Finance Act, 1994 by amending the same. No part of the Finance Act, 1994 was repealed by the provision of the CGST Act. This omission came into effect only from the date of enforcement of the CGST Act and not earlier. Therefore, Chapter V of the Finance Act, 1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess a different convention appears, shall not, inter alia, affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability or penalty, forfeiture or punishment and any such investigation, legal proceeding or remedy maybe instituted, continued or enforced and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or regulation have not been passed. Far from exhibiting a different intention, Section 174 of the CGST Act expressly seeks to preserve the powers of the Competent Authorities to, inter alia, institute investigation, inquiry etc. In fact, even if Section 174 (2) of the CGST Act were not to expressly so provide, the said power of the Competent Authorities stood preserved by virtue of Section 6 of the General Clauses Act. (Emphasis supplied) 7. On reading the above extract, it becomes apparent that this Court has rejected the argument that Rule 5A of the Service Tax Rules does not survive the enactment of CGST Act, 2017. The Court has extensively examined Section 173 and Section 174 of the CGST Act and come to the conclusion that the intention of the Parliament was clearly to save not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would like to restate the views expressed by the Supreme Court, relating to interpretation of judicial precedents. In Commissioner of Income Tax v. M/S. Sun Engineering Works (P) Limited, (1992) 4 SCC 33 , the Supreme Court had observed that: It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete law declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. 10. The above noted principles should be recognized and borne in mind for appreciating any observations made in the judgments. That sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration. Therefore the ratio of that case is not applicable to the present case. With respect we agree with the principles laid down by the Constitution Bench in M/s. Rayala Corpn. case. In our considered view the ratio of the said decision squarely applies to the case on hand. 11. In our opinion, the aforesaid judgment will be of no assistance to the Petitioner as it does not lay down the proposition that Mr. Singh is canvassing before us. Besides, the context of the judgement is entirely different and the facts of the case are clearly distinguishable. The aforesaid case dealt with the omission and replacement of two rules by one rule, under which rebate re-credit proceedings were underway. The stark distinction of facts is as follows: (a.) The deletion and substitution of the old rules was brought about by way of a notification and not by a Central Act or regulation. (b.) The court observed that the High Court had, for reasons unsound in law, distinguished the constitution bench judgment of Rayala Corporation v. Director of Enforcement, New Delhi, AIR (1970) SC 494:1970 Cri LJ 588, wherein it was said that Section 6 only applies to repeals and not to omissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and liabilities acquired, accrued or incurred etc. shall not be affected by the repeal. The repeal of old laws, and the new corresponding tax replacing the service tax regime in a modified form, imperatively requires the old provisions to continue and apply. Furthermore, the earlier view that section 6 applies only in the case of repeal and not omission as held in Rayala Corporation (supra), and followed in Kolhapur Canesugar case, no longer holds good in view of the later decisions of the Supreme Court in Fibre Boards Pvt. Ltd. v. CIT Bangalore, (2015) 10 SCC 333, and M/S Shree Bhagwati Rolling Mills v. CCE, (2016) 3 SCC 643 which have discussed Rayala Corporation (supra) and Kolhapur Canesugar (supra) cases at length. 14. Apart from the distinguishing factors noted above, we find that certain passages in Kolhapur Canesugar (supra) go against the Petitioner. It will also be opportune to point out that we are assisted by the observations made in para 34, which reads as under: 34. ( ) If there is a provision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the Regulations were saved under Section 8 of the new 1994 Act titled Provisions in respect of officers and other employees of corporation . The Supreme Court extensively dealt with the argument of the parties and also referred to Bennion on Statutory Interpretation, to observe that the Regulations do not survive, as Section 8 of the new Act neither mentioned the regulations nor saved it in express terms. It was thus deemed to be repealed in full. In this context, the Court observed as under: 6. In Watson vs. Winch, (1916) 1 K.B. 688, Lord Reading, C.J., said: It would follow that any by-law made under a repealed statute ceases to have any validity unless the repealing Act contains some provisions preserving the validity of the by-law notwithstanding the repeal. 7. Sankey, J., concurring, said: When a statute is repealed any by-law made thereunder ceases to be operative unless there is a saving clause in the new statute preserving the old by-law. There appear to be two reasons for this. Secondly, because the usual practice is to insert in the later statute a section expressly preserving previously made by-law if it is intended that they shall remain i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur opinion, the aforenoted judgments do not have any bearing on the views expressed in Aargus Global (supra). [II] EFFECT OF SECTION 24 OF THE GENERAL CLAUSES ACT: 19. Section 24 of the General Clauses Act, 1897 reads as under: Continuation of orders, etc., issued under enactments repealed and re-enacted. -Where any [Central Act] or Regulation, is, after the commencement of this Act, repealed and re-enacted with or without modification, then, unless it is otherwise expressly provided any [appointment notification,] order, scheme, rule, form or bye-law [made or] issued under the repealed Act or Regulation, shall, so far as it is not inconsistent with the provisions re-enacted, continue in force, and be deemed to have been [made or] issued under the provisions so re-enacted, unless and until it is superseded by any [appointment notification,] order, scheme, rule, form or byelaw, [made or] issued under the provisions so re-enacted [and when any [Central Act] or Regulation, which, by a notification under section 5 or 5A of the Scheduled Districts Act, 1874, (14 of 1874) or any like law, has been extended to any local area, has, by a subsequent notification, been withdrawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early tax scheme. It is a destination based tax, levied on supply of goods and services, which is based on a significantly different concept in comparison with the earlier tax system that was origin-based. As the name suggests, the origin-based tax was levied at the point of production or origin of goods or services; whereas the destination-based tax is levied at the point of consumption. Under the new taxation system, both State and Centre levy tax concurrently on the same common base, which was not the case earlier. The CGST Act, being one of the GST laws, is thus essentially a consolidating Act that subsumes many indirect taxes. The reason we are highlighting the concept of GST and drawing out this distinction is to understand the legislative intent of the saving provisions. The CGST laws thus re-enact the indirect taxes, including service tax and excise duty, but in a fundamentally altered form. The concepts of service tax, excise duty or VAT, no longer exist in their original form under the new system of taxation. After the repeal of the erstwhile legislations, with effect from the date of commencement of GST laws, most of the indirect taxes (including service tax), have ceas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, we would say that section 24 of the General Clauses Act would have a substantial bearing. The factual situation before us is clearly one which is envisaged under the said provision. Section 24 becomes applicable where one enactment is repealed and re-enacted. By virtue of this provision, the rules made under the old Act are to continue in force and shall be deemed to have been made under the new Act. Section 24 of the General Clauses Act, 1987 thus introduces a concept of extending the life of rules, regulations and by-laws made under the old Act. The purpose of Section 24 is to uninterruptedly continue the subordinate legislation that may be made under the Central Act which is repealed and re-enacted, with or without modification. The repealing Act often comes with saving clauses to preserve certain provisions, which if allowed to be obliterated with the repealed Act, would not only destroy the continuity of the object and purpose of the repealing Act, but wreck great hardship and injustice. Thus, general saving statutes such as the General Clauses Act take care of this situation. Section 24 has to be read along with the re-enacted Act in order to comprehend whether the ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led as well. 25. It was argued by the Appellant that under the corresponding provision of the 1956 Act, a District Court was no longer empowered to deal with such an application as was filed by the Respondents under the 1913 Act. It was stressed that the notification under the 1913 Act which vested jurisdiction in the District Court, would be inconsistent with the corresponding provision of the 1956 Act. On this basis, it was contended that the notification could not have been deemed to continue to be in force, as is contemplated in Section 24 of the General Clauses Act. 26. Rejecting these contentions, the Supreme Court opined that the application of Section 6 of the General Clauses Act was abundantly clear by the wording of Section 658 of the 1956 Act, which provides that, the provisions of the 1956 Act ( ) shall not prejudice the general application of section 6 of the General Clauses Act, 1897 (10 of 1897), with respect to the effect of repeals (at para 3 of the judgment). In light of this, the court was of the view that Section 6 of the General Clauses Act would therefore preserve the rights and liabilities created by s. 153-C of the Act of 1913 and a continuance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1947 authorised certain police officers serving in the State Vigilance Department to investigate offences under such act. The 1947 Act was repealed and re-enacted as the Prevention of Corruption Act, 1988, and thus, the accused-respondents against whom investigation was being conducted by such officers after such repeal, filed for quashing of FIRs. The reasoning being that such notification was not saved by such repeal, and thus the inspectors were no longer authorised to investigate the case. It was argued that Section 5-A of the 1947 Act, which was replaced by Section 17 of the 1988 Act, was inconsistent with the new provision. It was also urged that Section 30 of the 1988 Act, which was the repeal and saving clause, made reference to only section 6 of the General Clauses Act, and thus other provisions of the General Clauses Act cannot be applied. Per contra, it was argued by the State that the notification was not inconsistent with the provisions of the repealing Act, and that Section 30 of the 1988 Act, read with Sections 6 and 24 of the General clauses Act, ensured that the notification issued under the repealed Act was thus still in force. The Court, agreeing with the stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have specifically so provided under the enacted law. In the light of the fact that Section 24 of the General Clauses Act is specifically applicable to repealing and reenacting statute, its exclusion has to be specific and cannot be inferred by twisting the language of the enactments. Accepting the contention of the learned counsel for the respondents would render the provisions of 1988 Act redundant inasmuch as appointments, notifications, orders, schemes, rules, by- laws, made or issued under the repealed Act would be deemed to be non-existent making impossible the working of the re- enacted law impossible. The provisions of the 1988 Act are required to be understood and interpreted in the light of the provisions of the General Clauses Act including Sections 6 and 24 thereof. 24. There is no substance in the arguments of the learned counsel appearing for the respondents that the provision made in two enactments were inconsistent and sub-section (2) of Section 30 would not save the notifications issued under the 1947 Act. The consistency, referred to in sub-section (2) of Section 30 is with respect to acts done in pursuance of the Repealed Act and thus restricted it to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the provision unless a different intention appears from the amended or re- enacted provision, the notification issued under the earlier enactment, if not inconsistent with the reenacted provision shall continue in force and be deemed to have been issued under the re-enacted provision, unless and until it is superseded by issuance of fresh notification. It is true the Section does not speak of an amendment. But the provision is equally applicable in case of amendment. There is no real distinction between repeal and amendment. The latter is wider in terms and includes deletion or abrogation in existing statute. When the statutory provision is amended to a limited or a small extent then it is termed as amendment, and when the provision is extensively amended then it is called repeal. In that sense, after repeal there is re- enactment of the law. The above position was illuminatingly stated in Bhagat Ram Sharma v. Union of India and Ors., [1988] 1 SCR 1034 . 26. It is a matter of legislative practice to provide while enacting an amending law that an existing provision shall be deleted and a new provision substituted. Such deletion has the effect of repeal of the existing prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d section 6 of the General Clauses Act. Moreover, Section 174(2) refers to the deletion of Chapter V of the Finance Act 1994 as an amendment , which, as discussed earlier in Parle Biscuits (supra), is settled to mean and include a repeal , and thus, the amendment of the Finance Act 1994 is squarely covered under the ambit of Section 24 of the General Clauses Act. [IV] AUTHORITY OF CENTRAL EXCISE OFFICERS: 31. Next, we must address the Petitioner s contention regarding the authority of officers: that the officers visiting the premises for scrutiny and audit are not Proper Officers as envisaged in the Act and Rules. Here, the Petitioner is under a wrong impression gathered by reading the notifications appointing certain officers as GST officers. The proviso to section 3 of CGST Act stipulates a deeming provision by virtue whereof, the Central Excise Officer who is appointed under the Central Excise Act, is deemed to be an officer under the provisions of the CGST Act. This means that the Central Excise Officer continues to be vested with the powers under the Central Excise Act concurrently, and by virtue of the afore-noted proviso, they are deemed to be officers under the CG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Excise Rules, 2002. 2. This notification shall come into force on a date to be notified by the Central Government in the Official Gazette. [F.No. 137/17/2017-Service Tax] Dr. Sreeparvathy S.L. Under Secretary to the Government of India 32. The above notification came into force on 22.06.2017 by way of a later notification issued in terms of clause 2 noted above. Vide Notification No.3/2017-Central Tax, dated 19th June 2017, in exercise of powers conferred by sub-section (3) of section 1 of the CGST Act 2017, the Central Government appointed 22nd June 2017, as the date on which several provisions, including Section 3, of the CGST came into force. Simultaneously, the Central Government, vide Notification No. 2/2017Central Tax, in exercise of the powers under section 3 read with section 5 of the CGST Act, and section 3 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), notified the officers under the CGST Act. This notification has undergone several amendments. Nonetheless, w.e.f. 22.06.2017, i.e. the day section 3 of CGST came into force, there are two parallel notifications one under the CGST Act and another under Central Excise Act. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Finance Act whenever a taxable event occurred. If service tax has not been paid or short paid, the Service Tax Department would acquire the right to recover the said tax. This is done inter alia on the basis of the best judgment assessment under section 72, and by initiating recovery proceedings under section 73 of the Finance Act, 1994. Therefore, such duty cannot be construed to mean only that which forms the subject matter of proceedings under section 72 and 73 of the Finance Act. The necessary corollary is that the investigation, inquiry, verification (including scrutiny and audit) that falls within the ambit of section 174(2) of the Act would include proceedings that were initiated prior to action under section 72 and 73 of the Finance Act, 1994. We also find merit in the submission of Mr. Harpreet Singh that a contrary interpretation would mean that all cases of duty evasion, where the adjudicatory process has not commenced, have to be ignored. That is clearly not the intent of the saving clause. The Supreme Court in Harnek Singh (supra), while interpreting the words anything duly done or suffered thereunder used in clause (b) of Section 6 of GCA (which are also fou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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