Under GST Regime service tax audit under Rule 5A can not be initiated Gujarat High Court in a judgment with far reaching implications stayed Service Tax Audit by CAG.
This would definitely put a break on the harassment of the assessees by authorities who were issuing fresh notice for service tax audit.
ABCAUS Case Law Citation:
ABCAUS 2579 (2018) (10) HC
The petitioner was a limited liability partnership (LLP) firm and was engaged in the business of providing services to the polymer and associated products industries. The petitioner, on behalf of such industries was setting up warehouse service centers and provides support services in Special Economic Zones.
The petitioner had challenged the communication issued by the Comptroller and Auditor General of India (CAG) calling upon the petitioner to submit Service Tax audit at the hands of the officers of the CAG. The CAG had already rejected the petitioner’s objection for initiation of such audit.
The Hon’ble High Court noted that the CAG had relied heavily on Rule 5A of the Service Tax Rules, 1994 for exercising such powers of audit. However, Such Rule 5A, as it stood earlier, was challenged before the Delhi High Court and was struck down, as being unconstitutional.
Also the Gujarat High Court, in a case where the party had disputed the authority of CAG to carry out such Service Tax audit in which stay had been granted against further proceedings. The Court had noted the decision of Delhi High Court in case of Travelite (India).
It was submitted by the Petitioner that the Government had asked for transfer of all such petitions along with other proceedings filed before different High Courts. Attention of the Court was drawn to an order passed by the Supreme Court, in which, reference to the said order of the Gujarat High Court was made and the proceedings before the High Court had been stayed. However, the stay granted by the Gujarat High Court, did not appear as having been disturbed.
The petitioner submitted that thereafter, Rule 5A of the Service Tax Rules, 1994 was amended. The amended Rule also came to be challenged before the Delhi High Court in the case of Mega Cabs Pvt. Ltd. The Delhi High Court again struck down the Rule 5A. However, the Supreme Court stayed the judgment of the Delhi High Court in case of Mega Cabs.
The petitioner raised an additional contention that with the introduction of the Goods and Service Tax Act, the Finance Act, 1994 and the Service Tax provisions made thereon, stand repealed. Referring to Section 174 of the Central Goods and Service Tax Act, 2017 (CGST Act) it was contended that the Saving Clause contained therein would not save Rule 5A of the Service Tax Rules, 1994, so as to enable the respondents to initiate fresh proceedings for audit under the said Rule.
The Hon’ble High Court observed that Section 173 of the CGST Act provides that save and otherwise provided in the said Act, Chapter V of the Finance Act, 1994, shall be omitted. Section 174 of the CGST Act contains Repeal and Saving Clauses. Sub section (1) thereof provides that save and otherwise provided, on and from the date of commencement of the said Act, several Acts mentioned therein would stand repealed. Sub section (2) of Section 174 is a Saving Clause and it inter alia provides that the amendment of the Finance Act, 1994 to the extent mentioned in Sub section (1) of Section 173, shall not revive anything not in force or existing at the time of such amendment or repeal.
The Hon’ble High Court opined that a perusal of the clause (e) of Sub section (2) of Section 174 and other clauses would, prima facie, show that there was no saving of Rule 5A in such manner that fresh proceedings for audit could be initiated in exercise of powers under the said Rule. We, therefore, have serious doubts whether, with the aid of Rule 5A of the Service Tax Rules, 1994, the CAG can carry out compulsory Service Tax audit of private agencies.
Accordingly, the Hon’ble High Court issued notice to the Government/CAG and as an ad-interim relief, stayed the impugned order directing that the CAG shall not carry out any further Service Tax audit of the petitioner.