Commissioner ordered to pay VAT Special Audit Fee to CA Firm when assessee defaulted despite there was no provision for direct payment at the relevant time
ABCAUS Case Law Citation:
ABCAUS 2040 (2017) (08) HC
In the instant case, six writ petitions had been filed by a firm of Chartered Accountants (CA Firm) seeking directions to the Department of Trade and Taxes (‘DT&T’) to honour the bills raised by the Petitioner CA Firm for the work of special audit done by it under Section 58A of the Delhi Value Added Tax Act, 2004 (‘DVAT Act’) pursuant to specific directions of the Commissioner of Trade & Taxes (Respondent No.1)
Brief Facts of the Case:
The Petitioner CA Firm was entrusted with the work of conducting the special audit of different dealers registered under the DVAT Act. The special audit work was entrusted by the Commissioner under Section 58 A (1) of the DVAT Act.
As per the order issued by the Commissioner directing the CA Firm to undertake the audit work It had been specifically stated that the remuneration including expenses of the named auditor shall be paid by the dealer as per the scales of fees prescribed by the Institute of Chartered Accountants of India (ICAI).
According to the CA Firm, the audit exercise was performed to the satisfaction of the Commissioner and bills amounting to Rs. 22 lakhs in respect of six assesses were raised way back in 2010. On account of the failure of the dealers, who were required to make payment of the above bills in terms of Section 58A (4) of the DVAT Act as it stood prior to the amendment on 28th March 2013, the CA Firm approached the High Court in 2014.
Before the High Court, it was contended by the Department that the rates at which the fees were claimed did not accord with the applicable instructions which had prescribed limits for fees payable for a special audit. It was submitted that the amounts claimed were based upon the rates prescribed by the ICAI.
The High Court had noted that Section 58(a)(iv) prescribed that the expenses incidental to the audit including the remuneration shall be determined and paid by the dealer and that determination shall be final. It was noted that there had been no such determination.
Accordingly the Hon’ble High Court had directed the Commissioner to carry out the exercise and after verifying the relevant details, fix the fee payable in respect of each of the six assessees with respect to whom the special audit was carried out by the petitioner under Section 58(a)(i). The commissioner was directed to carry out the said exercise within four weeks from. It had been also ordered that the determination shall be directly communicated to the CA Firm and the assessees, in terms of Section 58(a)(iii)in accordance with law.
Pursuant to the order, the Commissioner determined the fees payable by the respective registered dealers to the CA Firm for the special audit performed by it and conveyed it to the CA Firm by letter The fees were paid to the Petitioner in four out of the six matters.
As the CA Firm again approached the High Court in the present case for non payment of fee in respect of two assesses and raising the issue of rates of fees paid. The respondent urged that even in the other four matters where the payment had been received by the Petitioner. Regarding the fee determination not in terms of the norms fixed by the ICAI, it was contended that this issue had already been raised earlier and therefore, at this stage it was not open for the CA Firm to contend that it should be paid at the ICAI rates.
The respondent pleaded that in view of the fact that at the time when the special audit took placed Section 58A (4) of the DVAT Act had not been amended, a direction could not be issued to the Commissioner to make the payment of the fees in the event of a default committed by the dealer in making the payment. It was submitted that efforts to recover the fees from the dealers concerned will be continued and as and when the fees is recovered it will be paid to the CA Firm
Observations made by the High Court:
The Hon’ble High Court observed that the question regarding two cases where no payment had been received by the CA Firm was what should happen if a registered dealer who is required to make payment for the fees of the special audit defaults in making payment? Does the liability get transferred to the DT&T?
It was noted that the provision of Section 58A(4) as it stood prior to 18th June 2012, was silent as to what should happen in the event of a default by the dealer in making the payment.
The Hon’ble High Court observed that the determination of the fees payable was communicated by the Commissioner to the Petitioner on 3rd June, 2014, i.e., after the amendment came into effect. This was pursuant to the order passed by this Court on 5th May, 2014 in the earlier writ petitions. While the DT&T was right that at the time when the special audit took placed Section 58A (4) of the DVAT Act had not been amended, the fact remains that the fees payable to the Petitioner was determined after the amendment came into force.
The Hon’ble High Court opined that the Petitioner was a firm of professional auditors and it would be unfair to expect it to remain unremunerated for the special audit work undertaken by it on orders of the Commissioner. They could not be made to suffer only because of the default committed by the registered dealers. The Petitioner was not engaged by the registered dealers but by the Commissioner. The Petitioner performed the task of special audit in aid of the Commissioner’s statutory functions.
The Hon’ble High Court further observed that it was precisely for dealing with a situation where a professional chartered accountant might be left high and dry by a defaulting dealer whose accounts had been specially audited, that Section 58A (4) of the DVAT Act was amended.
The Hon’ble High Court opined that there was no reason why the benefit of the amendment should not be extended to the CA Firm considering that the fees payable to the Petitioner had been fixed by the Commissioner only after the amendment came into effect.
The Hon’ble High Court also opined that that the power of the Commissioner in these cases to recover from the defaulting dealer the amount paid to the CA Firm should be kept reserved. For the purposes of such recovery, the amount due from the defaulting dealers would be treated as being due in terms of Section 30 of the DVAT Act, particularly since Section 58A (4) of the DVAT Act as it stood prior to 18th June 2012 permitted such recovery.
DT&T was ordered to pay the outstanding fees as determined in terms of the rates fixed by the Commissioner VAT. The power of the Commissioner to recover the fees so paid from the defaulting dealers in accordance with law was reserved.