UNCERTAINITY IS CERTAIN

Even if Service Tax Audit cannot be done, there is no hurdle for Central Excise Audit - CBEC

NETIZENS will remember the Delhi High Court judgement dated 04 08 2014 in the Travelitecase (2014-TIOL-1304-HC-DEL-ST) striking down Rule 5A(2) of the Service Tax Rules as ultra vires. [Rule 5A(2) requires the assessees to make available records to the 'Audit Party' deputed by the Commissioner or CAG].

From 15 October some 45 Audit Commissionerates will start functioning. DDT had expressed a doubt as to what all these Audit Commissionerates will do, when according to the Delhi High Court, they do not have the power to audit at all.

The wise Board has come up with a brilliant clarification (vide) CBEC Circular No. 986/10/2014-CX., Dated: October 9, 2014. The CBEC says that the Delhi High Court order quashed the Service Tax rule but it did not deal with the issue of audit in Central Excise at all. And so the Board states that:

in Central Excise there is adequate statutory backing for audit by the Central Excise Officers. The statutory provisions relevant for audit is clause (x) of Section 37(2) and rule 22 of the Central Excise Rules, 2002. For ease of reference, Section 37(2 )( x) is reproduced below:-

Section 37: Power of the Central Government to make rules -

"37(2)(x): impose on persons engaged in the production or manufacture, storage or sale (whether on their own account or as brokers or commission agents) of salt, and, so far as such imposition is essential for the proper levy and collection of the duties imposed by this Act, of any other excisable goods, the duty of furnishing information, keeping records and making returns, and prescribe the nature of such information and the form of such records and returns, the particulars to be contained therein, and the manner in which they shall be verified;"

3. Rule 22 of the Central Excise Rules, 2002 provides that the Commissioner may empower an Officer or depute an audit party for carrying out scrutiny or verification of records of the assessee . The rule also obliges an assessee to make available records for such scrutiny.

4. The statutory backing for rule 22 thus flows from clause (x) of section 37(2) and the general rule making powers under section 37(1) of the Central Excise Act, 1944. Clause (x) of section 37(2) empowers the Central Government to make rules for verification of records and returns to check the correctness of levy and collection of duty which in the present regime of self-assessment would mean verification of correctness of self-assessment and payment of duty by the assessee . It may be noted that the expression “verification” used in the section is of wide import and would include within its scope, audit by the Departmental officers, as the procedure prescribed for audit is essentially a procedure for verification mandated in the statute.

Does this mean that Central Excise assessees can be audited but not Service Tax assessees?

Maybe the Board is not aware that an identical provision to Section 37(2)(x) is there in Service Tax also. Section 94(2)(k) provides for this:

imposition, on persons liable to pay service tax, for the proper levy and collection of the tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified .

If the Board is right with regard to Central Excise, they can continue to audit in Service Tax also.

The Board Circular is silent on whether Service Tax audit will be continued or Delhi High Court order would be followed.