Division Bench of Justices S. Muralidhar and Vibhu Bakhru, observed that the expression ‘verify ‘in Section 94 (2) (k) of the Finance Act cannot be construed as audit of the accounts of an Assessee and, therefore, Rule 5A (2) cannot be sustained with reference to Section 94(2)(k) of the Finance Act.
Disposing of the challenge to the amended Service tax Rules by Mega cabs Pvt. Ltd, the Court said “There is a distinction between auditing the accounts of an Assessee and verifying the records of an Assessee. Audit is a special function which has to be carried out by duly qualified persons like a Cost Accountant or a CA. It cannot possibly be undertaken by any officer of the Service Tax Department.”
The Bench said “the Court has no hesitation in concluding that Rule 5A(2) exceeds the scope of the provisions under the FA. This is the result whether Rule 5A(2) is tested vis-a-vis Section 72A of the FA which pertains to special audit or Section 72 which pertains to assessment or Section 73 which pertains to adjudication or even Section 82which relates to searches. Under the garb of the rule making power, the Central Government cannot arrogate to itself powers which were not contemplated to be given it by the Parliament when it enacted the FA. This is an instance of the Executive using the rule making power to give itself powers which are far in excess of what was delegated to it by the Parliament.”
In Travelite (India) v. Union of India, a Division Bench of Delhi Court had struck down Rule 5A (2) as being ultra vires Section 72A read with Section 94(2) of the FA. In a Special Leave petition filed by the Union of India, Apex Court has stayed the judgment. Meanwhile, the Rule was amended. The present challenge against the amended Rule was considered by Delhi High Court afresh.
Read the Judgment here.