The Delhi high court, in a leading judgement delivered on 3rd June, 2016, has declared service tax audit being conducted by Central Excise and Service tax department as ultra virus, in the matter of Mega Cabs Vs UOI. The matter was argued by Mr. J.K. Mittal, FCA as advocate of the petitioner.
The court held that audit is a specialized function and cannot be delegated to service tax department or Excise department. It has been a general practice of the service tax department to conduct Audit of Service tax assesses for the last 5 years by deputing own officers of the rank of inspectors and Superintendents. Service tax department also seeks voluminous details and seek information in self- specified formats/ annexures. Now this judgement made it clear that the officers of the department have no power to conduct Audit at all. The honorable High Court has also held that the CAG officers have no power to conduct audit of assessee's records.
In our humble submission, audit is a specialized function and the profession of Chartered accountants is rightly trained and experienced for audit. Tax Audit under section 44AB of the Income Tax Act, has immensely benefited Govt. of India, trade and industry. Tax Audit has brought in financial discipline and has reduced the need for detailed scrutiny and significantly improved voluntary compliance's. Also under Sec. 142(2A) of the Income Tax Act, whenever specialized, complex or magnanimous issues are required to be examined in the interest of revenue, the Income Tax Department relies upon the services of the “accountant” (read “chartered accountant as per sec. 288). This is being done for almost 40 years now.
CBEC may kindly consider that detailed scope, coverage and reporting requirements can be brought in for Auditors appointed by assessee, to ensure deeper compliance and reporting. The purpose of the department will be adequately served and excise-service tax assesses will also get professional guidance and support.
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