Can the department conduct a service tax audit after the implementation of GST

Case Law Details

Brief about Petitioner

Petitioner is a company engaged in the business of construction of residential complexes.

Brief about Petition

Petitioner claims to be a regular and timely taxpayer under both Service Tax and GST regime. It has never been subjected to any general or special audit by either the Service Tax or the GST authorities.

Petitioner’s books of accounts and business are subjected to, among other things, statutory audit in terms of the Companies Act, 2013 and the Income Tax Act, 1961.

On 21.01.2020, officers of Central Goods and Service Tax, Audit-II visited the business premises of the Petitioner, directed the production of certain documents and sought information in relation to the disputed period.

In addition thereto, the officers also demanded information pertaining to several group companies of the Petitioner. Despite Petitioner’s compliance with the above and submission of the requisite information, the officers visited the business premises again on 17.02.2020 as well as 24.02.2020.

Their conduct exhibits the intention to continue with the visits, conduct audit/verification proceedings, and give further directions for production of documents and information.

Petitioner has challenged, inter alia the letter dated 01.11.2019 by virtue whereof the Respondents have commenced the audit/verification, on the ground that the same is void ab initio, being wholly without jurisdiction as well as without any statutory or legal authority.

The primary hypothesis for assailing the action of the Respondents is founded on the premise that w.e.f. 01.07.2017, by the advent of the CGST Act, the Respondents cannot take recourse to a subordinate legislation (i.e. Rule 5A Service Tax Rules, 1994) framed under Chapter V on the Finance Act, 1994, which, by virtue of Section 173 of CGST Act, stands omitted.

According to the Petitioner, the repeal and saving provision viz. Section 174 does not specifically save Rule 5A of the Service Tax Rules, 1994. Without prejudice to the afore-noted contention, it is contended that the saving provision and Section 6 of the General Clauses Act, 1897 saves only those cases where the obligation / liability stood incurred or accrued prior to the date of repeal.

The duty, tax etc. that is within contemplation of the saving clause is only that which falls within the ambit of section 72 & 73 of the Finance Act, 1994. Section 5A proceedings are in the nature of a roving enquiry that would not result in tax becoming due, and therefore cannot be resorted to in the facts of the present case.

Observations

Court has rejected the argument that Rule 5A of the Service Tax Rules does not survive the enactment of CGST Act, 2017. The Court has extensively examined Section 173 and Section 174 of the CGST Act and come to the conclusion that the intention of the Parliament was clearly to save not only the ongoing but also the initiation of fresh investigation, enquiry, verification etc. in respect of the acts and omission relating to inter alia the erstwhile service tax regime.

This Court has also held that Service Tax Rules, 1994, being subordinate legislation would fall within the range of the parent Act that has been specifically saved, and, it’s non-inclusion by title, in the saving clause, would not have a bearing on the applicability of the saving statute.

The Court has come to the conclusion that Section 174 of the CGST Act, 2017 expressly seeks to preserve the powers of the central authority to,  inter alia, institute or continue an investigation, inquiry etc. and no contrary intention is exhibited from the said provision.

The Court purposely delved into the effect of Section 6 of the General Clauses Act and held that the power of the competent authority stood preserved also by virtue of the said provision.

In view of the aforesaid, Nothing really survives in the present petition. The aforesaid decision in fact entirely traverses all the contentions urged in the present petition.

In fact, we are at a loss to find any specific ground urged in the present petition that could be understood to go beyond the contemplation of the court in Aargus Global. We have perused the grounds and find them to be general and unspecific and worded in the widest possible terms. There is no particular ground that can be regarded as distinctly alive or necessitating another probe. Be that as it may, we would not take a hyper technical view and non-suit the Petitioner on this ground.

Repeal along with reenactment was necessary to update the law to make it most suitable to the contemporary concept of indirect taxation.

Overnight, the nation switched over to the GST system, which of course required massive calibrations of the entire accounting system, both at the end of the Government as well as the taxpayers.

However it did not mean that all investigations, enquiries, audits, assessment proceedings, adjudications and other legal proceedings which form the subject matter of the Service Tax Rules stood abrogated the moment the new law was enacted, or that the officers carrying out the above exercise were stripped of their power to continue with the same because the Service Tax Rules were purportedly not saved.

We are unable to accede to the Petitioner’s interpretation. In the disputed period (for which the scrutiny and audit is being carried out by the Respondents) Chapter V of the Finance Act, 1994 was very much on the statute book.

The present proceedings cannot be carried out under the GST Rules, because, as explained earlier, the concept of taxation under the GST regime is not the same.

For the purpose of adjudication and other aspects related to service tax, the mechanism provided under the Service Tax Rules has to be followed.

Thus, we are of the opinion that the CGST Rules, 2017 cannot be understood to have superseded the Service Tax Rules, 1994. The service tax rules will continue to govern and apply for the purpose of Chapter V of the Finance Act, 1994.

Order

For the aforesaid reasons, there is no merit in the petition. Dismissed.