Department clarification by Circular on Audit by Central Excise officer

Honorable Delhi High Court in case of M/s Travelite (India) (2014-TIOL-1304-HC-DEL-ST) has held that the powers to conduct audit as envisaged in rule 5A (2) of the Service Tax Rules, 1994, does not have appropriate statutory backing and therefore quashed the rule. After this judgment doubts has been raised regarding power of Central Excise Officer to conduct audit.

To resolve this issue, CBEC has issued Circular No. 986/ 10/ 2014-CX dated 9th October, 2014 vide F. No. 206/10/2014-CX.6 to clarify that in Central Excise there is adequate statutory backing for audit by the Central Excise Officers. The statutory provisions relevant for audit are clause (x) of Section 37(2) and rule 22 of the Central Excise Rules, 2002. CBEC further clarifies 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.

Thus, under Central Excise, officers has adequate power to conduct audit. On the other hand, under Service Tax, officers does not have the power to conduct audit instead Commissioner may order Special Audit under Section 72A which will be conducted by Chartered Accountant or Cost Accountant.

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