Audit of the Service Tax assessees by the officers of Service Tax and Central Excise Commissionerates

Sec­tion 94 of the Finance Act, 1994 deals with rule mak­ing pow­ers of the Cen­tral Gov­ern­ment in rela­tion to ser­vice tax. Sub-sec­tion (2) of sec­tion 94, deal­ing with spe­cif­ic pur­pos­es for which rules can be made, was amend­ed with effect from 06.08.2014, vide Sec­tion 114(J) of the Finance Act, 2014, and a new clause (k) was added to sub-sec­tion (2) of sec­tion 94, which is repro­duced below :

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

2. In exer­cise of the rule mak­ing pow­ers under clause (k) of sub-sec­tion (2) of sec­tion 94 of the Finance Act, 1994, the Cen­tral Gov­ern­ment has insert­ed a new rule 5(A)(2) in the Ser­vice Tax Rules, 1994 vide noti­fi­ca­tion no. 23/2014-Ser­vice Tax dat­ed 5^thDecem­ber, 2014. This rule, inter­alia, pro­vides for scruti­ny of records by the audit par­ty deput­ed by the Com­mis­sion­er. Such scruti­ny essen­tial­ly con­sti­tutes audit by the audit par­ty con­sist­ing of depart­men­tal officers.

3. Ver­i­fi­ca­tion of records man­dat­ed by the statute is nec­es­sary to check the cor­rect­ness of assess­ment and pay­ment of tax by the assessee in the present era of self-assess­ment. It may be not­ed that the expres­sion “ver­i­fied” used in sec­tion 94(2)(k) of the said Act 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.

4. It may also be not­ed that the Hon’ble High Court of Del­hi in the judg­ment dat­ed 04.08.2014 in the case of M/s Trav­elite (India) [2014-TIOL-1304-HC-DEL-ST] had quashed rule 5A(2) of the Ser­vice Tax Rules, 1994 on the ground that the pow­ers to con­duct audit envis­aged in the rule did not have appro­pri­ate statu­to­ry back­ing. This judg­ment can now be dis­tin­guished as a clear statu­to­ry back­ing for the rule now exists in sec­tion 94(2)(k) of the said Act.

5. Depart­men­tal offi­cers are direct­ed to audit the Ser­vice Tax assessees as pro­vid­ed in the depart­men­tal instruc­tions in this regard. Dif­fi­cul­ty, if any, in imple­ment­ing the cir­cu­lar may be brought to the notice of the Board.