No Audit by Service tax department

Audit by Service Tax Department - HC Orders Status Quo

"IT is a general practice for Service Tax Department to conduct audit of service tax assessee for the last five years by deputing their own officers of the rank of inspector and Superintendent. Service Tax Department also seeks voluminous details and seeks information in self-specified format/annexures of about 32 pages, which are not prescribed under the law. On several occasions, the courts have held that the Department has to give the reason and opportunity of hearing before conducting an audit under the law even when the Parliament has given them the power to conduct special audit. However, Service Tax Department without assigning any reasons routinely conducts audit even when it is not prescribed under the law and not conducting special audit.", submitted an assessee before the Delhi High Court.

Recently in Delhi High Court in Writ Petition (C) No. 3774 of 2013 [M/s Travelite (India)], the action of the Department of conducting service tax audit for the last five years by their own officers has been challenged along with the Service Tax Rules empowering the Commissioner of Service Tax, to depute their own officers from Department for conducting audit.

The High Court by order dated 30.05.2013 has issued notice to the Ministry of Finance and the Commissioner Service Tax and also directed that status quo be maintained regarding audit.

In this matter, the assessee before approaching to the High Court had approached the Department for seeking reasons and under which law the Department has sent them the number of forms to be filled up; however, the Department did not respond and insisted for all such documents/information even by issuing summons. The assessee has then approached the High Court.

Now the Department will not be able to conduct audit of the said assessee and the matter has been posted for further hearing on 24.09.2013.

The High Court will examine the validity of the provisions of the Service Tax Rules,1994 as well as the action of the Department in conducting audit of service tax assessee by deputing the departmental officers.

There was a time when the Audit wings of the department were specialised units with senior inspectors. They even used to get a special pay. And many of the assessees happily welcomed these departmental audit officers who were very knowledgeable and could help the assessees in clarifying several doubts. Over the years greed and incompetent arrogance replaced decency and erudition and these officers became a big nuisance and most unwelcome in the premises of the assessees. They became an impediment for the normal work of the assessee's offices and it became prohibitively expensive to entertain these auditors. While Central Excise assessees accept Audit as an unavoidable evil, Service Tax assessees who are relatively new to the vagaries of Audit cannot understand why the Departmental auditors should come to their premises and audit their accounts when no other department does that.

It seems under the cadre review proposals, the CBEC will establish some exclusive Audit Commissionerates and maybe by that time more assessees will approach Courts and get audit stayed. This is what happens when you transform yourself from an advisor to an adversary.

 Source: TIOL-DDT 2122 dt 07.06.2013