CAG Evades Service Tax? Show Cause Notice to be issued?
THE CAG is getting it back. Everyone is scared of the CAG but the CAG is answerable to none. DDT on several occasions had suggested that there should be an audit of the CAG, especially on the amount of money wasted because of the silly objections raised by the CAG.
Now the Nagpur Central Excise Commissioner seems to be ready to take the CAG by its horns. Commercial Audit wing of the Comptroller and Auditor General of India (C&AG) are conducting commercial audit of accounts of Government companies/corporations. For such audits, CAG charges fees from concerned entities. The Commissioner feels that the said services of conducting audit of accounts falls under taxable services of "Practicing Chartered Accountant, Practicing Cost Accountant and Practicing Company Secretary" Service which is defined under Section 65(105)(s)(t)(u) of Finance Act, 1994. However, CAG is not discharging its service tax liability all over India against said services provided by them.
The Chief Commissioner of Central Excise, Nagpur has written a letter to the Chief Commissioners in India that the inquiry conducted so far has revealed that the Office of AG (Audit-II), Nagpur is conducting audit of accounts of certain Central Public Sector Undertakings/ statutory corporations/ Autonomous organizations and are collecting fees/ charges from the concerned organisations for the same. Preliminary enquiry reveals that they have received Rs.3.3 Crores approx. from three organizations, in last five years for providing services, but have failed to pay Rs.33 lakhs as Service Tax on such taxable service provided by them. The investigation is being finalized shortly for issue of SCN. Further it has been noticed that commercial audit by AG's office Nagpur is conducted only a few cases at Nagpur and major activities are being undertaken in Metro Cities.
The Chief Commissioner, Nagpur tells the other Chief Commissioners, "Since the issue has all India ramifications, the same is brought into your notice for further necessary action at your end".
So, the Nagpur Service Tax unit is getting ready to issue a Show Cause Notice to CAG. Most probably, the CAG will be charged with suppression and intent to evade tax – the notice would be for the last five years, and stuck with a mandatory penalty.
The Government's policy is not to exempt the Government from payment of Service Tax as it would result in distortions. The Board had in Circular No. dated 18.12.2006, clarified,
The Board is of the view that the activities performed by the sovereign/public authorities under the provision of law are in the nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by them for performing such activities is in the nature of compulsory levy as per the provisions of the relevant statute, and it is deposited into the Government treasury. Such activity is purely in public interest and it is undertaken as mandatory and statutory function. These are not in the nature of service to any particular individual for any consideration. Therefore, such an activity performed by a sovereign/public authority under the provisions of law does not constitute provision of taxable service to a person and, therefore, no service tax is leviable on such activities.
However, if such authority performs a service, which is not in the nature of statutory activity and the same is undertaken for a consideration not in the nature of statutory fee/levy, then in such cases, service tax would be leviable, if the activity undertaken falls within the ambit of a taxable service.
Now, will the CAG be covered in the above clarification? The Chief Commissioners are meeting in Delhi today and tomorrow for their annual conference. Will they discuss this issue?