Service Tax - No Audit of Private Enterprises by AG's Audit - But Matter goes to Division Bench - Calcutta HC
THE much-awaited judgement of the Calcutta High Court has finally been released. The Single Judge Bench of the High Court was emphatic in declaring that CAG has no power to audit private assessees, but the learned judge was constrained to refer the matter to a Division Bench because there was an earlier decision of another Single Judge, which appeared to be contradictory to this view. The issue in that case was regarding Rule 173G(6)(c) of Central Excise Rules, 1944, which provided that Commissioner or the Comptroller and Auditor General of India would be entitled to undertake the audit of records of any assessee. The question was whether ‘Commissioner or CAG can audit' or ‘Commissioner and CAG can audit'. The Court held that ‘or' has to be read as ‘and'.
In the present case, the short question involved was, whether CERA, an audit wing of the Principal Director of Audit (Central), Kolkata under the Comptroller and Auditor General of India, has power and/or authority and/or jurisdiction to audit the accounts, service tax records or other documents of the petitioner company, which is not an undertaking of the Central Government or any State Government.
The High Court was emphatic in its view that:
None of the statutes, namely, the Companies Act, 1956, the Income Tax Act, 1961, the Central Excise Act, 1944 or the Finance Act, 1994 contain any provision for audit by the Comptroller and Auditor General of India or any audit team subordinate to the Comptroller and Auditor General of India, of any company incorporated or existing under the Companies Act 1956, except a government company within the meaning of Section 619 of the said Act.
The CAG Act does not authorize the Comptroller and Auditor General of India or any audit team under the control of the Comptroller and Auditor General of India to audit the accounts of a non-government company and that too in the absence of any request either from the President of India or the Governor of the State.
There is no provision in Chapter V of the Finance Act, 1994 or for that matter in the CAG Act, which empowers the CAG to audit the accounts of an assessee, which is a nongovernment company, not in receipt of aid or assistance from any government or government entity. Sub-section (2) of Section 94 also does not empower the Central Government to frame rules for audit of the accounts of an assessee by any audit team under the Comptroller and Auditor General of India. There can be no doubt that statutory rules, framed in exercise of power conferred by statute cannot introduce something not contemplated in the statute, from which it derives its rule making power.
In the absence of any provision in Chapter V of the Finance Act, 1994 for audit of the accounts of a non government company by the Comptroller and Auditor General of India or any team under him, the Central Government could not have framed, and has not framed any rules which provide for audit by the Comptroller and Auditor General of India or any audit team under his control of an assessee which is not a government company.
The obligation to provide records to the audit party deputed by the Comptroller and Auditor General is to be construed as an obligation to provide documents and records, when those documents and records are necessary for audit is in accordance with law, subject to the provision of the CAG Act, for example, audit of the receipts of the Government meant for deposit in the Consolidated Fund of India or, may be, an audit on the request of the Governor or the President as indicated above.
The obligation under sub-rule 2 of Rule 5A is to be construed harmoniously to cast an obligation in case of a lawful demand to produce requisite records and documents. The obligation to make records and documents available does not oblige an assessee to agree to unauthorized audit of its accounts by an audit team from the office of the Comptroller and Auditor General of India.
But alas! Finally, the matter had to go to a Division Bench. You can't dispense with the CAG's Audit - at least not yet!
We bring you this landmark judgement today. Please see Breaking News.