Will Department close down its Audit wing? No more Audit by Departmental Officers; they can only collect documents - Bonanza for CAs? Here is an excerpts from an online article : According to a recent judgement of the Lucknow Bench of the Allahabad High Court, the Service Tax officers have no power to audit the assessees and Audit can be done only by Chartered Accountants and in the case of PSUs by the CAG. Here is the Bomb! Will Department close down its Audit wing? No more Audit by Departmental Officers; they can only collect documents - Bonanza for CAs? THE entire case in the High Court ran on a wrong assumption. Some assessees challenged the vires of Rule 5A(2) of the Service Tax Rules, 1994 inter alia on the ground that the provision of Rule 5(A)(2) are contrary to the provision of Section 72A of the Finance Act 1994. As per Section 72A of the Act, the Commissioner can order Special Audit of the accounts of the assessee, by a chartered accountant or a cost accountant. As per Rule 5A(2) of the Service Tax Rules, 1994, the assessee is required to produce certain records to the Audit Party deputed by the Commissioner or CAG. Obviously the Audit by the Commissioners party or the CAG is not the same as the Special Audit by the Chartered Accountant ordered by the Commissioner under Section 72A. This important aspect was lost sight of in the arguments before the High Court. In the field, what happens is - the assessees are audited by the audit parties of the Commissioner as well as the CAG - these auditors visit the premises of the assessees, raise audit objections, which result in issue of Show Cause Notices and that is how our litigation industry is born and thriving. Every visit by an audit party invariably results in a Show Cause Notice, which would travel at least up to the Tribunal. Whenever the Commissioner has any special love for an assessee, he would direct the assessee to get his books audited by a chartered accountant or a cost accountant and this may also lead to Show Cause Notices. But there is hardly any nexus between Service Tax officers and chartered accountants - so audits by chartered accountants on the orders of the Commissioner are rare and far in between. Back to the case: In the High Court, the Department committed a blunder, nay virtually a hara-kiri. The Additional Solicitor General of India who appeared for the Department on the strength of a written note submitted that: ++ The purpose of Sub-Rule (2) of Rule 5A is to get the account audited by an Auditor deputed by the Commissioner. ++ In case, it is undertaking of Government of India, then Comptroller and Auditor General of India was authorized to conduct the audit. ++ The purpose of impugned notice is to collect the information from the petitioners-assessees to assess the correct tax and if the Commissioner is satisfied, then he may appoint a Chartered Accountant for the purpose of audit. ++ The audit will not be done by any officer or on his behalf. The audit will be performed by a qualified Chartered Accountant. As you know all the above submissions are patently wrong. 1. The auditor deputed by the Commissioner is a departmental officer - usually from Inspector to Assistant Commissioner. 2.There is absolutely no rule or procedure that a Government undertaking is audited by the CAG. The CAGs Audit party also audits the private assessees. 3. The purpose of the notice to produce the records under Rule 5A(2) is not to collect documents to be handed over to a chartered accountant for doing the audit. No Service Tax officer would collect documents and hand them over to a chartered accountant to do audit. Even as per Section 72A, the Commissioner does not collect documents and hand them over to a CA for audit - he directs the assessee to get his accounts audited by a nominated chartered accountant. 4. The Departments audit will be done by the officers of the department ONLY and not by a chartered accountant. This audit is popularly known as EA 2000 with elaborate procedures and instructions on conducting the audit, prescribed in Audit Manual. It is not known under what circumstances and under whose instructions, the learned Additional Solicitor General of India made such a blatantly incorrect submission before the High Court. It seems he had a written note - was this note prepared /approved by the Department? Based on the ASGs submissions, the High Court concluded that: In case of private assessee, the Commissioner will refer the matter to an officer to collect the material or Chartered Accountant for the purpose of audit. Thus, for the purpose of audit, the material can be collected either by the officer authorized by the Commissioner or by the Auditor himself. But, audit will be performed only by the Chartered Accountant. The High Court specifically mentioned that, During the course of arguments, learned Additional Solicitor General of India has assured that the audit will be performed by a qualified Chartered Accountant and as per accounting standard. After the audit report, the assessee will get the copy of the report, as per law. In the light of the above statement of the ASG, the High Court dismissed the writ petition. *****mg*****
Posted on: Mon, 03 Feb 2014 08:00:00 +0000
Trending Topics
Recently Viewed Topics
© 2015