Supreme Court Grants Stay on Delhi High Court Judgement on Service Tax Audit in Travelite India Case Declaring Rule 5A(2) as Ultra Vires - See more at: http://abcaus.in/servicetaxaudit/SC-grants-stay-on-delhi-hc-judgment-declaring-rule-5A2-ultra-vires.html#sthash.n0zxV5bs.dpuf
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On 18-12-2014, a three judges bench of the Supreme Court headed by Chief Justice has granted Granted Stay on Delhi High Court Judgment ruling that provisions of Rule 5A(2) related to Service Tax Audit are Ultra Vires. The Delhi High Court in the case of M/s Travelite (India) Writ Petition 3774/2014 had opined that the said rule amounted to an attempt to include provision for such a general audit through the back-door and accordingly struck down Rule 5A(2) as ultra-vires the rule making power conferred under Section 94(1) of the Finance Act.
| ITEM NO.49 | COURT NO.1 | SECTION III | |
| SUPREME COURT OF INDIA | |||
| Petition(s) for Special Leave to Appeal (C) | No(s). 34872/2014 | ||
| (Arising out of impugned final judgment and order dated 04/08/2014 in WPC No. 3774/2013 passed by the High Court of Delhi At N. Delhi) | |||
| UNION OF INDIA & ORS. | | Petitioner(s) | |
| VERSUS | |||
| M/S TRAVELITE (INDIA) (With prayer for interim relief) | | Respondent(s) | |
| Date : 18/12/2014 This petition was called on for hearing today. | | ||
| CORAM : | | | |
| | HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE R.K. AGRAWAL | ||
| For Petitioner(s) | Mr. Mukul Rohatgi, Attorney General Ms. Nisha Bagchi, Adv. Ms. Charul Sarin, Adv. Mr. B. Krishna Prasad,Adv. | ||
| For Respondent(s) TD> | |||
UPON hearing the counsel the Court made the following | |||
| There shall be stay of the operation of the impugned judgment and order dated 04.08.2014 passed by the High Court in Writ Petition(C) No.3774 of 2013. | |||
| Signature Not Verified | |||
| Digitally signed by NEETU KHAJURIA Date: 2014.12.18 17:05:56 IST Reason: | |||
| (Neetu Khajuria) Sr.P.A | (Vinod Kulvi) Assistant Registrar | ||
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TranslateRule 5A(2) related to Service Tax Audit is ultra-vires-Delhi High Court
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The Hon'ble Delhi High Court has set aside and quashed the letter of Commissioner of Service Tax seeking the records of the petitioner for scrutiny by an audit party under Rule 5A(2) of the Service Tax Rules, 1994. Quashing the letter, The Hon'ble Delhi High Court has also ruled that the Finance Act, 1994 does not authorise a general audit of the type envisioned by Rule 5A(2) and has declared rule 5A(2) as ultra viresof the rule making powers. The Court also quashed the CBEC circular dated 1.1.2008 to the extent it provides clarifications on Rule 5A(2).
It is notable that earlier, Allahabad High Court has ruled that Rule 5A(2) is just to facilitate Section 72A.
In the present case, the Petitioner who was a registered service tax assessee challenged the letter of the Commissioner of Service Tax seeking its records for the years 2007-08 till 2011-12 for scrutiny by an audit party under Rule 5A(2) of the Service Tax Rules,1994. The Petitioner also challenged the validity of Rule 5A(2) of the Service Tax Rules, 1994, brought into force by Notification no. 45/2007 dated 28.12.2007 as well as the instruction of the Central Board of Excise and Customs ("CBEC") no. F. No. 137/26/2007-CX.4 dated 1.1.2008.
The petitioner approached the Delhi High Court under Article 226 of the Constitution of India. ( Power of High Courts to issue certain writs ) The main contention of the Petitioner was that the powers of an assessing officer to call for records in respect of any period during which the respondents seek to intensively scrutinize receipts etc. i.e. a special audit can be ordered by recourse to Section 72-A of the Finance Act, 1994. Barring these, the Finance Act,does not contain any substantive power to call for records for scrutiny as is permissible under Rule 5A(2) or for the purpose of scrutiny by any authority outside of those created under the Act.
The relevant excerpts of the judgement of the Hon'ble court's are as under:
"The only provision in Chapter V of the Finance Act on scrutiny and audit of records of the assessee is Section 72A of the Finance Act, 1994............"
"Section 72A envisages an audit of an assessee's records only in special circumstances,namely, when there is a failure to declare or compute the value of the taxable service, when the utilization of CENVAT credit in excessive of the limit permissible or by fraud etc., and when the business operations of the assessee are dispersed across multiple locations....."
"Apart from Section 94, the Revenue could not show any other substantive provision which justifies a probe into the records of the assessee, under conditions akin to those contemplated by Rule 5A(2). The Revenue was also unable to show the compulsion of arming authorities with such sweeping powers, under the Rules...."
" Power delegated by an enactment does not enable the authority by regulations to extend the scope or general operation of the enactment but is strictly ancillary. It will authorise the provision of subsidiary means of carrying into effect what is enacted in the statute itself and will cover what is incidental to the execution of its specific provision"
"It is apparent that the only type of audit within the contemplation of the statute is that stipulated for in Section 74A, i.e. a special audit when only certain circumstances are fulfilled. The Parliament thus had a clear intention to provide for only a special audit. The fact that Section 74A prescribes the conditions meriting such special audit compels the necessary inference that the Parliament did not intend to provide for a general audit that "every assessee" may be subjected to, "on demand". This Court is thus of the opinion that any attempt to include provision for such a general audit through the back-door, such as through the impugned rule, is ultra-vires the rule making power conferred under Section 94(1). Rule 5A(2) must consequently be struck down."
"Likewise, this Court finds that the impugned CBEC instruction, being in furtherance of Rule 5A(2), which rule is ultra-vires the Finance Act, 1994, is void for the same reasons. Executive instructions without statutory force, cannot possibly override the law; consequently, any notice, circular, guideline etc. contrary to statutory laws cannot be enforced."
"The impugned circular seeks to put in place a mechanism for audit and scrutiny of documents with the objective of safeguarding the interests of the Revenue, in furtherance of the amendments made in the Service Tax Rules, as indicated in paragraph 7 of the circular. Since the parent statute in this regard, the Finance Act, 1994 itself does not authorise a general audit of the type envisioned by the impugned Rule 5A(2), and furthermore only stipulates that a special audit can be undertaken if the circumstances outlined in Section 72A are fulfilled. this Court finds that the impugned CBEC circular is not only an attempt to widen the scope of the law impermissibly but also is patently contrary to the statute. The impugned circular, to the extent it provides clarifications on a Rule 5A(2) audit, is hereby quashed; consequently, the impugned letter is quashed and set aside."
PFA
Section 43B opens with a non obstante clause which means that it controls the operation of other provisions of the Income-tax Act in that section 43B will have overriding effect notwithstanding other provisions under which a deduction may otherwise be allowable.
- See more at: http://taxguru.in/income-tax-case-laws/employees-contribution-epf-covered-section-361va-rw-224x.html#sthash.IdEVcmyx.dpuf
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PFA
Section 43B opens with a non obstante clause which means that it controls the operation of other provisions of the Income-tax Act in that section 43B will have overriding effect notwithstanding other provisions under which a deduction may otherwise be allowable.
Employee's contribution to EPF is covered by section 36(1)(va) r.w. s. 2(24)(x)
DCIT Vs. M/s. Bengal Chemicals & Pharmaceuticals Ltd. (ITAT Kolkata), ITA No.1680/Kol/2010, Date- 7th January, 2011
Issue- Deletion of employees contribution to P.F. and E.S.I under section 43B taking it to be employer's contribution.
'Due date' as appearing in section 36(1)(va) read with Explanation specifies the due date as the date by which the assessee is required as an employer to credit an employee's contribution under the employees a/c to the relevant fund. As regards the term "due date" as appearing in section 36(1)(va), the Explanation to section 36(1)(va) specifies the "due date" as the "date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise." The term "due date" as specified in the Explanation to section 36(1)(va) does not refer to the due date fixed for filing the return of income u/s 139(1). Hence the "due date" as fixed for filing the return of income u/s 139(1) cannot be read into the Explanation to section 36(1)(va). The "due date" for crediting any sum received by the assessee from his employees as contributions towards any provident fund or superannuation fund or any fund for the welfare of the employees by the employer-assessee to the employee's account in the relevant fund or funds must be the one specified in the Explanation to section 36(1)(va) and not the "due date" for filing the return of income under section 139(1). In the case before us there is no dispute that the assessee company has neither credited the impugned contribution received by it from its employees to the employees' account in the relevant fund nor it has done so on or before the due date specified in the Explanation to section 36(1)(va) and hence we are of the considered view that the claim of the assessee for deduction cannot succeed. Further section 43B, we are of the considered view, does not apply in respect of the employees contribution for the following reasons :
(i) Section 43B opens with a non obstante clause which means that it controls the operation of other provisions of the Income-tax Act in that section 43B will have overriding effect notwithstanding other provisions under which a deduction may otherwise be allowable.
(ii) The opening words of section 43B make it clear that the said section would have overriding effect and apply only when a deduction is otherwise allowable under the Income-tax Act. In other words, the very applicability of the nonobstante clause would come into play only when a deduction is otherwise allowable under the Income-tax Act. Thus section 43B cannot be pressed into service to allow a deduction which is otherwise not allowable under the Income-tax Act including section 36(1)/(va) thereof. In order to avail the beneflt of section 43B upon actual payment, the assessee must show that the deduction claimed by it u/s 43B is otherwise allowable under the provisions of the Income-tax Act including section 36(1)/(va) thereof.
(iii) Section 43B bars deduction, which is otherwise allowable under the Income-tax Act, of any sum referred to in clauses (a) to (f) unless it is actually paid. Thus the factum of actual payment of any sum referred to in clauses (a) to (f) is relevant only when the deduction is otherwise allowable under the Income-tax Act. There are several provisions in the Income-tax Act, which set out the conditions for the allowability of deductions of those very sums which are referred to in section 43B. Those provisions would be rendered otiose if a view was to be taken that deductions of the aforesaid sums would be allowed as and when they are actually paid irrespective of the fact that they are not otherwise allowable under the Income-tax Act. The plain and unambiguous language used in section 43B makes it absolutely clear that the allowability of deduction of any sum referred to in clauses (a) to (f) upon actual payment is restricted to those deductions only, which are otherwise allowable under the Income-tax Act. Thus the factum of actual payment by itself is not sufficient to successfully claim a deduction u/s 43B, which is otherwise not allowable under the Income-tax Act. In other words, all those deductions, which are otherwise not allowable under the Income-tax Act, cannot be allowed even on actual payment u/s 43B.
(iv) The proviso to section 43B carves out an exception and allows deduction in respect of any sum referred to in clauses (a) to (f) which is actually paid by the assessee on or before the due date for furnishing the return of income u/s 139(1) in respect of the previous year in which the liability to pay such sum was incurred. However, the proviso applies only to those matters which are specifically referred to in section 43B to which it has been added. Proviso to section 43B cannot therefore be made applicable to those deductions which are otherwise not allowable under the Income-tax Act."
From the above we are of the view that a claim/deduction which is otherwise not allowable u /s 36(1)(va) or for that matter any other provision of the Income Tax Act can neither be considered nor is allowed u/s 43B. The opening words of section 43B ,namely "notwithstanding anything contained in any other provision of this Act a deduction otherwise allowable under this Act …………………….. ." make it amply clear that section 43B comes into play only when deduction is otherwise allowable under the Income Tax Act . The purpose of section 43B is i) to bar the deduction of the sums referred to therein unless they are actually paid and ii) not to allow deduction which is otherwise not allowable under the Income Tax Act. Therefore, section 43B cannot be pressed into service in a case like the one before us where deduction is not otherwise allowable u /s 36(1)(va). Moreover, section 43B is a general provision which merely bars deduction of specified sums unless they are actually paid and whereas provisions of section 36(1)(va) specifically deal with deduction in respect of payment of employees contribution to the Provident Fund. Therefore, the provisions of section 36(1)(va), being special provisions enacted to deal with specific matter would, in our view, prevail over the general provisions of section 43B on the principle that a general clause does not explain to those things that have been previously provided for specifically.
We have gone through the decisions (cited supra) in which it is held that employees' contribution to provident fund would be eligible for deduction if it is paid before due date prescribed u /s 139(1) for filing the return of income. However, we do not find any such observation in the said cases (cited supra) that deduction u /s 43B would have to be allowed even if the deductions in respect of which payments have been made in terms of section 43B are otherwise not allowable under the Income Tax Act. In fact it has not even the question raised in those decisions as to whether deduction which is not otherwise allowable under the Income Tax Act, could at all be allowed on payment basis u /s 43B. It is well-settled principle that a judgment must be read as a whole and the observations in the judgment have to be construed in the light of the question raised before the Court. It is the judicial principle found upon reading the judgment as a whole in the light of the question raised before the Court which forms precedent and not particular words or phrases.
In view of the above we hold that the assessee is not entitled to deduction u /s 36(1)(va) of the employees' contribution to provident fund which was paid after the due date as specified in Explanation to Section 36(1)(va) of the Act as section 43B cannot be pressed into service because section 43B comes into play only when a deduction is otherwise allowable under the Income Tax Act.
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Delhi High Court-Service Tax Rule 5A-2 for Audit is Ultr... Delhi High Court quashed letter for audit under rule 5A-2 of Service Tax Rules, declared it Ultra Vires. The only provision on scrutiny and audit is Section 72A | |||||||
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