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Service Tax & CBEC

Service Tax Department cannot conduct audit under Rule 5A(2)–Delhi High Court

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[By Shaleen Shah (Partner), VNCA]

It is a general practice of Service Tax Department to conduct audit of service tax assessees for last five years by deputing their own officers of the rank of Inspectors and Superintendents. 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. Service Tax Department without assigning any reasons and routinely conducts audit even when it is not prescribed under the law and not conducting special audit.

On 3-Jun-2016, Delhi High Court in case of Mega Cabs Pvt. Ltd. has delivered a landmark judgement and struck down Rule 5A(2) of Service Tax Rules as ultra vires to the Finance Act. The Court has also struck down Circular No. 181/7/2014-ST dated 10.12.2014.

The High Court has given a detailed judgment considering various earlier decisions. Now this judgment has made it clear that the officers of the Department have no power to conduct audit at all.

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