20 October 2014 | Volume 7 Issue 10
This is in continuation of our Tax Alert Volume 7 Issue 7 dated 13 August 2014 with respect to the Service Tax audit conducted by Department officers in the case of Travelite India, which was held as ultra vires by the Delhi High Court.

Post this judgment, the Central Board of Excise and Customs issued
Circular No. 986/10/2014-CX dated 9 October 2014, wherein it was clarified that under Central Excise provisions, there is adequate statutory backing for audits by Central Excise officers.

The statutory provisions relevant for audits as mentioned in the Circular are mentioned below:
Section 37(2)(x) of the Central Excise Act, 1944:
Empowers the Central Government to make rules for persons engaged in the production or manufacture, storage or sale (whether on their own account or as brokers or commission agents) of salt, and, so far as such imposition is essential for the proper levy and collection of the duties imposed by this Act, of any other excisable goods, the duty of furnishing information, keeping records and making returns, and prescribe the nature of such information and the form of such records and returns, the particulars to be contained therein, and the manner in which they shall be verified.

Rule 22 of the Central Excise Rules, 2002:
An officer empowered by the Commissioner in this behalf shall have access to any premises registered under these Rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.  

Emphasis is laid on the word "verified" in the aforesaid Section stating that the same is of wide import and would include within its scope, audit by Department officers, as the procedure prescribed for audit is essentially a procedure for verification mandated in the statute.

SKP's Comments
The authorities have clarified their position on audits conducted by Central Excise officers; however, there is no clarification on whether audits can be conducted by Service Tax officers, or whether Central Excise officers are permitted to conduct Service Tax audits.

We would like to state that there is a Section similar to that prevailing under Central Excise (i.e. Section 37(2) (x) of Central Excise Act, 1944) under Chapter V of the Finance Act, 1994. Accordingly, there is a possibility that the authorities may refer to the same for conducting Service Tax audits by drawing the same meaning of the term "verified" as explained in the current Circular.

Nonetheless, unless clarified, the issue of audit under Service Tax by Service Tax officers is still debatable based on the judgment of Travelite India.

We hope you find the above information useful. Please feel free to contact us in case of any questions.

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