Delhi High Court quashes rule on service tax audits

By Ranjeet Mahtani and Roshni MS, Economic Laws Practice
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In a judgment dated 4 August, in the case of Travelite (India) v Union of India & Ors, Delhi High Court struck down rule 5A(2) of the Service Tax Rules, 1994, which required production of records and documents by an assessee to the audit party, as ultra vires the rule-making power conferred by the Finance Act, 1994. Simultaneously, the court struck down an instruction issued by the Central Board of Excise and Customs, dated 1 January 2008, which stipulated the modalities of conducting the audit, stating that an instruction cannot widen the scope of the law.

Allowing the writ petition, the high court consequently quashed the letter from the Commissioner of Service Tax calling on the assessee to supply records for scrutiny.

Ranjeet Mahtani
Ranjeet Mahtani

Background

Travelite challenged the validity of rule 5A(2), contending that the act does not contain any substantive power to call for records for scrutiny under rule 5A(2) and that such power is available only when a special audit is ordered by recourse to section 72A of the act.

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Ranjeet Mahtani is an associate partner and Roshni MS is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.

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