Calcutta HC judgement CAG has no power to conduct Excise & Service Tax Audit of private enterprises even Department have to restraint for Special Audit only.

IMPORTANT: NO AUDIT OF PRIVATE ENTERPRISES

BY

COMPTROLLER AND AUDITOR GENERAL OF INDIA

Important judgment argued by Mr. J.K. Mittal benefiting the Industry at large by Hon’ble Calcutta High Court.

Yesterday, Calcutta High Court deliver a judgment that Comptroller & Auditor General (CAG) and any officers subordinate to him has no power to conduct audit of private enterprises unless these are financed or funded by the Government or grants given by the Government.

The High Court also quashed the letter issued by CERA a wing of CAG to conduct audit of Calcutta based stock broker Company, SKP securities Ltd [Writ Petition No 21053 of 2011] & held that there is no provision under Central Excise Act or Finance Act 1994 empowering CAG to undertake audit of private enterprises which are not funded by Government.

The High Court further held that Rule 5A(2) of the Service Tax Rules, 1994 is ultra vires to the extent for directing every assessee to provide records to Audit Party of CAG.

The High Court is of the view that only in case of Special audit as envisage under section 72A of the Finance Act or section 14A or 14AA of Central Excise Act, assessee is required to provide records, not otherwise, to audit party.

Yesterday, Writ Petition No. 20517 of 2012 of Infinity Infotech Park Limited, Calcutta, wherein also similar issues were raised, similar judgment was passed, by referring to SKP Securities Ltd judgment passed. In Both the writ petitions in last few days, we have extensive arguments and Hon'ble Calcutta High Court delivered judgment in open Court by accepting arguments made on behalf of the Petitioners & by covering the provisions of various Act relating to Audit, holds that except for Government Companies there is no provisions in any Act empowering CAG to conduct audit of any company. The Hon’ble Calcutta High Court even held that CAG Act, also does not empower to CAG to conduct the audit of companies which are registered under Companies Act, 1956.

The High Court has also referred the matter to division bench of High Court by noting that the another coordinating bench has taken view in Berger Paint case that both Department & CAG can conduct audit by specifically noting that in that view of Rule 173 of the Central Excise Rules, which is pari materia to Rule 5A, was not pressed & in that judgment subject matter was to interpret  the word “or” appearing in Rule, whether it has to be read as “and” and both authority, Department &  CAG can simultaneous conduct audit or not.