Bombay High Court
The Sales Tax Practitioners' ... vs The State Of Maharashtra Through ... on 28 March, 2008
Equivalent citations: [2008]14STT348, (2008)14VST69(BOM)
Author: F.I. Rebello
Bench: F.I. Rebello, R.S. Mohite
JUDGMENT F.I. Rebello, J.
1. All these petitions are being disposed of by this common judgment as the main challenge in all the petitions is to the constitutional validity of Section 61(1) and the explanation thereto, of the Maharashtra Value Added Tax Act (hereinafter referred to as the "Act") on the ground that it infringes the equality clause as enshrined in Article 14, the right to carry on profession under Article 19(1)(g) as also under Article 254, as the provisions for "audit" would not fall within the competence of the State Legislature under Entry No. 54 of List II of the VIIth schedule to the Constitution of India. In the alternative to read down Section 61, so as to empower Advocates and Sales Tax Practitioners to audit and give report in Form No. 704. There are some other incidental challenges in Writ Petition No. 1777 of 2007 to contend that the explanation also be declared void as being violative of Article 265 which provides that no tax shall be levied or collected except by the authority of law and Article 301 as it infringes the freedom to carry on trade, commerce and intercourse through out the territory of India.
2. Writ Petition No. 3203 of 2006 is filed by the Association and its President who is Petitioner No. 2. The association is registered under the Societies Registration Act, 1960 having registration No. Bom 166/71. They contend that for the last 56 years, advocates and sales tax Practitioners who are its members have been enjoying an equal level field in practice before the Sales Tax Authorities. The impugned provision seeks to keep out a class of advocates and sales tax practitioners from their legitimate field of practice. This class of practitioners and advocates have attained appreciable standard of expertise to understand and interpret the sales tax laws before the tax authorities under the Act. The Advocates also practice in the field of sales tax before the High Court and Supreme Court. Therefore, there is no reason to take away a vested right of such large class of practitioners in a bid to favour a particular class at the cost of rest of the categories. Under Section 82 of the Act, various categories of persons are entitled to practice who are called sales tax practitioners. They comprise of (1) Advocates, (2) Chartered Accountants (3) Other persons who hold qualification prescribed under the Act and (4) Government servants of the Sales Tax Department upon their leaving or retiring from the service in sales tax department. On account of the impugned legislation, this class of advocates and practitioners are being denied the rightful field of practice for certifying deductions and claims under the Act.
3. Writ Petition (L) No. 623 of 2007 is by the Bar Council of Maharashtra and Goa. It is their contention that Section 61 of the Act has confined the function of audit only to a Chartered Accountant and excluded other professionals and authorised persons like the Sales Tax Practitioners, Advocates and Cost Accountants. A perusal of Section 61 as also the reading of the prescribed form of Audit would show that the audit is in fact a statutory return of the dealer for the purpose of enabling the Sales Tax Officer to complete assessment and therefore, involves minor skills which can be better performed by the advocates and as such exclusion of advocates and Sales Tax Practitioners from performing audit or carrying on audit is clearly discriminatory, arbitrary and unreasonable. Several other States in the country have provided that the value added tax audit can be done not only by the C.A. but also by other professionals, including advocates.
4. Writ Petition No. 1777 of 2007 is by the Bombay Small Scale Industries Association and Petitioner No. 2 is their President. The Membership of the Association as per the pleadings is open to all individuals and associations of various categories. They contend that all through the existence of the Sales Tax Laws since 1946 under Section 82(1) of the Act, persons specified in Clause (c) described as Sales Tax Practitioners and also Advocates specified in Clause (b) have been guiding the trade in giving due information of the ever changing sales tax laws, the implication of various claims and in filing the returns and appearing in assessment and if necessary in appeals. There has been no grievance made against the easily accessible and expert services of this class. Even under the present enactment, the traders continue to be advised and guided by this class of sales tax practitioners and advocates and their returns are being compiled by them on the basis of their records. The sales tax practitioners and advocates have been giving commendable services to the industries at all stages of sales tax proceedings. Their valuable guidance and help is easily accessible at affordable charges. By the amendment what is sought to be done is to have the assessment of tax liability under the Act assessed approved and certified as the correct liability of a dealer by a third agency who is described as class of persons called Chartered Accountants. The work that the Chartered Accountant has to do is to verify the return with full details and certify legality or otherwise of the claims in the returns. This function of the assessment for the tax dues from a dealer under the MVT Act has already been assigned and entrusted to the Commissioner or its delegates or officers appointed under the said Act. The industries, therefore, it is contended would be obliged to engage services of Chartered Accountants over and above their respective appointee from the class of class of sales tax Practitioners or advocates. On account of this heavy financial burden would be cast on small scale industries and such burden is a serious impediment to the trade and would cut into the net profit of the respective industry. This action of the State is unreasonable and cannot be done even under its exercise of ancillary legislation. The payments to be made to the Chartered Accountant is over and above the payment for the services of a Sales Tax practitioner who keeps the dealer well informed about the law and its changes, who undertakes the work of compiling and the filing of returns, attending to assessments and like proceedings under the Act. This additional payment is in pith and substance nothing but compulsory levy amounting to tax by the State. Such action offends Article 265 of the Constitution. For all the aforesaid reasons, it is contended that the impugned provision under the enactment ought to be struck down.
5. Writ Petition No. 2000 of 2007 is by the Maharashtra State Tax Practitioner Associations Federation which is an registered association. The impugned enactment, it is contended, is contrary to Article 19(1)(g) of the Constitution since it prohibits the members of the Petitioners from practicing their profession and trade of their choice without there being any valid reason. The Petition is by the Association. No individual person has joined as Petitioner. As Petition seeks to challenge also the constitutional validity of Section 61, being in violation of Article 19(1)(g) of the Constitution of India, we do not propose to consider whether this petition would be maintainable in the absence of a person. The other issues involved in this petition are also the subject matter of the other petitions to which we have referred to earlier.
6. To understand the challenges, we may firstly reproduce some of the relevant provisions of the MVAT Act. Section 61 read as under:
61. Accounts to be audited in certain cases:
(i) Every dealer liable to pay tax shall,
(a) if his turnover of sales or, as the case may be, of purchases exceed or exceeds rupees forty lakh in any year, or
(b) a dealer or person, who holds, licence in,
(i) Form P.L.L. under the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966, or
(ii) Form B.R.L. under the Maharashtra Manufacture of Beer and Wine Rules, 1966, or
(iii) Form E under the Special Permits and Licence Rules, 1952, or
(iv) Forms FL-I, FL-II, FL-III, FL-IV under the Bombay Foreign Liquor Rules, 1953, or (v) Forms CL-I, CL-II, CL-III, CL/FL/TOD-III under the Maharashtra Country Liquor Rules, 1973 get his accounts in respect of such year audited by an accountant within the prescribed period from the end of that year and furnish within that period the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars and certificates as may be prescribed.
Explanation : For the purposes of this section "Accountant" means a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 or a Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959.
(2) If any dealer liable to get his accounts audited under Sub section (1) fails to furnish a copy of such report within the time as aforesaid, the Commissioner may, after giving the dealer a reasonable opportunity of being heard, impose on him, in addition to any tax payable, a sum by way of penalty equal to one tenth per cent, of the total sales.
Provided that, if the dealer fails to furnish a copy or such report within the period prescribed under Sub section (1), but files it within one month of the end of the said period, and the dealer proves to the satisfaction of the Commissioner that the delay was on account of factors, beyond his control,then no penalty under this sub section shall be imposed on him.
(3) Nothing in Sub sections (1) and (2) shall apply to Departments of the Union Government, any Department of any State Government, local authorities, the Railway Administration as defined under the Indian Railways Act, 1989, the Konkan Railway Corporation Limited and the Maharashtra State Road Transport Corporation constituted under the Road Transport Corporation Act, 1950.
The next relevant provision is Section 82(1) and (2) which read as under:
82. Appearance before any authority in proceeding:
(i) Any person, who is entitled or required to attend before any authority including the Tribunal in connection with any proceeding under this Act, otherwise than when required to attend personally for examination on oath or affirmation, may attend. -
(a) by a relative or a person regularly employed by him, or
(b) by a legal practitioner, Chartered Accountant or Cost Accountant who is not disqualified by or under Sub section (2), or
(c) by a sales tax practitioner who possesses the prescribed qualifications and is entered in the list which the Commissioner shall maintain in that behalf, and who is not disqualified by or under Sub section (2), or
(d) any person, who, immediately before the commencement of this Act, was qualified by or under Sub section (2), only if such relative, person employed, legal practitioner, Chartered Accountant, Cost Accountant or sales tax practitioner is authorised by such person in the prescribed form, and such authorisation may include the authority to act on behalf of such person in such proceedings.
Explanation : "A person regularly employed" means a person whose salary is regularly and periodically debited and recorded in the books of account of the dealer.
(2) The Commissioner may, by order in writing and for reasons to be recorded therein, disqualify for such period as is stated in the order from attending before any such authority, any legal practitioner, Chartered Accountant, Cost Accountant or sales tax practitioner,-
(i) who has been removed or dismissed from Government service, or
(ii) who being a legal practitioner, a Chartered Accountant or a Cost Accountant is found guilty of misconduct in connection with any proceedings under this Act by an authority, empowered to take disciplinary action against the member of the profession to which he belongs, or
(iii) who, being a sales tax practitioner, is found guilty of such misconduct by the Commissioner....
7. The statement of objects and reasons as annexed to the Bill in so far as Section 61 is concerned, reads as under:
Clauses 55 to 62 - A new provision is made for advance ruling by the tribunal on any question relating to interpretation of the law. A new provision provides for compulsory audit to be made in certain circumstances by qualified Accountants.
The State of Maharashtra by Maharashtra Act No. 25 of 2007 amended the M.V.A.T. Act. We are concerned with the amendment to Section 61. The relevant portion reads as under:
17. In Section 61 of the Value Added Tax Act,-(l) in Sub section (l), in the Explanation, for the words and figures "Accountants Act, 1949" the words and figures "Accountants Act, 1949 or a Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959", shall be substituted;
(2) in Sub section (2), the words "or as the case may be, purchases or a sum of one lakh rupees, whichever is less" shall be deleted;
(3) after Sub section (2), the following sub section shall be added, namely:
(3) Nothing in Sub sections (1) and (2) shall apply to Departments of the Union Government, any Department of any State Government, local authorities the Railway Administration as defined under the Indian Railways Act, 1989, the Konkan Railway Corporation Limited and the Maharashtra State Road Transport Corporation constituted under the Road Transport Corporation Act,1950.
Thus apart from the Chartered Accountants audit can now also be carried out by Cost Accountant. No Petition has been amended by any of the Petitioners to challenge the amendment.
9. Section 82 of the Act permits Sales Tax Practitioners and others set out therein, the right of appearance before any authority in proceedings under the Act. The right of appearance therefore, has not been taken away. The right to appear subsists. The limited question is whether under Section 61, the exercise of getting the accounts audited, can be said to be part of the right to appear and plead before the courts or judicial forums and or getting the accounts audited is part of the right conferred by Section 82 or in the alternative excluding other than Chartered Accountants and Cost Accountants is arbitrary or violative of the rights of these excluded categories to carry on their trade or profession.
10. Before we proceed further, we may look as to the meaning of the expression "audit" and "auditor". In P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edition the "audit" has been explained as under:
"Audit" As a verb : to draw up or present an account; to make an official investigation and examination of accounts and vouchers.
As a noun : an examination of accounts in general; a formal or official examination and authentication of accounts, setting of accounts; the process of auditing accounts; the hearing and investigation had before an auditor.
In President, Councillors and Ratepayers of the Shire of Frankston and Hastings v. Cohen 102 C.L.R. 607 the High Court of Australia the expression "Audit" came up for consideration and it was explained as under:
But the word, "audit" is a well known English word, and the general nature of what constitutes an audit seems plain enough. The Oxford English Dictionary defines the noun "audit" as "an official examination of accounts with verification by reference to witnesses and vouchers". Mr. R.A. Irish in his book "Practical Auditing" (p.1) says : "An audit may be said to be a skilled examination of such books, accounts and vouchers as will enable the Auditor to verify the Balance Sheet. The main objects of any audit are : (a) To certify to the correctness of the financial position as to shown in the Balance sheet, and the accompanying revenue statements, (b) The detection of errors, (c) The detection of fraud. The detection of fraud is generally regarded as being of primary importance.
Thus the word has a specific cannotation in the matter of examination, investigation and auditing of Accounts, where detection of fraud is of primary importance.
11. The prayers as sought and noted earlier are to declare Section 61 of the M.V.A.T. Act, 2002 as unconstitutional and ultra vires being violative of Articles 14, 19(1)(g), 254, 265 and 301 of the Constitution of India or in the alternative to read down or interpret the impugned provisions i.e. Section 61 so as to enable advocates and Sales Tax Practitioners to carry out the audit in terms of Section 61. The challenge in a nutshell is to the exclusion of Advocates and Sales Tax practitioners from doing the work of audit under Section 61 of the Act.
12. The challenge to the vires of the Section may now be summarized:
(a) The impugned provision is for certification of the veracity of statutory claims by the dealers under the Act and to certify that the Sales and Purchases are correctly accounted by the dealers and their claims are legally valid. The caption "Accounts to be audited in certain cases" is nothing but the same judicial process of deciding the legality or otherwise of the claims of the dealers under the Act, in case of dealers having turn over exceeding rupees forty lakh in any year, which includes turn over of capital goods. This certificate has to be given by the Accountant to the exclusion of the Sales Tax practitioner or Advocates though the said class of persons are specialized in sales tax laws and practice. Under Section 61, what is to be done is not mathematical correctness but judicial authenticity, legality or authenticity of the various claims under the Sales Tax Laws for which verification and certification is required to be done by the Chartered Accountant. This is over and above verification done under the returns by respective dealer while filing the return. This certificate can only be given by the Chartered Accountant. Since, 1946, apart from Chartered Accountants, it was open to all categories of persons described in Section 82, having sufficient expertise and qualifications to do the accounts as also audit. The impugned Section 61, has resulted in divisive exclusion of advocates and Sales Tax Practitioners, as the traders would not like to engage services of Sales Tax Practitioners or advocates for certification. The result is that a large section of Practitioners in mofusil area and small towns will be rendered out of the practice and consequently adversely affecting their livelihood. As there is no reasonable basis for the exclusion, the provision is arbitrary being violative of Article 14.
(b) The practice of Sales Tax Accounts was open to all including Chartered Accountants, advocates and tax practitioners. The Chartered Accountants who happens to pass the examination and has no expertise to adjudicate upon the legality or otherwise of the assessees claims of sales tax law can issue certificate. Similarly Chartered Accountants however, senior they may be, who have not practiced sales tax law and who could not gather experience can issue certificate. There is no relation with object of the enactment for such arbitrary selection of class without relation to their authority, efficiency or otherwise. The sole object and purpose of Section 61(1) is that every dealer who is covered by Sub section (a) and (b) should get their returns verified and get their tax liability assessed by a Professional so as to enable them to provide the information required to furnish a report under Rule 65 and to fill out Form 704. There is no other purpose behind Section 61. This purpose and object completely exhausts the scope of Section 61. If this being so, the requirement of C.A. alone for the certification in form 704 is wholly irrelevant and arbitrary. In any case, all information contained in Form 704 is for assessment of tax liability by the expert professionals who on the basis of same information are authorised to fill all types of returns in Form 221 to 225 and no purpose is served by C.A.s certification of correctness under the garb of audit of books of accounts. Reliance is placed in the judgment of Omprakash Sud and Ors. v. State of J. & K. and Ors. , in Suneel Jetley and Ors. v. State of Haryana , Deepak Sibal v. Punjab University and Ors. and in Ahmedabad Municipal Corpn. and Anr. v. Nilaybhai R. Thakore and Anr. . This, it is submitted, would result in infraction of Article 14 of the Constitution of India.
(c) Section 61 creates artificial classification between persons entitled to practice. Section 82 of the MVAT Act provides which categories of persons are entitled to practice under the said Act. Explanation to Section 61 carves out a separate class which does not serve the object of Section 61. Once the provisions of Section 82 have brought all practitioners in one class, creating a mini classification by the explanation to Section 61, which does not appear to have any distinguishing marks for subserving the object sought to be achieved, causes equals to be treated unequally. This violates the equality right under article 14. See D.S. Nakara and Ors. v. Union of India .
(d) Section 22 provides for Audit. Its opening clause "With a view to promoting compliance with the provisions of this Act" indicates the all encompassing nature of the section. Section 22(1)(a) to (e) contemplates all situations which require audit. This audit is carried out by the Officers empowered by the Commissioner or to whom powers have been delegated. Section 22 therefore, covers all situations which require audit. This situation arises after the returns are filed. There is no indication of any requirement of audit before filing of returns and as such Section 61 is directly in conflict with Section 22 and is ultra vires the scope of Section 22. Section 22(3) permits the audit to be conducted by an officer who may not be a Chartered Accountant. Section 61 which requires an audit only by a Charted Accountant is therefore discriminatory. The audit under Section 22 concerns situations of possible misfeasance or suppression or doubt, whereas Section 61 Audit is of routine nature. In that sense, on a lower pedestal requiring no investigation, when compared to the Section 22 audit. If Section 22 audit can be conducted by an officer who may not be a Chartered Accountant, then there is no reason why Section 61 audit cannot also be conducted by a person who is not a Chartered Accountant. Section 61 which requires Audit only by a Chartered Accountant, therefore, is discriminatory. Reliance is placed on Municipal Corporation of Grater Bombay and Ors. v. Thukral Anjali Deokumar and Ors. .
(e) Section 61 also suffers from arbitrariness as it violates Article 14 by being classificatory. Section 61(1)(a) and (b) creates two classes. If the object of the Section 61 is to create a class of tax-payers who would be liable to pay tax, then the classification with reference to turnover exceeding Rs. 40 lakhs is understandable. However, the creation of another class under Section 61(1)(b), namely dealers in liquor, irrespective of their turn over is an arbitrary classification, having no nexus with the object of Section 61 viz. to tax traders whose turnover exceeds Rs. 40 lakhs.
(f) Similarly, the advocates qualified are denied right of certification or correction or otherwise of dealers' claims which require judicial background and expertise in the law. A perusal of the form prescribed would show that it is nothing but certification of claims which is arrived at on the basis of clarification of claims. The legal compliances under the law is administered by the Sales Tax Officers who are not Chartered Accountants and yet they are entitled to check up the work of Audit which is in the form of normal audit as also assessment in the same manner as required by the Chartered Accountant. By denying to the Advocates and Sales Tax Practitioners, the right to certify under Section 61, it has violated their right to carry on profession To the extent that such classification prohibits advocates and Sales Tax Practitioners from practicing their profession, and as such violative of Article 19(1)(g). Nor can it be saved by any reasonable restriction under Article 19(6). Reliance is placed on B.P. Sharma v. Union of India and Ors. and M.P. Electricity Board v. Shiv Narayan and Ors. .
In Writ Petition No. 1777 of 2007, the additional challenges may be summarized as under:
(g) The State Legislature under Entry 54 of the State List can enact law taxing sales. However, any ancillary legislation or procedure must have nexus to the object of the Act. The mandatory provisions of engaging services of C.A. are not based on any object of the Act and as such the provision is not within the legislative competence of respondent state as an ancillary provision.
The ancillary provisions so far enacted by the State are those which give power to its employees or delegates authority to audit but no legislation has so far given any power to a third party to be delegated such power and assume any statutory jurisdiction of assessment whether provisional or otherwise, so as to restrain the freedom of trade.
(h) The State Legislature by the impugned provisions has outsourced their statutory powers to assess the tax to a third party. Such delegation of powers is destructive of basic tenet of law and its enforcement. The action is inconsistent with any principles of good governance of any State law. It is also opposed to any procedural law of administration of State Law. Such delegation is impermissible.
(i) It is also submitted that the industries are already obliged to bear the cost of work of Income tax audit to a specialised Chartered Accountant. There is now to be a separate C.A. for sales tax audit. The industries also have to engage a Sales Tax Practitioner or Advocates for their sales tax returns and day to day guidance. The audit charges to be paid to C.A. are perceptively heavy. The industry will have to pay heavy burden by way of audit fees. This is direct impediment to trade and cuts into their net profit. This additional compliance cost in terms of money and waste of time is an added impediment. This additional payment to the C.A. would in pith and substance amount to compulsory levy amounting to tax by the State in contravention of Article 265 of the Constitution of India.
(j) the provisions for punishment to a dealer for not engaging C.A. are highly penal and without any cap. It is difficult to get a qualified C.A. to take up audit within a short time as provided in the Act and the C.A. usually depends upon the Sales Tax Practitioner of the dealer for his audit. This creates anxious time for the dealer and source of tension. The impugned provision does not serve any purpose of revenue under M.V.A.T. The provisions are therefore, unreasonable and a restraint on freedom of trade.
13. Before answering the issues, we may advert to the reply filed on behalf of the State Government through Mr. Pandit Vitthal Khade, Deputy Commissioner of Sales Tax. Pointing to the history of legislation, it is set out that the Government of Maharashtra decided to introduce VAT system with effect from 1st April, 2005. At that time the Government decided to amend VAT Act, 2002 in terms of the national consensus arrived at by the empowered committee of State Finance Ministers. Accordingly a draft bill was prepared for submission to the Government and it was made open for comments of the public. The amendment bill inter alia included a proposal on the request of Advocates, Tax Practitioners and Cost Accountants to include them under Section 61 for tax audit along with the Chartered Accountants having standing in profession for a period of 7 years or more. But there was no assurance directly or impliedly that such proposal will be accepted by the Government or enacted by the Legislature. Various aspects were considered including that under the Companies Act, Section 211(c) of the Companies Act requires, that all companies in India must prepare their annual accounts in accordance with the Accounting Standards and get those accounts audited in accordance with the Auditing standards laid down by the Institute of Chartered Accountants of India. The Government decided to continue the old provision of audit under MVAT i.e. audit under Section 61 only by Chartered Accountants. Under the Companies Act, the Central Government has also constituted a National Advisory Committee on Accounting Standards (NACAS) which is required to recommend the Accounting and Auditing standards. However, the Central Government did not issue any notification based on the recommendations of NACAS. The Accounting and Auditing standards issued by the Institute of Chartered Accountants of India are binding. Thus, no corporate entity can prepare its accounts by any method other than that provided by ICAI. Similarly, no audit can be conducted without following Auditing and Assurance Standards (AAS) issued by ICAI. The Accounting and Auditing Standards issued by the Institute of Chartered Accountants of India are based upon the Accounting and Auditing standards issued by the International Federation of Accountants (IFAC). Accounting standards Board of IFAC in the year 2002-2003 stands converted into independent Accounting Standards Board (ISAB). The Board to start with, Adopted Accounting Standards (AAS) issued by IFAC and now is in the process of revision of some of these standards. The AS are very complex and there are major variances in respect of turnover of sales and purchases accounted as per AAS in the profit and Loss Account of the enterprise and turn over of sales and purchases which is required to be considered for the purpose of levy of tax under the Maharashtra Value Added Tax Act, 2002. Clear cut comments on the major changes made by any firm in a given period in respect of accounting system, method of valuation of stocks and business model etc. are required from the Auditor. These are complex accounting and audit issues which Advocates, Sales Tax Practitioners' and Company Secretaries are not professionally qualified to handle.
Section 29 of the Advocates Act, 1961 provides that advocates would be the only class of persons to "practice the profession of law". Section 33 of the Advocates Act bars any other professional to practice in any court or before any authority etc. Section 49 of the Advocates Act gives general powers to the Bar Council of India to make such rules. Under this power the Bar Council of India has framed the rules which prohibits an advocate from engaging in any other profession other than practising the profession of law. The requirement of Section 61 of MVAT Act is of auditing of the books of accounts and giving a certificate of his conclusion after verification. This cannot be called as "practice the profession of law". The area under Section 61 is practising in the field of accountancy and auditing, which an advocate is not competent to undertake under the Rules framed by the Bar Council of India under Section 49 of the Advocates Act, 1961. Parliament of the country has framed the Chartered Accountants Act, 1949. Under Section 2(2) the area in which a member of the Institute of Chartered Accounts of India (ICAI) can practice is defined. The practice of accountancy and auditing can be carried out by the Chartered Accountants who are members of ICAI and are holding a certificate of practice. If the advocates embark on practice in the area of accountancy and auditing work then it would amount to practice in accounting and auditing and thus will violate the provisions of Advocates Act, 1961 and the rules framed thereunder by the Bar Council of India. Therefore, the Advocates cannot be allowed to carry out the function of an accountant or of an auditor.
As regards Sales Tax Practitioners, they are not governed by any professional Act. Any graduate having acquired a Diploma in Taxation or having passed specified accountancy examination and acquired such qualifications as are prescribed by the Central Board of Revenue or having retired as an officer from the Sales Tax Department can enroll with the Sales Tax Department as an Sales Tax Practitioner. He is not required to be a qualified auditor nor is he governed by the strict discipline and acceptability required under the Chartered Accountants Act, 1949 for any acts of omission and commission in the conduct of audit. Hence, a Sales Tax Practitioner cannot be expected to provide the level of assurance and creditability of the audit of the accounts of a VAT payer expected by the Revenue. Hence, while a Sales Tax Practitioner is qualified to appear in proceedings, he cannot conduct audit under Section 61.
All over India as per information available 30 states and Union Territories have introduced VAT either in the year 2005-2006 or in the year 2006-2007. Information about audit provision in two States i.e. Nagaland and Mizoram is not available. Out of the remaining 28 states, four States (Haryana, Himachal Pradesh, Sikkim, West Bengal) have no provision for Audit from independent professionals. Thirteen States and Union Territories have called for an Audit Report under the VAT Act exclusively from Chartered Accountants. These states are (i) Auranachal Pradesh, (ii) Bihar, (iii) Chattisgarh, (iv) Goa, (v)Madhya Pradesh, (vi) Maharasthra, (vii) Manipur, (viii) Meghalaya, (ix) Punjab, (x) Rajasthan, (xi) Dadra and Nagar Haveli, (xii) Daman and Diu, (xii) Chandigarh. Another 7 States have called for Audit Report only from professionals who have knowledge in the field of accountancy i.e. Chartered Accountants or Cost Accountants. In those states the Sales tax practitioners or advocates are not authorised to give the Audit Report, though they are allowed to represent before the authorities. These states are (i) Assam, (ii) Delhi, (iii) Kerala, (iv) Orissa, (v) Tripura, (vi) Jammu and Kashmir, (vii) Uttranchal. Only four states have allowed other professionals besides Chartered Accountant and Cost Accountant to conduct this audit. These states are (i) Andhara Pradesh, (ii) Gujarat, (iii) Jharkhand and (iv) Karnataka.
The C.A.s were included after consideration and analysis of the facts as to their expertise and specialized training. The VAT is designed for the purpose of self assessment by certifying returns by the C.A.s. The VAT is invoice based system and the deductions are based on certification. A true and correct invoice of having paid Value Added Tax, in the treasury is required. It is therefore, necessary ingredient of certification of data contained in Returns and encompasses entire sphere of verification of accounts books and vouchers. It is submitted that the experience of the income tax department shows that independent tax audit has improved the proper maintenance of books accounts from the taxation point of view. The Empowered Committee had referred the issue to the Group of Commissioners of Sales Tax to decide the necessary provisions for audit. It was recommended by the said committee that the Audit of certification of the books of accounts should be specified authority only.
14. Reply has also been field on behalf of the Institute of C.A.s by Mr. Mohamed Abdul Razak, the Additional Director of the Institute of Chartered Accountants of India. It is their contention that VAT is invoice based system and it is necessary to respect book keeping requirements. Under the said Act, the major thrust is on self assessment of the tax liability by the dealer. Therefore, it is necessary to ensure that the particulars furnished by the dealer are true and correct. Consequently, in the interest of the State, the legislature has found it necessary to have the accounts to be audited. Audit of accounts requires expertise. The Chartered Accountants being experts in the field of accounting and auditing, the said Act provides that the accounts be audited only by Chartered Accountants. The Audit it is submitted is a specialized subject and the same is required to be carried out after detailed verification of the books of accounts applying the accounting and auditing principles. The principles of accounting and auditing are undergoing drastic changes not only in India but internationally. Thus, unless one knows the accounting and auditing standards it is difficult to find out even after verification of books of accounts,the turn over which could be subjected to tax. Reference is then made to various columns of Form 704 and it is explained as to why it is only experts in the field of accounts and audit who can carry out the work to find out whether the records have been correctly and completely maintained.
15. Though various judgments have been cited, it is only to the extent that they are required to be considered, will they be considered as the challenge on the grounds of Article 14 and 19(1)(g) are well settled and the tests are based on the objects of the Statute and the nature of the infraction challenged. There is no direct challenge to "Accountant" within the meaning of the explanation to Section 61 doing the work of audit and certification. The contention is to the exclusion of Advocates and S.T.P.s from doing the work of audit and certification. The challenge to the reasonability of the provision must be understood in tht context. The substantial challenge is to the classification.
16. To consider the challenges under Articles 14 and 19(1)(g), we may at once refer to Section 44AB of the Income Tax Act. This provision as in the present case provides for audit of persons whose total sales or turn over or gross receipts exceed forty lakhs per year. This provision was challenged before various High Courts. The Supreme Court in an appeal before it, has upheld the legality of the Section. Section 44AB of the Income Tax Act reads as under:
Every person
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year; or
(b) carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any previous year; or
(c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under Section 44AD or Section 44AE or Section 44AF (or Section 44BB or Section 44BBB) as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year, get his accounts of such previous year, audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
Provided that this section shall not apply to the person, who derives income of the nature referred to in Section 44B or Section 44BBA, on and from the 1st day of April,1985 or, as the case may be, the date on which the relevant section came into force, whichever is later.
Provided further that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form proscribed under this section.
Explanation : For the purposes of this section:
(i) "accountant" shall have the same meaning as in the Explanation below Sub section (2) of Section 288.
(ii) "specified date", in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the 31st day of October of the assessment year.
Section 44AB thus also requires every person who carries on business and if his total sales, turn over or gross receipts as the case may be, in business exceeds or exceeds forty lakh rupees in any previous year or years relevant to the assessment year to get the accounts audited in the manner prescribed. Explanation to Section 44AB provides that "accountant" shall have the same meaning as in the Explanation below Sub section (2) of Section 288. Explanation to Section 288 defines "Accountant" to mean the Chartered Accountant within the meaning of Chartered Accountants Act, 1949 and includes by virtue of provisions of Sub Section 2 of Section 226 of the Companies Act any person who is entitled to be appointed to act as auditor of companies registered in that State.
Before the Madras High Court, the challenges were considered in the case of R. Sathya Moorthy and Ors. v. Union of India and Ors. . This judgment came up for consideration before the Supreme Court in an Appeal, in T.D. Venkata Rao v. Union of India . The challenge to the validity of the section before the Madras High Court, the challenge made was on behalf of Income Tax Practitioners as also an assessee, to contend that under Section 44AB, as compulsory audit was restricted to Chartered accountants, it would result in excluding all authorised representatives other than Chartered Accountants. Such a restriction was an oppressive restriction in the guise of an obligation and hence, Section 44AB is violative of Article 14 of the Constitution of India. It was also submitted that Advocate had a fundamental right to practise the profession. This was subject to a reasonable restriction. The restriction was so arbitrary and unreasonable that it violates both, Articles 14 and 19 of the Constitution. The Petition was dismissed and an appeal was filed before the Supreme Court. While dismissing the appeal, the Supreme Court held as under:
The Chartered Accountants by reasons of their training having special aptitude in the matters of audits. It is reasonable that they, who form a class by themselves, should be required to audit the accounts of businesses whose income exceeds Rs. 40 lakhs and professionals whose income exceeds Rs. 10 lakhs in any given year. There is no material on record, and indeed, in our view, there cannot be, that an income tax practitioner has the same expertise as chartered accountants in the matter of accounts. For the same reasons, the challenge under article 19 must fail, and it must be pointed out that these income tax practitioners are still entitled to be authorised representatives of assessees.
Once the Supreme Court has upheld the legality of Section 44AB of the Income Tax Act, where the same terminology was used and which was also a provision pertaining to audit, in our opinion, and considering the object of both the provisions which is prevention of evasion of tax dues, the challenge by the Petitioners on the ground of infraction of Article 14 and 19 will have to be similarly rejected. There are practically no distinguishing features. The only distinction, if any, is that, whereas Section 44AB is for the purpose of ascertaining "total income", Section 61 is for certification whether VAT had been correctly assessed, collected and paid.
17. A perusal of Section 61, would show as under:
(a) The concerned dealer shall get his accounts audited by an Accountant.
(b) Within the prescribed period.
(c) Furnish within the prescribed period the report of such audit.
(d) Such report to be submitted in the prescribed form.
(e) The form should be duly signed and verified by such Accountant.
(f) Such particulars and certificates as may be prescribed to be set forth.
Rule 65 would demonstrate that the report of an audit is to be submitted in Form No. 704 and it is not that an audit is to be conducted in Form No. 704.
18. The various submissions now made under Articles 14 and 19 in the challenge to Section 61 were also advanced whilst challenging Section 44AB of the Income Tax Act before the various High Courts. The Madras High Court had referred to judgments of various other High Courts which had decided the challenge to Section 44AB. The judgments of the High Courts are Mohan Trading Co. v. Union of India 196 ITR 134 (MP). Rajkot Engineering Association v. Union of India 164 I.T.R. 148 (Raj), A.S. Sharma v. Union of India (1985) 175 I.T.R. 254 (A.P.) and T.S. Natraj v. Union of India (1981) 155 I.T.R. 81 (Kar.).
In Mohan Trading Company and Ors. (supra) the main contentions which were raised and rejected by the learned Bench of the Madhya Pradesh High Court were:
There is no delegation to the Accountant or abdication of the assessing authority's function.
In a taxing statute, classification of assessees on the basis of turnover is a reasonable classification and greater latitude is available to the Legislature for classification.
The classification on the very face of it is quite reasonable, since the impugned provisions have been applied only to the bigger assesses in whose case a close scrutiny of their accounts to audit has been considered necessary to check tax evasion and to locate and prevent the growth of black money.
There is no discrimination made between the legal practitioner and the accountant if the person is clubbed with others as in Section 288 if on account of his qualifications he is able to perform other functions in addition to the appearance as an authorised representative of the assessee no discrimination can result from the discloth of others for want of qualification to perform additional function, outside the ambit of Section 288 of the Act.
The provisions to Section 44AB do not place an onerous burden on the assessee and at any rate, they are reasonable and saved by art. 19(6). The requirement of compulsory audit is for the purpose of scrutinising the assessees version in the accounts and to facilitate the assessing authority in making the assessment. This purpose cannot be served by depending only on the assessee's version. It is therefore, not correct to say that the requirement of audit is unnecessary or is mere formality.
The numbers of Chartered Accountants in active practice can not be treated as insufficient to cater to the needs of the bigger assessees whose accounts are required to be audited.
The requirement of forms indicate that the particulars required are material for proper scrutiny of the accounts and to ensure that the books of accounts and other records are properly maintained and faithfully reflect the true income of the assessee. The existence of other provisions do not mean that further requirement of compulsory audit in the case of bigger assessees is unreasonable restriction on the rights under Article 19(1)(g).
In Rajkot Engineering Association and Ors. v. Union of India Ltd. 162 ITR 28 Gujarat, the Gujarat High Court held Section 44AB of the Income Tax Act is a safeguard against tax evasion and tax avoidance so as to ensure that the economic system does not result in concentration of wealth to the common detriment. The report which an auditor has to submit containing the statement of particulars as prescribed under Rule 6G(2)(a) in Form No. 3CD would certainly advance the purpose of the statute.
The provisions are not unreasonable or arbitrary. Non Chartered Accountants from amongst the authorised representatives would not be competent to discharge onerous responsibility cast upon the Chartered Accountant having regard to the expertise achieved as a result of their academic knowledge and practical experience. The Chartered Accountant by his very privileged status exposes himself to the consequences of civil liability for negligence, specific statutory liabilities such as misfeasance under the Companies Act, liability for professional misconduct in disciplinary proceedings under the Chartered Accountants Act, 1949 and sometimes to criminal liability under the Penal Code. It, therefore, cannot be said that Parliament, by selecting chartered accountants from amongst various representative to act as tax auditors has given a preferential treatment to them viz a viz the non-chartered accountants' segment of authorised representatives. These are two distinct classes.
There is no restriction on the right of assessees to select as their authorised representatives whomever they like, either the chartered accountants or other income tax practitioners.
In A.S. Sarma and Ors. v. Union of India 175 ITR 254, it was held that the qualification for eligibility to be enrolled as income tax practitioner and advocate are entirely different from that of C.A. The syllabus of subjects for the study of law is different and far removed from the subjects connected with audit. The Chartered accountants constitute a distinct group and the income tax practitioners and advocates cannot be equated with them in so far as audit is concerned and as such Section 44AB is not violative of Article 14.
The great qualifying principle enshrined in Article 14 of the Constitution envisages equal treatment of persons similarly situated and circumstanced. The article does not prevent reasonable classification founded upon rational distinction having nexus with the object of the Act.
In T.S. Natraj (supra) the Karnataka High Court held that Section 44AB is not violative of the constitution and the classification is not arbitrary and it satisfies the twin conditions.
(2) The provisions also do not infringe Article 19(1)(g). The right of the Income tax Practitioners assuming that to be a right and not a privilege to practice their profession, is not an absolute right but is subject to laws made from time to time. If the law made with due regard to the prevailing conditions excludes the ITPs in the bigger cases or with reference to bigger assesses, it can not be said that the fundamental right of the ITPs is infringed.
In so far as the assessee is concerned, even if the provision infringes their fundamental right, it is a reasonable restriction and is saved by art. 19(6). The interest of public revenue and the advantages derived thereby far outweigh the inconvenience and hardship, if any, caused to the tax payers.
19. From these conclusions and considering the contentions advanced, the challenge based on Article 14 is to be rejected on the following grounds:
(i) Chartered Accountants by reason of their training have special aptitude in the matter of audit. An Income Tax Practitioner does not have the same expertise as the Chartered Accountants in the matter of accounts. The argument therefore, that the effect of such a provision will be to exclude all other categories of authorized representatives except the Chartered Accountants from carrying on their profession is liable to be rejected, as they constitute two distinct class having a nexus with the object of the provisions, which is evasion of tax dues.
(ii) The contention that such a provision brings in an oppressive restriction is also liable to be rejected as Auditing accounts is a specialized job. It may be true that some Income Tax Practitioners may also acquire that skill by sheer practice without passing the necessary examination. But that does not preclude Parliament from prescribing special qualifications with reference to the auditing of accounts.
(iii) Legal Practitioners and Chartered Accountants are equal for the purpose of representation of assesses before Assessing Authority but they are not equals for the purpose of compulsory audit. The preferential treatment given to the Chartered Accountants for the purpose of compulsory audit does not militate against the rule of equality under Article 14 of the Constitution. The terms "audit", "auditing" and the "functions of auditor" clearly bring about the difference between the Chartered Accountants and others. The object and purpose in providing compulsory audit is to facilitate the prevention of evasion of taxes, administrative convenience in quick and proper completion of assessments etc. In the light of this object, Chartered Accountants and others cannot be said to be similarly situate. The qualifications and eligibility to be enrolled as Income Tax Practitioners are entirely different from that of Chartered Accountants from the point of view of auditing.
(iv) Merely because apart from dealers whose turn over is more than 40 lacs. dealers dealing in liquor trade have also to get their accounts audited does not make the provision arbitrary. Such dealers are a class by themselves as they are carrying on a trade which is res extra commercium. They constitute a class by themselves and if the Legislature in its wisdom has provided that their accounts should be audited, it is neither unreasonable nor treating them as a class arbitrary.
The classification in the instant case, is reasonable and has a nexus with the object which is to direct a class of dealers getting their accounts audited by a specialized agency so that there is no tax evasion.
On behalf of the Petitioners, a distinction was sought to be made in certification under Income Tax Act and under the V.A.T. Act. In our opinion, the legality of the provisions or its non-arbitrariness is not dependent on the manner in which the form has to be filled, the contents thereof and the procedure. What is relevant is to consider the object of the Act and in selecting the class of professionals whether the legislature has acted unreasonably or has imposed unreasonable restrictions on the right of the assessee and or income tax practitioners to carry on their occupation or profession. It must be noted that the chartered accountant can not certify the correctness and completeness of the sales tax returns unless they audit the accounts of the dealer as maintained in the first part of Section 61. After audit Chartered Accountant has to certify the various items in Part I of Form No. 704. These items are subject to audited chartered Accountant's observations and comments about the non-compliance, shortcomings, deficiencies, in the return filed by the dealer. There are various other requirements. Suffice it to say that it is a specialized job which can only be undertaken by the person professionally competent and trained to audit. Advocates are not qualified as observed by the Supreme Court in T.D. Venkatarao v. Union of India 237 ITR 315. The other sales tax Practitioner and retired employees definitely not.
20. The settled law on the subject is that as long as the twin tests of reasonableness of the classification and nexus with the object are satisfied, wisdom of legislation cannot be substituted. The State Legislature is free to decide in its wisdom as to how best to safeguard the State revenue. Different States may adopt different standards and policy of one legislature may not be adopted by another legislature as the matter lies in the domain of policy making. Because some States have permitted Sales Tax Practitioners to carry on audit need not necessarily mean that as the Legislature of the State of Maharashtra has not so provided, that would be arbitrary or that the classification considering the nexus of the object is arbitrary. It is for the State Legislature to decide how to protect its revenue and this is more true with regard to economic legislation. See R.K. Garg v. Union of India and Ors. SC as also the observations of the Supreme Court in Para 16 in Directorate of Film Festivals and Ors. v. Gaurav Ashwin Jain and Ors. . The court observed as under:
16. ...Courts cannot interfere with policy either on the ground that it is erroneous or on the ground that a better, fairer or wiser alternative is available. Legality of the policy, and not the wisdom or soundness of the policy, is the subject of judicial review....
21. The Maharashtra Value Added Tax was enacted pursuant to a decision to introduce VAT system in the country. An empowered committee of Finance Ministers was appointed. As noted by the Supreme Court there can be no denial of the fact that Chartered Accountants have the expertise in the matter of accounts. What Section 61 requires is that the dealer must get the accounts audited and produce the report of such audit alongwith the certifications that may be prescribed. This certificate has nothing to do with the provisions of Section 22 of the Act. Section 22 is a special power conferred on the Commissioner for selection of dealers for audit. The entire object of the Act is maintenance of proper accounts by the dealers and certification of the accounts so that the books are in order and there is no fraud considering what is required by form 704. Inspite of certificate issued by the Accountant, Section 22 empowers the Commissioner to carry out special audit. It is not that on obtaining certificate under Section 61 the authorities are precluded from going through the Accounts. Under Section 22, it can still order an audit and arrive at the conclusion that the accounts have not been properly maintained. The scheme of the Act requires the dealer to maintain accounts under Section 63. These accounts have to be kept by every dealer liable to pay tax under this Act. There is no restriction as to who can write these accounts. Next is Section 61 as now amended and the explanation. This requires audit to be done and the certificate to be issued only by a Chartered Accountant and or Cost Accountant. Section 22 is a special power in the Commissioner to direct an audit even if an audit was earlier done and certified by a Chartered Accountant or a Cost Accountant.
In Andhra Sales Tax Practitioners and Consultants Association and Ors. v. Commissioner of Commercial Taxes and Anr. 127 STC 177, the constitutional validity of Sub-rule 5A of Rule 17 of the Andhra Pradesh General Sales Tax Rules, 1957 had come up for challenge. The rule required that any dealer whose total turn over is not less than 40 lakhs of rupees, shall get the accounts maintained by him for any year, audited by a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 and shall furnish to the assessing authority, a certificate of such audit in form XXXVII and a statement in form XXXVII along with the statements in forms A.R.I., A.R.II, and A.R. IV. The challenge made was that the rule is unreasonable and violative of the right to carry on a profession under Article 19(1)(g). The challenge was rejected. No doubt what was considered there was an exercise in subordinate legislation.
22. We may consider the challenge under Article 19(1)(g). Does Section 61 prohibit the Petitioner from carrying on their profession or does it amount to an unreasonable restriction not protected by Article 19(6). In so far as lawyers are concerned, the Supreme Court in V. Sasidharan v. Peter and Karunakar has held that traditionally lawyers do not carry on trade or business or do they render "services" to clients. When can a law be said to amount to a total prohibition. Gainful reference can be made to the judgment of the Supreme Court in State of Gujarat v. Mirzapur Moti Kureshi Kassab Jamat and Ors. . It was therein sought to be contended that the impugned legislation amounts to total prohibition on carrying on their trade, profession or business. The Supreme Court was considering as to what is the meaning of word restriction. The court held that three propositions are well settled (i) "restriction" or "regulation" includes "prohibition" and in order to determine whether total prohibition would be reasonable, the Court has to balance the direct impact on the fundamental right of the citizens against the greater public or social interest sought to be safeguarded; (ii) the standard for judging reasonability of restriction or restriction amounting to prohibition remains the same, excepting that a total prohibition must also satisfy the test that a lesser alternative would be inadequate; and (iii) whether a restriction in effect amounts to a total prohibition is a question of fact which shall have to be determined with regard to the facts and circumstances of each case, the ambit of the right and the effect of the restriction upon the exercise of that right. The court went on to observe that the ban is total with regard to the slaughter of one particular class of cattle. The ban is not on the total activity of butchers. They are left free to slaughter cattle other than cow progeny and carry on their business activity. Then the court observed as under;:
We hold that though it is permissible to place a total ban amounting to prohibition on any profession, occupation, trade or business subject to satisfying the test of being reasonable in the interest of the general public, yet, in the present case, banning slaughter of cow progeny is not a prohibition but only a restriction.
It will thus be clear that in the instant case considering Section 82 of the VAT Act, the category of persons who are excluded from the ambit of explanation of Section 61 are not denied their right of appearance before the Authorities under the Act. In other words, they are not prohibited from carrying on their profession. In Fertilizer Corporation Kamgar Union v. Union of India AIR 1981 SC 344 one of the contention raised was that sale by the company of its assets would affect their fundamental right under Article 19(1)(g). The Court held that closure of an establishment does not infringe his fundamental right to carry on an occupation or the fact that some workers may eventually be retrenched. At the highest, it will only amount to a restriction. Such restriction can be imposed considering Article 19(6) of the Constitution of India which provides that it is open to the State in the interest of general public to impose reasonable restrictions on the exercise of right conferred on such class. Apart from that it is further provided that nothing in Sub clause (6) shall prevent the State from making any law relating to professional or technical qualification necessary for practicing the profession, trade or business as the case may be. In other words, apart from the power conferred on the State to impose reasonable restrictions under Article 19(6), there is a further power conferred under Article 19(6) of laying down professional or technical qualifications necessary for practicing the profession as in the instant case. Considering the tests laid down in MRF Ltd. v. Inspector, Kerala Government and Ors. to judge the reasonableness of the restriction, can the provision which requires the audit to be done only by Accountant as explained, amount to an unreasonable restriction. In the matter of carrying out audit the State has chosen to confer that right only on a class of persons having expertise in the field. This cannot be said to be arbitrary or excessive in nature so as to go beyond the requirement of the interest of the general public. That would be yet another reason as to why the challenge under Article 19(1)(g) must fail.
23. We may also refer to the Petition filed on behalf of the Bar Council of Maharashtra and Goa. When a Sales tax Practitioner applied to be enrolled with the Bar Council, the same was rejected. See L.M. Mahurkar v. Bar Council of Maharashtra 1996 101 STC 541. The Supreme Court in an appeal by the Sales Tax Practitioners, observed as under:
It may also be pointed out that the construction suggested by the appellant will lead to anomaly and must be avoided. After passing of the Advocates Act, only one class of persons entitled to practice the profession of law, namely, advocates. If the phrase "practice the profession of law" is equated to appearance before the sales tax authority, in that event, a chartered accountant or a cost accountant or even a relative or an employee of an assessee will not be entitled to appear before a sales tax authority after the Advocates Act came into force. Not only that, if the contention of the appellant is accepted, after the appointed date the sales tax practitioner who does not have a degree in law will not be entitled to be enrolled as an advocate, will not be able to practice the profession of law and consequently will not be able to appear before any sales tax authority notwithstanding the provisions of Section 71 of the Bombay Sales Tax Act.
We may only point out that Section 29 of the Advocates Act till date has not been brought into force. Apart from that one fails to understand the stand of the Bar Council after the decision of the Supreme Court in T.D. Venkatrao (supra) where the Supreme Court has accepted the fact that Chartered Accountants by the reason of their training have special aptitude in the matter of audit. The act of maintaining accounts is neither pleading, practice nor acting. For the reasons already discussed, we find that the challenge to the Constitutional validity of the Legislation under Articles 14 and 19 at the instance of the Bar Council will also have to be rejected.
24. That leaves us with the additional submission made in Writ Petition No. 1777 of 2007. The issue of competence of the State Legislature. The Petitioner does not dispute that in the matter of enacting the law pertaining to recovery of sales tax, the same clearly falls within entry 54 of the State List. If in the process of making legislation, the legislature in its wisdom provides for the procedure in the manner in which tax has to be levied, maintenance of books, procedure for checking correctness or verification of books, we fail to see as to how the same amounts to ancillary legislation or procedure not falling within the competence of the State Legislature under Entry 54. The Act requires that the dealer has to maintain books and the books have to be audited and required to be certified by a Chartered Accountant. That will not result in the legislation falling outside the competence of the State Legislature. The Legislation in pith and substance is relatable to imposition of sales Tax which is within the competence of the State legislature. The courts examine and ascertain the pith and substance on scrutiny of the true character of the enactment. See E.V. Chinnaiah v. State of A.P. and Ors. (2005) 1 SCC 294. It is so in the instant case. The burden where such a challenge is raised is always on the Petitioner who attacks the competency of the State Legislature. The normal presumption is that the State Legislature does not exceed its jurisdiction. See Welfare Association A.R.P, Maharashtra and Anr. v. Ranjit P. Gohil and Ors. .
25. We also fail to understand how in such a case audit by a Chartered Accountant will amount to outsourcing the statutory power as is sought to be contended by the Petitioners to the third party. The Legislature can always delegate its powers as long as such delegation does not amount to abdication of its essential legislative functions. In the instant case, there is no abdication of the essential legislative functions. All that the section requires is that the Accountant has to audit the accounts and to issue certificate that the dealer has maintained the books as required to be maintained under the Act and rules. The dealer has to file his accounts then audited with the certificate. This neither amounts to abdication nor excessive delegation. Such an exercise also does not amount to conferring on the Accountant a power to determine the correct tax liability of the dealer. The power to accept returns is of the Authorities under the Act. Even after the certificate is issued, that the dealer has maintained books, it is always open to the Commissioner under Section 20 to ascertain whether the return is correct and complete or order an audit under Section 22 to get the accounts audited by the Officers of the Department. A certificate therefore, is not determinative but to enable the department to consider that the person having knowledge of audit and subject to the disciplinary control of its parent body has certified that the accounts are properly maintained. This is to aid the officers in discharging their statutory duties.
This challenge therefore, has to be rejected.
26. The last challenge is that under Section 61, the dealer will also have to engage a Chartered Accountant apart from engaging Advocate or Sales Tax Practitioner and their financial liability would increase and by such increase in their financial liability, the same will affect their trade by cutting into their profits and that it is in fact in pith and substance compulsory levy amounting to tax and in contravention of Article 265 of the Constitution. We are unable to see merit in this argument. It is for the dealer to decide whose services the dealer seeks to obtain for appearance before Sales Tax Authorities or getting the accounts audited. Under Section 82, there are a class of persons from whom a dealer can obtain services for being represented before the authorities under the Act. Under Section 61, he is bound to select one of the class of accountants also. This is for a category of dealers whose turn over is more than 40 lakhs. The amount of fee which has to be paid is the amount to be decided between the dealer and that person, whom he selects from amongst the accountants that are available. This cannot be said to amount of compulsory levy amounting to tax. That being the case, the challenge under Article 265 must also fail.
27. Similarly, the question of Article 301 being attracted, does not arise. The challenge on that count also has to be rejected as the right claimed by the Petitioner or their members or by the dealer is that Advocate and Sales Tax Practitioner can not carry out audit in terms of Section 61 in the State of Maharashtra. The enactment is pursuant to the power of the State Legislation to make law within its competence. This does not attract Article 301. For all the aforesaid reasons, in our opinion, there is no merit in any of the Petitions and consequently rule discharged in all the petitions. In the circumstances of the case, each party to bear their own costs.
The learned Counsel pray that the time to file Form 704 be extended. Considering that time was granted earlier by this Court and extended from time to time, time to file Form 704 is extended upto 30/06/2008 for the accounting year 2005-06 and 2006-07.