Calcutta High Court (Appellete Side)
Magma Hdi General Insurance Company Ltd vs Union Of India & Ors on 1 September, 2017
W.P. No. 11773 (W) of 2016
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Appellate Side
Magma HDI General Insurance Company Ltd.
Vs.
Union of India & Ors.
For the Petitioner : Mr. J.K. Mittal, Advocate
Ms. Anupa Banerjee, Advocate
Mr. Paritosh Sinha, Advocate
Mr. Amitava Mitra, Advocate
Mr. Parag Chaturvedi, Advocate
For the Respondent : Mr. Uday Sankar Bhattacharya, Advocate
Nos. 1, 3, 4 and 5 Mr. Bhaskar Prosad Banerjee, Advocate For Union of India : Mr. Kaushik Chandra, Ld. ASG Mr. Siddhartha Bhattacharya, Advocate Mr. Siddhartha Banerjee, Advocate Hearing concluded on : August 4, 2017 Judgment on : September 1, 2017 DEBANGSU BASAK, J.:-
The petitioner has challenged the vires of Rule 5A(1) of the Service Tax Rules, 1994. The petitioner has also assailed the action taken by the respondent no. 2 particularly the Summons dated July 17, 2015 and June 8, 2016 and the letter dated June 22, 2016.
Learned Advocate for the petitioner has submitted that, Rule 5A(2) of the Service Tax Rules, 1994 has been declared ultra vires once. Such a Rule was amended subsequently. The amended Rule is presently under challenge. He has referred to Section 82 of the Finance Act, 1994 and submitted that, the power to search a premise is laid down therein. The Service Tax Rules, 1994 is a subordinate legislation and is subservient to Section 82 of the Finance Act, 1994. He has also referred to Section 14 of the Central Excise Act, 1944 and has submitted that, a Central Excise Officer duly empowered by the Central Government, is entitled to exercise the power of summoning any person to give evidence or to produce a document or for any other purpose in any enquiry which such officer is making for any of the purposes of the Act of 1944. He has submitted that, in the facts of the present case, there was no enquiry pending and that, an appropriate officer did not form an opinion requiring a search and seizure to be carried out at the premises of the petitioner. He has submitted that, a group of officers claiming to be authorised by the respondent no. 2 had visited the premises of the petitioner at Kolkata on July 17, 2015. A section of the officers were from the office of the Kolkata Directorate General of Central Excise Intelligence and the balance officers were from Chennai Directorate General of Central Excise Intelligence. He has referred to the writing dated July 17, 2015 issued by the officers of the respondent no. 2 and has submitted that, although the officers of the respondent no. 2 were present at the premises of the petitioner at Kolkata, none the less, such officers had required the petitioner to present documents at the Chennai office of the respondent no. 2 at 15:00 hours on the same day. He has submitted that, the action of the officers from the Chennai office of the respondent no. 2 is wholly without jurisdiction as, the petitioner is assessed at Kolkata and that, the Kolkata office has jurisdiction over the premises of the petitioner as well as the petitioner. He has submitted that, the officers of the respondent no. 2 had continued with the illegal action despite the protest in writing by the petitioner. He has referred to the affidavit-in- opposition of the respondent no. 2 and has submitted that, there are contradictions between the affidavit used on behalf of the respondent no. 2 and the respondent no. 1. He has referred to the Master circular dated March 10, 2017 and has submitted that, the authorities have acted beyond the provisions of such Master circular in carrying out a search and seizure at the premises of the petitioner at Kolkata.
Relying upon 1988 Volume 2 Supreme Court Cases page 351 (General Officer Commanding-in-Chief & Anr. v. Dr. Subhash Chandra Yadav & Anr.) learned Advocate for the petitioner has submitted that, a Rule made beyond the Rule-making power is invalid. He has referred to 2016 Supreme Court Cases Online Del page 3630 (Mega Cabs Pvt. Ltd. v. Union of India) and submitted that, sub-rule (2) of the Service Tax Rules, 1994 has been declared ultra vires by the Delhi High Court. He has submitted that, sub-rule (1) of the Service Tax Rules, 1994 gives unbridled power and is excessive and beyond the Rule-making power of the authorities. Such sub-rule travels beyond Section 82 of the Finance Act, 1994. The purpose of Section 82 of the Finance Act, 1994 and that of Rule 5A of the Service Tax Rules, 1994 are different. Rule 5A of the Service Tax Rules, 1994 allows a senior officer to exercise a power given thereunder while Section 82 of the Finance Act, 1994 allows an officer subordinate to him to exercise such power. There are marked differences between the provisions of Section 82 of the Finance Act, 1994 and Rule 5A of the Service Tax Rules, 1994. On the parity of reasoning as of Mega Cabs Pvt. Ltd. (supra) sub-rule (1) of Rule 5A of the Service Tax Rules, 1994 should also be declared ultra vires.
Learned Additional Solicitor General appearing for the Union of India has submitted that, the respondent no. 2 is the intelligence wing of Central Excise. It had received credible intelligence that a large number of insurance companies were taking illegal credit of Central CENVAT. The Chennai Zonal Unit had initiated an investigation against the petitioner. Officers of such unit had visited the head office of the petitioner at Kolkata and had requested for certain documents under Summons proceedings. The visit of such officers under the Summons mode was authorised by the Director General, Directorate of Central Excise intelligence, New Delhi by the letter dated July 3, 2015 based on the permission sought by the Additional Director General of Directorate of Central Excise intelligence, Chennai Zonal Unit as contained in the letter dated June 18, 2015 of such Zonal Unit. The officers of the respondent no. 2 had issued the Summons dated July 17, 2015 under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994. Such Summons were issued from the camp at Kolkata. The Summons were duly received by the petitioner. The officers of the respondent no. 2 has jurisdiction on all India basis in terms of the notification dated June 26, 2001. Therefore, it is incorrect to say that, the officers of the respondent no. 2 were acting without jurisdiction while visiting the premises of the petitioner on July 17, 2015. The Chief Finance Officer of the petitioner had given a statement on July 17, 2015. The petitioner had provided documents under cover of its various letters. In course of the investigation, some of the dealers had admitted in their statements under Section 14 of the Central Excise Act, 1944 that, no service of any nature was actually provided by them to the petitioner, though such dealers have raised invoices mentioning rendering of certain services. According to such dealers, they had prepared the invoices based on formats of invoices sent by Electronic Mail by the petitioner for claiming the payouts. Since the details provided by the Chief Finance Officer of the petitioner in his statement dated July 17, 2015 was at variance with the documents and statements of the dealers provided during the course of investigation, the Chief Finance Officer was issued the Summons dated June 8, 2016 for appearance before the respondent no. 2. It is at that stage that, the Advocates for the petitioner had started raising objections. He has submitted that, the officers of the respondent no. 2 had acted within the parameters of law.
The following issues have arisen for consideration in the present writ petition: -
(i) Is Rule 5A(1) of the Service Tax Rules, 1994 ultra vires the Finance Act, 1994?
(ii) Are the proceedings taken by the respondent no. 2 against the petitioner required to be quashed being in excess of the powers?
The first petitioner is engaged in the business of insurance. The Directorate General of Central Excise Intelligence claims that, it had developed and collected credible intelligence that a large number of general insurance companies in India are taking illegal credit of Central CENVAT on invoices issued by car dealers for which no service has been provided by such insurance company. The Directorate General of Central Excise Intelligence has claimed that, the Chennai Zonal Unit had initiated an investigation against the petitioner. Officers of Chennai Zonal Unit had visited the premises of the petitioner on July 3, 2015 under Summons mode. Section 82 of the Finance Act, 1994 gives power to the Central Excise authorities to search a premises. Section 82 of the Finance Act, 1994 is as follows :-
"82. Power to search premises.- (1) Where the Joint Commissioner of Central Excise or Additional Commissioner of Central Excise or such other Central Excise officer as may be notified by the Board has reasons to believe that any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Chapter, are secreted in any place, he may authorise in writing any Central Excise officer to search for and seize or may himself search and seize such documents or books or things.
(2) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches, shall, so far as may be, apply to searches under this section as they apply to searches under that Code."
Section 94 of the Finance Act, 1994 gives power to the Central Government to make rules. In exercise of the powers conferred under Section 94 of the Finance Act, 1994, the Central Government had framed the rules called the Service Tax Rules, 1994. Rule 5A(2) of the Service Tax Rules, 1994 as initially framed, had received the consideration of the Delhi High Court in 2014 Supreme Court Cases Online Del page 3943 (Travelite (India) v. Union of India & Ors.). The Delhi High Court had held that, sub-rule (2) of Rule 5A of the Service Tax Rules, 1994 is ultra vires the rule making power conferred under Section 94(1) of the Finance Act, 1994. Such rule was struck down. A different version of sub-rule (2) was introduced subsequent to the decision of Travelite (India) (supra). The amended sub-rule (2) had received the consideration of the Delhi High Court in Mega Cabs Pvt. Ltd. (supra). The Delhi High Court had found the amended sub-rule (2) to be ultra vires the Finance Act, 1994. The Court has been informed that, appeals against Travelite (India) (supra) and Mega Cabs Pvt. Ltd. (supra) are pending before the Hon'ble Supreme Court of India.
Sub-rule (2) of Rule 5A of the Service Tax Rules, 1994 after amendment requires every assessee to make available to the officer empowered under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and the Auditor General of India or a Cost Accountant or Chartered Accountant nominated under Section 72A of the Finance Act, 1994, the documents mentioned in clauses (i) to (iii) of such sub-rule. Sub-rule (1) on the other hand, permits an officer authorized by the Principal Commissioner or Commissioner, as the case may be, to have access to any premises registered under the Service Tax Rules, 1994 for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of the revenue. The fields of operation of the two sub-rules are different. The first sub-rule grants access to an officer duly authorized. The second sub-rule requires the assessee to do certain things. The requirements of the assessee to discharge the obligations under sub-rule (2) have been found to be ultra vires by the Delhi High Court. The issue is pending consideration before the Hon'ble Supreme Court of India. Sub-rule (1) of Rule 5A cannot be placed at the same pedestal as that of sub-rule (2). Section 82 of the Finance Act, 1994 allows a Central Excise Officer duly authorized to search and seize documents or books or things. Sub-section (2) of Section 82 employs the provisions of the Code of Civil Procedure, 1973 relating to searches for the searches to be made under the Act of 1994. The power to search given in Section 82, therefore, cannot be said to be unbridled. It has the checks, balances and parameters of the Code of Civil Procedure, 1973 governing its sphere of operation. Sub-rule (1) of Rule 5A of the Service Tax Rules, 1994 cannot be read to exceed the sphere of operation as circumscribed by Section 82 of the finance Act, 1994. In fact, the sub-rule does not profess to do so. It allows an officer to have access to any premises for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of the revenue. Access to the premises is a lesser power than the power to search the premises as granted under Section 82 of the Act of 1994. Sub-rule (1), therefore, cannot be construed to mean that, it is in excess of the parent power of searching the premises as granted under Section 82 of the Act of 1994.
The first issue is, therefore, answered in the negative and against the petitioner.
As noted above, the officers of the respondent no. 2 had entered into the premises of the petitioner on July 17, 2015. The entry was made on the basis of the Summons dated July 17, 2015 issued under Section 14 of the Central Excise Act, 1944. Section 14 of the Central Excise Act, 1944 gives powers to a Central Excise Officer to Summon any person whose attendance, the officer considers necessary, either to give evidence, or to produce a document, or any other thing, in any inquiry, which such officer is making for any of the purposes of the Act. The Summons were acknowledged by the Chief Finance Officer of the petitioner. Such Chief Finance Officer of the petitioner had made a statement which was found to be evasive. The documents required for investigation were obtained under a letter dated July 15, 2005 of the petitioner. The petitioner had produced certain documents/details by the letters dated July 29, 2015, July 31, 2015, November 10, 2015, April 7, 2016 and May 31, 2016. The statements of the Chief Finance Officer of the petitioner dated July 17, 2015 were found to be at variance with the documents/details provided by the dealers during the course of investigation. Such person was issued with the Summons dated June 8, 2016 for appearance before the respondent no. 2. It is at this stage that, the petitioner through its advocate had questioned the validity of the Summons issued.
It has been contended that, the documents were directed to be produced at the Chennai office at 15.00 hours on July 17, 2015. In the affidavit, the authorities have explained that, the letter dated July 17, 2015 was issued at Kolkata and since the officers were present at Kolkata, the petitioner was required to produce the documents at Kolkata. Such an explanation is plausible and is accepted. So far as the contention of jurisdiction is concerned, the Chennai Directorate has jurisdiction on an All India basis. The activities of the petitioner are the subject-matter of an enquiry undertaken by the respondent no. 2. It cannot be said that, the officers of the respondent no. 2 had acted without jurisdiction.
An enquiry is under process with regard to the alleged procurement of CENVAT credit fraudulently. The enquiry is yet to be completed. The enquiry relates to the business of the first petitioner. The first petitioner ought to participate in such enquiry. The modus operandi stated in the affidavit of the respondent no. 2 with regard to the obtaining of CENVAT credit by a insurance company is such that, the petitioner who is engaged in the business of insurance and is suspected to have indulged in such wrongful practices is required to be examined so also officers of the petitioner involved in the transactions.
In such circumstances, I am not in a position to say that, the proceedings taken by the respondent no. 2 against the petitioner are required to be quashed. The second issue is answered in the negative and against the petitioner.
W.P. No. 11773 (W) of 2016 is dismissed. No order as to costs. Urgent certified website copies of this order, if applied for, be made available to the parties upon compliance of the requisite formalities.
[DEBANGSU BASAK, J.] Later:-
The learned Advocate for the petitioner seeks stay of this judgment and order. The same is considered and refused.
[DEBANGSU BASAK, J.]