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1.1 The challenge in this petition by Mega Cabs Private Limited is to Rule 5A(2) of the Service Tax Rules, 1994 (‗ST Rules') as amended by the Service Tax (Third Amendment) Rules, 2014 made by the Central Government in terms of a Notification No. 23/2014-Service Tax dated 5th December 2014 in exercise of the powers conferred under Section 94(1) read with Section 94 (2)(k) of the Finance Act, 1994 (‗FA') to the extent that the amended Rule 5A(2) empowers deputing departmental officers or officers from the Comptroller and Auditor General of India (‗CAG') to 'demand' documents mentioned therein. It is contended that this is in conflict with Section 72A of the FA and beyond the rule making power of the Central Government.

Submissions of counsel for the Petitioner

14. The submissions of Mr. J.K. Mittal, learned counsel for the Petitioner, could be summarised as under:

(i) Although Rule 5A(2) of the ST Rules has purportedly been amended to overcome the defect pointed out by the Court in Travelite (India), the amended Rule 5A(2) continues to be ultra vires Section 72A of the FA.
(ii) While Section 72A of the FA only contemplates a special audit to be got done by the Assessee on the direction of the Commissioner, by a Cost Accountant or a Chartered Accountant (‗CA'), Rule 5A(2) permits any officer of the Department or an audit party deputed by the Commissioner or the CAG (in addition to the Cost Accountant and the CA undertaking the special audit) to ask for production by the Assessee for books of accounts etc. ―on demand‖. Apart from the fact that Rule 5A(2) expands the list of persons who could seek production of records and that too on demand, none of the safeguards spelt out in Section 72A require to be observed by the persons making such demand under Rule5A(2) of the Rules.

(iv) Relying on the decision in CCE v. Ratan Melting and Wire Industries 2008 (12) STR 416 (SC), it is submitted that even the circulars and instructions issued by the CBEC would have to conform to the FA. Such circulars issued on the understanding of the Central or State Governments of the statutory provisions are not binding on the Courts.

(v) The provisions of the CAG's Duties Powers and Conditions of Service Act, 1971 (‗CAG Act') and the provisions of Articles 148 and 149 of the Constitution of India do not envisage the CAG performing audit of private entities. Referring to the decision in K. Satyanarayanan v. Union of India ILR (1996) II Delhi, it is contended that the CAG is not expected to conduct audit of the books of accounts and records of an individual service tax Assessee. The decisions in Inter Continental Consultants v. Union of India 2013 (29) STR 9 (Delhi) and Indian & Eastern Newspaper Society, New Delhi v. Commissioner of Income Tax, New Delhi (1979) 4 SCC 248 were also referred to.

35. Rule 5A(2) envisages that even the CAG can require production of documents from an individual service tax Assessee 'on demand'. This appears to have no rational basis. As rightly pointed out by Mr Mittal, the powers and functions of CAG flow from Articles 148 and 149 of the Constitution of India read with the Comptroller and Auditor-General's (Duties, Powers and Conditions of Service) Act, 1971. This Court in K. Satyanarayanan v. Union of India (supra) explained that the essential function of the CAG is to audit the accounts of public sector undertakings. Although in Association of Unified Tele Services Providers v. Union of India AIR 2014 SC 1984 the Supreme Court has, in the context of the functioning of telecom companies accepted the plea that their accounts can be subjected to scrutiny by the CAG, to expect the CAG to undertake an audit of the records of every service tax Assessee would indeed be extraordinary. Importantly, as far as the telecom service providers are concerned they are subjected to conditions of their licence which envisage their making available all their accounts for scrutiny. As far as the service tax Assessees are concerned one would still have to turn to the provisions of the FA to examine whether this kind of an access to the books of accounts etc. of an Assessee can be given to the CAG or just about any officer of the Department. With there being no such authorisation under the FA, the answer has to be in the negative.