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Suvidha Digest
A One Stop Consultancy House

          Issue XIV

Indirect Tax:
General Audit Under Rule 5A held Ultra Vires
Calcutta High Court addresses disputes under VCES
Direct Tax:
Appointment of Auditor as per Companies (Audit & Auditors) Rules, 2014

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•  General Audit Under Rule 5A (2) held Ultra Vires

It is a well settled principle that rules cannot seek to extend the scope of the statute. In simple words, a rule cannot operate beyond the boundaries of law. The Hon’ble Delhi High Court has delivered a landmark judgement upholding this well settled principle and quashing a general audit initiated under Rule 5A(2) of the Service Tax Rules , 1994. In the case of Travelite (India) Versus UOI And Others 2014 (8) TMI 200 - DELHI HIGH COURT, the Hon’ble High Court has held that the only type of audit within the contemplation of the statute is that stipulated for in Section 74A, i.e. a special audit when only certain circumstances are fulfilled. The Parliament did not intend to provide for a general audit that every assessee may be subject to on-demand. Thus any attempt to conduct a general audit by virtue of a rule is ultra-vires. Relevant extract reads as follows:-

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•   Calcutta High Court addresses disputes under VCES

   About the Scheme

The Service Tax Voluntary Compliance Encouragement Scheme (here-in-after referred to as the “said scheme”) came into effect on and from 10.05.2013 for immunity against penalty, interest and other proceedings against the defaulter of service tax. The defaulter of service tax may make a declaration before the designated authority on/or before 31.12.2013 in a prescribed manner. Section 107 of the said scheme further provided that such declaration is required to be acknowledged by the designated authority in such form and manner as may be prescribed and the declarant would have to pay not less than 50% of the tax dues as declared in the prescribed form within 31.12.2013.

“Tax dues” as defined in Section 105(e) of the said scheme is to mean the service tax dues payable under Chapter V of the Finance Act, 1994(hereinafter referred to as the “said chapter”) or any amount due or payable under Section 73A thereof for the period beginning from 1.10.2007 and ending on 31.12.2012 including cess leviable thereon under any other Act in force, but not paid as on 1.03.2013.

Moreover, sub-Section (4) of Section 107 of the said scheme related to the deposit of the balance amount within 30.06.2014 whereas the proviso to this Section provides an extension of time for deposit till 31.12.2014, subject to the payment of interest fixed under Section 73B or Section 75 of the Finance Act,1994.

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The Companies (Audit and Auditors) Rules 2014 prescribes that in case of a company that is required to constitute an Audit Committee under Section 177, the committee, or in cases where such a committee is not required to be constituted, the Board, shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor and whether such qualifications and experience are commensurate with the size and requirements of the company.

While considering the appointment, the Audit Committee or the Board, shall also enquire about any order or pending proceeding relating to professional matters of conduct before the Institute of Chartered Accountants of India or any competent authority or any Court against the proposed auditor. The same should be sought from the proposed auditor.

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Indirect Tax: Direct Tax: Project Consultancy & Loan Syndication Empanelled valuer, Subsidy/Incentives Financial Solutions Recruitment Solutions
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