No Audit of Private Enterprises by AGs Audit Calcutta High Court

It is understood that yesterday the Calcutta High Court held that Comptroller & Auditor General and any officers subordinate to him have no power to conduct audit of private enterprises unless these are financed or funded by Government or grants given by Government. The High Court also quashed the letter issued by CERA, a wing of CAG, to conduct audit of a Kolkata based stockbroker Company and held that there was no provision under Central Excise Act or Finance Act, 1994 empowering CAG to undertake audit of private enterprises, which are not funded by Government. The High Court further held Rule 5A (2) of the Service Tax Rules as ultra vires to the extent of directing every assessee to provide records to Audit Party of CAG. Rule 5A reads as, Rule 5A. Access to a registered premises. (1) An officer authorised by the Commissioner in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue. (2) Every assessee shall, on demand, make available to the officer authorised under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, within a reasonable time not exceeding fifteen working days from the day when such demand is made, or such further period as may be allowed by such officer or the audit party, as the case may be,(i) the records as mentioned in sub-rule (2) of rule 5; (ii) trial balance or its equivalent; and (iii) the income-tax audit report, if any, under section 44AB of the Incometax Act, 1961 (43 of 1961), for the scrutiny of the officer or audit party, as the case may be. The High Court is of the view that only in case of Special audit as envisaged under Section 72 A of the Finance Act, 1994 or section 14 A or 14AA of Central Excise Act, assessee is required to provide records and not otherwise, to audit party. We will bring you the High Court order as soon as possible.

THE CAG's Audit party get its power to audit the records of the Service Tax assessees by virtue of Rule 5A. As per Rule 5A (2), extracted above, "Every assessee shall, on demand, make available to the officer authorised under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, within areasonable time not exceeding fifteen working days from the day when such demand is made, or such further period as may be allowed by such officer or the audit party" Now look for this Rule 5A(2) in the Service Tax Rules as given in the CBEC website and you will find that the portion marked in red is missing. So, according to the Rules published in the CBEC website, there can be no audit either by the Commissioner's party or the CAG's party.
Source-Tax India Online (DDT-1951) 27-9-2012