M/S. Woodland Works (I) PVT. LTD. vs. Union Of INDIA And 3 Ors.

Held

The Court held that while Section 174(2) of the CGST Act, 2017, saved the powers of authorities to conduct audits for periods prior to July 1, 2017, the procedure for conducting such audits had to be in line with the CGST Act, 2017, as Section 72A of the Finance Act, 1994, was not saved. The Court reasoned that to make the statute workable and ensure harmonious functioning, the procedure under the new Act should be followed for saved powers. The Court noted that the petitioner participated in the audit for the period April 2015 to June 2017 without objection. The Court found that the power to issue a demand-cum-show cause notice under Section 73 of the Act of 1994 was saved by Section 174(2)(e) of the Act of 2017, as were powers for investigation, inquiry, and verification including audit. Therefore, the audit conducted and the subsequent demand-cum-show cause notice were not without jurisdiction. The writ petition was dismissed.

Facts

The petitioner, M/s. Woodland Works (I) Pvt. Ltd., challenged a demand-cum-show cause notice dated May 7, 2019, and a service tax audit conducted by the Dibrugarh Audit Circle-II. The petitioner was registered under the Finance Act, 1994, for various taxable services. Audits were conducted for periods April 2012 to March 2015, and subsequently for April 2015 to June 2017. The petitioner participated in the latter audit without objection. The impugned notice alleged short payment/non-payment of service tax, wrong CENVAT credit availment, non-payment of interest on delayed payment, and late fees for the period April 2015 to March 2017. The total demand was Rs. 32,18,481/- for service tax, Rs. 22,11,240/- for CENVAT credit, Rs. 10,51,677/- for interest, and Rs. 20,000/- for late fees, along with potential penalties. The petitioner approached the High Court instead of replying to the notice.

Key Issues

1. Whether the audit conducted by the respondent authorities for the period prior to July 1, 2017, under the Finance Act, 1994, is valid when the Central Goods and Services Tax Act, 2017 (CGST Act, 2017) came into force, considering that Section 72A of the Act of 1994 did not survive? Petitioner's contention: The petitioner argued that the audit procedure under Section 72A of the Finance Act, 1994, was not saved by Section 174(2) of the CGST Act, 2017, and therefore, the audit conducted was without jurisdiction. They contended that the procedure for audit should have been in accordance with the CGST Act, 2017. Revenue's contention: The respondents argued that Section 174(2) of the CGST Act, 2017, saved all powers vested in authorities concerning the period prior to July 1, 2017, including inquiry, verification, scrutiny, and audit, as if the Finance Act, 1994, had not been amended or repealed. They asserted that the audit and subsequent show cause notice were issued as per the provisions saved under Section 174(2)(e) of the CGST Act, 2017, read with the erstwhile Act of 1994.