29 Jan 2121

Central Excise Revenue Audit does not extend to audit of a private entity under Section 16 of The Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 - Bombay High Court

Case : Kiran Gems Private Limited v. Union of India and Ors. Writ Petition No. 1135 of 2019

Court : Bombay High Court

Bench : Justice Ujjal Bhuyan and Justice Milind N. Jadhav

Decided on : 29 Jan 2121

Relevant Statutes

Articles 226, 227, 148, 149 and 151 of the Constitution of India

The Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971

Brief Facts and Procedural History

1. Central Excise Revenue Audit (CERA) is conducted under the overall supervision of the Principal Director of Audit, (Central) Kolkata in the Indian Audit Department of Government of India.

2. Superintendent, Range-III, CGST, Division IV, Mumbai East issued a notice to the Petitioner intimating that the petitioner’s case had been selected for scrutiny for the period January 2019 to March 2019 and to submit information for the period 2015-16 to 2017-18 to the officers of Central Excise Revenue Audit for audit.

3. The Petitioner sought quashing of the said notice through writ petition for being as ex facie illegal and without jurisdiction.

Issue of the Case

Whether Central Excise Revenue Audit, an audit wing of the Principal Director of Audit (Control), Kolkata under the Comptroller and Auditor General, has the power to audit the account of the Petitioner company under Section 16 of The Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971, where admittedly the petitioner company is not an undertaking of the Central Government or any State Government and is purely a private entity?

The Observstions of the Court

The High Court of Bombay observed that:

1. The impugned notice seeking an audit of petitioner’s accounts was not contemplated under the provisions of Rule 5A of the Service Tax Rules, 1994. Respondents asserted that it was issued under section 16 of The Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971.

2. Comptroller and Audited General of India (CAG) is an authority constituted under the provisions of Article 148 of the Constitution of India. Duties and powers of Comptroller and Auditor General are circumscribed by Article 149. Article 151 reports of the Comptroller and Auditor General relating to accounts of the Union are to be submitted to the President, who causes them to be laid before each House of Parliament and the reports of the Comptroller and Auditor General relating to the accounts of the State are to be submitted to the Governor who causes them to be laid before the Legislature of the State.

3. The Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 is an Act to determine the conditions of service of the Comptroller and Auditor General and prescribe his duties and powers and for matters connected therewith or incidental thereto.

4. The power of the Comptroller and Auditor General under Chapter III extends to any office or department of the Government and cannot be construed to extend to a private entity. The provisions of Chapter III envisage that for audit it shall be the duty of the Comptroller and Auditor General to conduct an audit of the receipts payable into the Consolidated Fund of India of the Union or a State as applicable and to put such questions or make such observances as the Comptroller and Auditor General may consider necessary to the person-in-charge of the office or to call for such information as required for preparation of any account or report about the concerned Government office or department. The Comptroller and Auditor General cannot have jurisdiction to audit the accounts of a private entity directly.

5. However Section 20 of The Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 is an exception. It states that if the Comptroller and Auditor General is requested by the President of India or by the Governor of a State or by the Administrator of a Union Territory, to undertake the audit of accounts of anybody or authority on such terms and conditions as may be agreed upon, then the Comptroller and Auditor General shall undertake such an exercise. But it is quite evident that even this provision would extend to a body or authority which undertakes the functions of the Government.

6. In SKP Securities Ltd v. Deputy Director (Ra-IDT), 2013(1) TMI 549 the Court accepted the statement of the petitioner that Section 16 of The Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 does not authorize the Comptroller and Auditor General or any audit team under the control of Comptroller and Auditor General to audit the accounts of a non-government company, that too, in the absence of any request either from the President of India or Governor of the State in which the company is having its operation.

7. Petitioner’s submission that there are specific statutory provisions under which special audit of accounts of the petitioner company can be conducted by following the due process of law, therefore, needs to be accepted. Case of the respondents in the affidavit-in-reply that the impugned communication has been issued under the provisions of Section 16 of The Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 and that Central Excise Revenue Audit is authorized to extend the audit exercise to the petitioner’s accounts, therefore, deserves to be rejected for want of jurisdiction and statutory authority.

8. The statutory responsibility of the Comptroller and Auditor General is to audit receipts of the Union and States. These receipts include both direct and indirect taxes. It is the duty of the Central Excise Revenue Audit to see that sums due to the Government are properly assessed, realized, and credited to the Government account. The statutory scheme clearly states that the Comptroller and Auditor General shall from the accounts compiled by him or by the Government or any person responsible prepare in each year accounts showing under the respective heads, the annual receipts and disbursement for the Union, each State or each Union Territory and shall submit the same to the President or the Governor or the Administrator, as the case may be. In such context Section 16 about the audit of all receipts which are payable into the Consolidated Fund of India and each State and each Union Territory is required to be construed concerning the accounts maintained in the Government departments or Corporations belonging to the Government.

The Decision Held by the Court

The High Court of Bombay allowed the writ petition, issued a Writ of Certiorari under Article 226 of the Constitution of India calling for the records of the Petitioner’s case, and quashed the notice in question.

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