In W.P. (C) 2138/2019 -DEL HC- Delhi High Court affirms Rule 5A of Service Tax Rules 1994 is ultra vires Finance Act 1994
Justice Yashwant Varma & Justice Dharmesh Sharma [29-08-2023]

Read Order: M/s T.R. Sawhney Motors Pvt.Ltd V. Union of India & Anr

Chahat Varma

New Delhi, September 14, 2023: The Delhi High Court has affirmed that Rule 5A of the Service Tax Rules, 1994, is invalid as it goes against the provisions of the Finance Act, 1994.

In the case at hand, the petitioners had requested the Court to issue a declaration stating that Rule 5A of the Service Tax Rules was in violation of the provisions of the Finance Act. Additionally, they sought a declaration that Rule 5A was no longer in effect and would not survive following the enactment of the Central Goods and Services Tax Act (CGST Act).

The division bench of Justice Yashwant Varma and Justice Dharmesh Sharma observed that the validity of Rule 5A(2) of the Rules had been declared ultra vires the Finance Act by a Division Bench of the this court in the case of Travelite (India) v. Union of India [LQ/DelHC/2014/2308].

The bench also observed that subsequent to the striking down of Rule 5A(2), it appeared that the department introduced clause (k) in Section 94 of the Act in order to validate the action initiated under Rule 5A(2). However, the bench noted that the power to conduct a special audit, guided by Section 72A of the Finance Act, remained unaffected.

The bench noted that considering the statutory changes, a Division Bench of this court in the case of Mega Cabs Private Limited v. Union of India & Ors. [LQ/DelHC/2016/1191], had held that despite the introduced amendments, the legal position remained consistent with the decision in Travelite. As a result, the amended Rule 5A(2) was declared as ultra vires the Act.

As it stands, the bench was informed that the decisions in Travelite and Mega Cabs were presently under appeal and pending before the Supreme Court. It was noted that these judgments had been stayed by the Supreme Court.

The bench clarified that proceedings that had already been initiated or were related to a period before the repeal of the Act would be unaffected.

The bench also noted that it seemed the decisions in Travelite and Mega Cabs were not brought to the attention of the Division Benches during the proceedings, and the cases were argued as if Rule 5A was still in force. This was considered a factual inaccuracy.

The bench opined that notwithstanding the judgments in Travelite and Mega Cabs having been placed in abeyance, the declaration of invalidity would not stand effaced.

With the aforementioned observations, the bench decided to schedule this batch of cases to be called again on 05.10.2023, under the category of 'End of Board' matters.