Circular No. 742/58/2003-CX., dated 3-9-2003
F.No. 206/3/2003-CX-6
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi
Subject : Service Tax Audit Manual – Regarding.
I am directed to say that as you are aware that taxation of services was started in July, 1994 in a limited way with three services and since then the scope has been extended considerably. At present, 58 services are subjected to levy of Service Tax. The revenue from Service Tax sector has also been growing appreciably over the time. The audit of selected services (telephones, non-life insurance and stock brokers) was started in the year 1996. Subsequently, the same was extended in 2002 to cover certain selected service providers in four metropolitan cities.
Taking into account the peculiarities of service tax law, book keeping practices of service providers and the experiences gained during the course of auditing of selected service tax categories, it is felt necessary to prepare a comprehensive Service Tax Audit Manual following internationally recognized audit methodology to provide guidelines to the departmental officers to facilitate auditing of Service Tax-payers and to ensure uniformity. Accordingly, Director- General (Audit) has prepared and issued a comprehensive Service Tax Audit Manual. The Manual is for use of the departmental officers, which may be carefully studied. The suggestions to improve the Audit Manual and the difficulties experienced if any, may be brought to the notice of Director-General of Audit.
The salient features of the Audit Manual are :
(a) Legal provisions for levy and collection of service tax are indicated in one place.
(b) Principles of auditing of Service tax-payers based on modern methodology are enumerated.
(c) Guidelines are provided for selection of tax-payers for auditing based on risk assessment technique.
(d) Detailed guidelines are provided for preparation of audit plan before the commencement of the actual audit.
(e) Various techniques of auditing such as ‘walk through’, ABC Analysis, Revenue Risk Analysis and Trend Analysis are explained.
(f) Specific guidelines are provided for conduct, preparation, reporting and follow up of audit.
(g) Formats for collection and compilation of data on service providers and maintenance of Master Files have been prescribed.
(h) Check list for service tax auditing has been provided.
(i) Detailed profiles for three major services namely, telephone, non-life insurance and stock brokers are made as part of the Manual for effective audit.
The Service Tax Audit Manual meets one of the most critical requirements of service tax administration. Considering the fact that the administration of service tax is fundamentally following the principle of believing in bona fides of the tax-payer and trust is reposed on voluntary compliance, it is expected that the Audit Manual shall be able to provide valuable guidelines.
