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Dr. Sanjiv Agarwal

Sanjiv Agarwal PhotoCentral excise officers are empowered to pay visits to the premises of the assessees. Such visits shall be subject to the following rules:

(i) All visit to the premises of service tax assessees will be made by central excise officers only after giving a notice in writing explaining therein the purpose of such visit.

(ii) The officers will clearly indicate the documents which may be required by them during their visits.

(iii) No such visits will be made without giving a clear notice of 15 days to the assessee.

(iv) Such visits will be made only with the prior approval of the commissioner.

The above guidelines would not apply to cases where the department has in its possession or has received any specific information/intelligence regarding evasion of service tax or contravention of law by an assessee. In such cases, the process of law will be followed and action will be taken accordingly.

Rule 5A of Service Tax Rules, 1994 provides that Commissioner or audit team of Comptroller and Auditor General of India can also visit the assessee for audit purposes.

To curb unrestricted access to the premises of the tax payers by officers, instructions have been issued by CBEC whereby inspectors and above officers will be allowed access to taxpayers premises only after duly authorized written permission.

Amendment w.e.f. 5.12.2014

Vide Notification No. 23/2014-ST dated 5.12.2014, sub-rule (2) of Rule 5A has been substituted as under –

“(2) Every assessee, shall, on demand make available to the officer empowered under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, or a cost accountant or chartered accountant nominated under section 72A of the Finance Act, 1994,-

(i) the records maintained or prepared by him in terms of sub-rule (2) of rule 5;

(ii) the cost audit reports, if any, under section 148 of the, and

(iii) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961,

for the scrutiny of the officer or the audit party, or the cost accountant or chartered accountant, within the time limit specified by the said officer or the audit party or the cost accountant or chartered accountant, as the case may be.”

This substituted rule shall enable and empower the officers or person specified in sub-rule (1) or sub-rule (2) to demand records, in terms of rule 5, cost audit report and tax audit report for the purpose of their scrutiny. This rule enabling audit and verification of records of assessee has been notified by the Central Government under the powers contained in section 94 of the Finance Act, 1994.

Finance Act, 2014 had inserted the following clause (k) in section 94(2) –

“(k) imposition, on persons liable to pay service tax, for the proper levy and collection of tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified.”

Accordingly, Notification No. 23/2014-ST dated 5.12.2014 has been issued. This rule, inter alia, provides for scrutiny of records by the audit party deputed by the Commissioner. Such scrutiny essentially constitutes audit by the audit party consisting of departmental officers. Verification of records mandated by the statute is necessary to check the correctness of assessment and payment of tax by the assessee in the present era of self-assessment. It may be noted that the expression “verified” used in section 94(2)(k) of the said Act is of wide import and would include within its scope, audit by the departmental officers, as the procedure prescribed for audit is essentially a procedure for verification mandated in the statute.

The analysis of new Rule 5A (2) would reveal as under –

(1) Rule 5A(2) binds all assessees to provide records/reports as specified.

(2) Assessee is obliged to provide or make available such records/reports only on demand.

(3) Who can demand – Following officers or persons can demand –

(a) Officers empowered under sub-rule (1) i.e., an officer authorised by the Commissioner in this behalf

(b) Audit party deputed by Commissioner

(c) Comptroller and Auditor General of India

(d) Cost accountant or chartered accountant nominated by Commissioner u/s 72A of Finance Act, 1994.

(4) Such demand shall ordinarily have to be a written demand

(5) What can be demanded – Following records or reports can be demanded from the assessee:—

(a) Records as maintained or prepared and declared to the department by the assessee in terms of rule 5(2)

(b) Cost audit report, if any, u/s 148 of the Companies Act, 2013

(c) Income Tax audit report, if any u/s 44AB of the Income Tax Act, 1961

(6) Records as per Rule 5(2) shall include the following –

(i) all the records prepared or maintained by the assessee for accounting of transactions in regard to,-

(a) providing of any service;

(b) receipt or procurement of input services and payment for such input services;

(c) receipt, purchase, manufacture, storage, sale, or delivery, as the case may be, in regard of inputs and capital goods;

(d) other activities, such as manufacture and sale of goods, if any.

(ii) all other financial records maintained by him in the normal course of business.

(7) Such records shall have to be made available within the time specified while making such demand.

(8) The purpose of such demand shall be for the scrutiny by such officer or person, of such records/reports.

It may be noted that if the assessee finds that the time available is not enough to comply, he can seek extension by way of a written request citing reasons for the same. Non-compliance may attract penalty under section 77 of the Finance Act, 1994.

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July 2024