CA Bimal Jain


The Central Board of Excise and Customs (‘CBEC’ or ‘the Board’) vide Circular No. 113/07/2009-ST dated April 23, 2009 had laid down the procedure for carrying out detailed scrutiny of Service Tax Returns (ST-3 Returns) and had circulated a Return Scrutiny Manual for Service tax. However, with the introduction of Point of Taxation Rules, 2011 which shifted the liability of payment of Service tax from receipt basis to accrual basis and advent of Negative List based comprehensive taxation of services in July, 2012, the CBEC has unveiled the revised guidelines for detailed scrutiny of ST-3 Returns to be followed by the Revenue with effect from August 1, 2015 vide Circular No. 185/4/2015-ST dated June 30, 2015 (the Circular).

In terms of the Circular, the detailed scrutiny programme typically supplements the audit programme. The two processes of audit and scrutiny are, in fact, complementary to each other. The Board has further clarified vide the Circular that, Even after the introduction of GST, it may be appreciated that the basic principles of scrutiny of returns and reconciliation of records would remain the same.

Gist of the guidelines for detailed manual scrutiny:

We are summarising herewith the gist of the guidelines issued vide the Circular for ease of understanding:

  • Commencement of detailed manual scrutiny of ST-3 Returns from August 1, 2015 onwards;
  • Preliminary scrutiny to be done by range officers;
  • Main focus on small assessees whose total tax paid (Cash + Cenvat) during Financial Year 2014-15 is less than Rs. 50 Lakhs, though on the direction of Chief Commissioner, scrutiny of ST-3 Returns can be made for assessee whose monetary limit exceeds even Rs. 50 Lakhs;
  • The purpose of detailed manual scrutiny of returns is to ensure the correctness of the assessment made by the assessee which includes checking the taxability of the service, the correctness of the value of taxable services, effective rate of tax after taking into account the admissibility of an exemption notification, abatement, or exports, if any etc.;
  • In doing this, the proper officer must rely mainly on assessment-related documents like agreements/contracts and invoices. Detailed financial records should not be called for in a routine manner;
  • Reconciliation of information furnished in the ST-3 return with ITR Form Nos. 4, 5, 6 and 26AS and any third party information made available;
  • Scrutiny process of an assessee should be completed in a period not exceeding 3 months;
  • In no event should an assessee be subjected to both audit and detailed manual scrutiny;

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Email:

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  1. S.Maheswaran says:

    I don’t understand the necessity of such scrutiny for small assessees by range officer level, when there is a separate set up as Audit Commissionerate is functioning. Further GST is about to be rolled out in the ensuing financial year and hence this type of exercise on par with Audit is unwaranted

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