To keep a check on the system of Self Assessment under service tax , with effect from 1st August 2015 Department is coming out with a strong ‘return scrutiny ‘ system. It is going to be a two part system of Preliminary and Detailed Scrutiny.
CBEC has recently issued one Circular No.185 /4/2015 – Service Tax dated 30.06.2015 providing instructions on detailed manual scrutiny of Service Tax Returns. The said instructions for Service Tax are applicable from 1st August 2015 onwards.
So now onwards we will have to satisfy the selfish motives of Department also..!!!!
Detailed description of both the types of scrutiny as envisaged in circular has been provided below:
I. Preliminary Scrutiny under Service Tax:
Such Preliminary Scrutiny will be to ensure:
- Completeness of the information furnished
- Arithmetic Correctness
- Timely Payment
- Timely Submission of Returns
- Identification of non-filers and stop filers of Returns
All ST-3 Returns will be subjected to preliminary scrutiny.
Preliminary Scrutiny of returns would be done online on the basis of validation checks incorporated in ACES by the Directorate General of Systems & Data Management.
Returns with certain errors would be marked for Review and Correction which will then be processed by the Range Officers.
II. Detailed Scrutiny under Service Tax:
To ensure the correctness of the assessment made by the Assessee.
Scope of Detailed Scrutiny
Scope of detailed Scrutiny under Service Tax would cover following:
- Checking taxability of service
- Checking correctness of the Value of Service [(Section 67) and Service Tax (Determination of Value) Rules 2006].
- Checking effective Rate of tax after
- Checking admissibility of exemption (Notification no. 25/2012-ST)
- Abatements (Notification no.26/2012-ST)
- Exports (Rule 6A)
- Correctness of availment and utilization of Cenvat Credit (CENVAT Credit Rules , 2004)
It has been clearly specified in the circular that detailed scrutiny is supplementary to audit but not audit and hence, detailed financial records should not be called for in routine manner and officer should rely mainly on assessment related documents like agreements/Contracts and Invoices.
Selection of Returns
Focus of detailed scrutiny is on those assessees who are not audited and whose service tax payment (cash and cenvat) for the year 2014-15 is less than Rs. 50 Lakhs. However, Chief Commissioner may direct manual scrutiny of assessees who have paid service tax (cash and cenvat) more than Rs. 50 lakhs. Each Commissioner will select equal number of assessees from each of the 3 tax brackets which are made on the basis of tax paid viz. Rs. 0 – 10 Lakhs, Rs. 10-25 Lakhs and Rs. 25-50 Lakhs.
In addition to the above, risk parameters and risk tools would also govern the selection of returns for detailed scrutiny.
The list of returns to be taken up for detailed scrutiny would be finalized by AC/JC in-charge of the Division. Assessees who have been selected for audit or have been audited in past 3 years should not be taken up for scrutiny. It has been provided that in no case, an assessee should be subjected to both audit and manual scrutiny. It has been provided that, returns of FY 2013-14 shall be taken for detail scrutiny
The following methodology would be followed at Department’s end:
1. Intimation Letter
Before return scrutiny is initiated , the assessee must be given prior intimation of atleast fifteen days and the purpose of the exercise must be spelt out in an Intimation Letter in prescribed format.
2. Assessee Master Information
Once an assessee’s returns are taken up for detailed scrutiny , the Range should compile the Assessee Master Information to facilitate trend analysis in a prescribed format.
One of the important objectives of return scrutiny is to ensure validation of the information furnished in ST-3 Return. It will include reconciling information furnished in ST-3 Return with ITR Form No. 4,5,6 & 26AS.
3. Comprehensive Check List
A comprehensive checklist has been prepared which enumerates the lengthy exercises to be undertaken with respect to the following:
- Reconciliation for validation of the information furnished under ST-3
- Taxability of services which may have escaped assessment
- Classification (for the purpose of due availment of abatement/exemption benefits)
- Valuation and
- Cenvat Credit availment / utilization
It has been specified that an Inspector may undertake a detailed scrutiny of a minimum of 3 assessees in a month. Also, the scrutiny process shall not exceed a period of 3 months.
4. Documentations and Scrutiny Findings ( Observation Sheet )
The scrutiny officer is supposed to record his findings under each of the subject of checklist along with any action that needs to be taken by the Range. The officer may also compile issues which can be referred to audit or anti evasion. If the detailed scrutiny results in detection of any frauds and it appears that Section 73(1) of Finance Act, 1994 is invokable, ST-3 returns of past periods should also be verified.
5. Monthly Scrutiny Monitoring Committee Meeting
All the finding shall be discussed in Monthly Scrutiny Monitoring Committee Meeting headed by AC/JC where each Range should present Scrutiny Report.
And going a step further Circular mentions that even after introduction of GST basic principles of returns and reconciliation of records would remain the same.
We are all now filing Income Tax returns of our clients for FY 2014-15 . So kindly reconcile the information with ST returns and keep reconciliation statement ready in your service tax file , as your client may be selected for the scrutiny…!!!
(Author is a Past Chairman-Nagpur Branch of ICAI and is a Practicing Chartered Accountant)