| Landmark Service Tax Judgments: Service Tax Audit |
| Why Service Tax Audit is conducted ? |
| The objective behind Service Tax audit is to ensure that assessee under Service Tax law complies with the provisions of Finance Act, 1994 Chapter ‘V’ and the rules made there under. |
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| Service Tax Auditor : |
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Service Tax is an indirect tax administered by Central Excise Department. Accordingly, an auditor means, a Central Excise Officer entrusted with the duty of conducting audit.
Service Tax audit cell is functioning headed by the Joint/Addl. Commissioner under the overall supervision of the Commissioner. The audit of all units is being conducted by a team of officers comprising of Superintendents and Inspectors.
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| Selection of Taxpayers : |
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| Sr. No. |
Quantum of annual total duty payment in (in cash + CENVAT Credit) |
Frequency of Audit |
| 1 |
Taxpayers paying more than Rs. 50 lakhs |
Every year |
| 2 |
Taxpayers paying between Rs. 25 lakhs and Rs. 50 lakhs |
Once in two years |
| 3 |
Taxpayers paying between Rs. 10 lakhs and Rs. 25 lakhs |
Once in five years |
| 4 |
Taxpayers paying below 10 lakhs |
2% of the total number every year |
For the categories mentioned at Sr. No. 2, 3, 4 the selection of assessee would be based on ‘risk parameters’. These taxpayers should be selected on the basis of assessment of the risk potential to the revenue.
Risk Parameters : An illustrative list.
a) High tax payers
b) Taxpayers showing significant increase in availment of input service credit
c) Taxpayers providing both taxable and non taxable services
d) Taxpayers providing both taxable and exempt services
e) Taxpayers whose value of taxable service exhibits downward trend
The above mentioned risk parameters may vary from one industry to another and one service category to another. |
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| Provisions for Large Tax Payer Unit : |
| A large taxpayer who is liable to be audited every year would not be ordinarily audited annually. The selection of a taxpayer for audit would be done based on ‘risk assessment’ taking into account various parameters. As far as possible, the audit of the head office and all the units will be conducted simultaneously. Dates for audit will be fixed in consultation with the large taxpayer. [Please Refer : Circular No. 834/11/2006-Central Excise, dated 05-10-2006.] |
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| Period covered : |
| Every audit should invariably cover the retrospective period up to the previous audit by the Department Audit Party or the last 5 years whichever is less and should extend up to one completed month preceding of audit. |
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| Audit Planning : |
(a) Master file on each Service Provider is maintained with department
(b) Desk review is performed on the basis of relevant documents and information about the taxpayer
(c) Information about the taxpayer and the system followed by him is gathered
(d) Internal Controls are evaluated.
(e) Verification of records is done, if there are any objections then clarification is sought from the taxpayer.
(f) Suggestions are given to reduce specific errors detected in the audit to improve compliance. |
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| Audit Report : |
| The auditor should submit the draft Audit Report, to the Assistant/Deputy Commissioner (Audit) thereafter the same alongwith enclosures, should be submitted to Audit Cell for consideration in the Monitoring Meeting. Based on the decision of the monitoring meeting the draft audit report should be finalized by the Audit Cell within 15 Days from the date of meeting. |
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