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Budget 15-16 proposals: Amendments in sections 73, 76 and 78 (all related to penalty)Budget 15-16 proposals: Insertion of transition provision by way of section 78BBudget 15-16 proposals: Omitting section 80 (provided for waiver of penalty)Extending the scope of advance rulings to resident firms, with immediate effect (from 1.3.2015)Amendment in reverse charge mechanism, with immediate effect (from 1.4.2015)To prescribe full reverse charge on manpower supply and security service provided by individual, HUF, partnership firm to a body corporate, with immediate effect (from 1.4.2015)Prescribing reverse charge on service provided by a mutual fund agent, mutual fund distributor and agents of lottery distributor, with immediate effect (from 1.4.2015)Amendments in section 86 (remedy against the order passed by commissioner (Appeals) in a matter involving rebate of service tax shall lie in terms of section 35 EE of the Central Excise Act)Amendments in the provisions relating to Settlement CommissionShifting the liability of payment of service tax on aggregator of a service where service is provided under the brand name of the aggregator, with immediate effect (from 1.3.2015)Amendments in rules 4 (prescribing documentation, time limit and procedure for registration)Registration for single premises shall be granted within two days of filing the applicationProvisions for issuing digitally signed invoices and maintaining of records in electronic form added in rules 4A and 5 of the Service Tax Rules, 1994, with immediate effect (from 1.3.2015)The period for taking Cenvat Credit is being extended from six months from the date of invoice to one year from the date of invoice.Cenvat Credit allowed on input and capital goods received directly by job workers. ‘Export goods’ and ‘Exempt goods’ defined. New exemptions for,- (a) Precondition, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables (b) Service by a Common Effluent Treatment Plant operator (c) Varistha Bima Yojana (d) Ambulance services (e) Admission to a museum, zoo, national park, wild life sanctuary, and a tiger reserve (f) Service provided by exhibitor of movie to a distributor or an AOP consisting of exhibitor as one of its member (g)Transport of export goods by road from the place of removal to a laChange in abatement rates and conditions thereof for transport of passengers and goods by train; transport of goods by road by a GTA; transport of goods by vessels; executive/business class travel by air; and withdrawal of abatement on services provided in relation to chit, with immediate effect (from 1.4.2015) Amendment in reverse charge mechanism, with immediate effect (from 1.4.2015) To prescribe full reverse charge on manpower supply and security service provided by individual, HUF, partnership firm to a body corporate, with immediate effect (from 1.4.2015) Prescribing reverse charge on service provided by a mutual fund agent, mutual fund distributor and agents of lottery distributor, with immediate effect (from 1.4.2015)Amendment in rule 4(7) of the Cenvat Credit Rules to allow credit of service tax paid by recipient of service in partial reverse charge immediately on payment of tax ,with immediate effect (from 1.4.2015)Service Tax to be levied on service by way of access to amusement facility (amusement parks, water parks , theme parks etc)Service Tax rate is increased from 12.36% to 14%. New rate shall come into effect after the enactment of the Finance Bill, 2015. Notification No. 42/2012-ST is being rescindedSwachh Bharat Cess- Govt. to impose cess on all or any taxable service at the rate of 2% of the value of taxable serviceWe are committed to implementing a state of the art indirect tax system, the Goods and Services Tax, from April 1, 2016 - Finance MinisterNow issuing of Digital Invoices recognised in Service Tax.The term “government” defined Section 65B(26A)Section 80 providing waiver from penalty is proposed to be omitted.
Service Tax Audit

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.

Landmark Service Tax Judgments: Service Tax Audit
Why Service Tax Audit is conducted ?
 
Service Tax Auditor :

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.

 
Selection of Taxpayers :

Budget 2011 - Small scale sector

Vide Budget 2011-12 Finance minister has announced in his budget speech that individual and sole proprietor assessees with a turnover upto Rs 60 lakhs shall not be subject to audit.
(D. O. Letter From JS (TRU) – Service Tax)

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.
 
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.]
 
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.
 
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.
 
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.

 

Case Laws Related

  • STO 2009 CESTAT 994
  • Commercial Training and Coaching Service: Amendment had taken place only after the disputed period in the appeal. There is no provision for applying the said changes retrospectively. Further, a part of the demand relates to inclusion of Mess charges. By no stretch of imagination, the Mess charges collected can be considered as receipt for rendering the service of ‘Commercial Training and Coaching'.

    Limitation: Extended Period: Further we find that the show cause notices was issued based on some Audit objection. There is no justification for invoking the longer period. Therefore, the demand is also hit by time bar. Appeal allowed.

  • STO 2006 CESTAT 197
  • Audit Enquiry: Limitation: Audit Enquiry and the Audit Note clearly disclose the fact of the appellants having disclosed all the facts. There is no finding pertaining to any suppression of facts leading to recovery for larger period. Stay application is allowed.

     
     

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