New Scrutiny Norms for Service Tax Returns

The
Board vide Circular No. 113/07/2009-ST had laid down the procedure
for carrying out detailed scrutiny of Service Tax Returns (ST-3) and had
circulated a return scrutiny manual for Service Tax.

 
However,
with the introduction of Point of Taxation Rules, 2011 and advent of
Negative List in July, 2012, CBEC has now revised the instructions on detailed
scrutiny of ST-3 returns, with effect from 01.08.2015
vide Circular No. 185/4/2015-ST dated 30.06.2015.
 
The
Board Circular states, “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.” The Department wants to extend this to
GST.
 
The
following is the gist of guidelines issued for manual scrutiny for
understanding and guidance.

Preliminary
Online Scrutiny:

1.     The purpose of
preliminary scrutiny of returns includes :
  • ensuring
    the completeness of the information
    furnished in the return,
  • arithmetic correctness of the
    amount computed as tax and its timely payment,
  • timely submission of the return and
    identification of non-filers and stop-filers.
2.  Scrutiny is done online
in ACES and the returns having certain errors are marked for Review and
Correction (RnC).
3.   These have to be
processed accordingly by the Range Officers.
  2.     Detailed
Manual Scrutiny
 

Objective

The
purpose of detailed manual scrutiny of returns is to ensure the correctness of
the assessment made by the assessee.
 

Scope

  • Checking
    the taxability of the service,
  • The
    correctness of the value of taxable services (Section 67 of
    the Finance Act, 1994 read with the Service Tax (Determination
    of Value) Rules, 2006 ) and ,
  • The
    effective rate of tax after taking into account the admissibility of an
    exemption notification (25/2012-ST), abatement (26/2012-ST), or exports (Rule
    6A) , if any; ensuring the correct availment/utilization of CENVAT Credit in
    terms of the CENVAT Credit Rules, 2004, etc. 

Methodology

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For
scrutiny, 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.
1.     A Return Scrutiny Cell
should be created in the Commissionerate Headquarters. The Return Scrutiny Cell
shall maintain the records of the assessees and the returns which are selected
for detailed scrutiny and also the results.
2.     A Checklist has been
prepared for carrying out detailed manual scrutiny of
selected ST-3 returns. For achieving the stated objectives, the
checks have been categorized as follows:
  • Reconciliation
    for validation of the information furnished in the ST-3 return;
  • Taxability
    in respect of services which may have escaped assessment;
  • Classification
    (for the purposes of due availment of abatement/exemption benefit);
  • Valuation;
    and
  • CENVAT
    credit availment / utilization.
3.     Detailed scrutiny of
returns must be conducted by the Service Tax Range headed by the Superintendent
and assisted by a complement of Inspectors. However, the Divisional DC/AC shall
be responsible for the overall supervision of this business process in respect
of his/her division. Before return scrutiny is initiated, the assessee must be
given prior intimation of at least fifteen days and the purpose of the exercise
must be spelt out in an Intimation Letter.
4.     Validation of the
information furnished in the self-assessed ST-3 return is required
which includes reconciling information furnished with ITR Form
Nos. 4, 5, 6 and 26AS and any third party information made
available.
5.     The risk parameters and
the risk tools which would govern the selection of the returns for detailed
manual scrutiny have been developed. The risk scores for the Service Tax
returns for the financial year 2014-15 have been calculated. The data has been
segregated on the basis of Zone/Commissionerate/Division/Range. The data
resides with DGS&DM which will be shared with the Service Tax & Central
Excise field formations through secure data exchange.
 

Eligibility
/ Selection

1.     The list of returns to
be taken up for detailed scrutiny would be finalized by the Additional/Joint
Commissioner in-charge of Division (or in his absence by the Commissioner).
2.     Main focus on small
assessees whose total tax paid (Cash + CENVAT) during FY2014-15 is less than ₹
50 lakhs, though on the direction of Chief Commissioner, scrutiny
of ST-3 can be made of assessee whose monetary limit exceeds ₹ 50 lakhs.
Each Commissionerate has to select equal number of assessees for carrying out
returns scrutiny from three tax paid bands viz: Rs 0 to Rs 10 lakhs, Rs 10-25
lakhs and Rs 25- 50 lakhs for the FY 2014-15.
3.   The assessees who have
been selected for audit or have been audited recently (in the past three years)
should not be taken up for detailed scrutiny. In no event should an assessee be
subjected to both audit and detailed manual scrutiny. 



Secrecy

  1. All
    the officers should maintain strict confidentiality regarding the Risk Score
    data including the original score, further selection by the Commissionerate,
    etc. Under no circumstances it is to be shared with the assessee or any other
    authority since this is information available in a fiduciary relationship,
    pertaining to a third party, and which may entail further investigation. 

Time
limit

  1. Scrutiny
    process should be completed in a period not exceeding 3 months. 

Findings

1.   In order to ensure
transparency of the scrutiny process, it is important to document the findings
flowing from the scrutiny effort. For this purpose, an Observation Sheet should
be prepared. The scrutiny officer must record his findings under each of the subject
of the checklist namely, reconciliation, taxability, classification, valuation
and CENVAT credit. Under each of these heads, the officer should record any
action that needs to be taken by the Range. The findings should clearly outline
the process of scrutiny that led to the outcome.
2.   All scrutiny findings in
a month must be discussed in a Monthly Scrutiny Monitoring Committee Meeting
headed by the Additional/Joint Commissioner in-charge of the Division (or in
his absence by the Commissioner) where each Range should present their scrutiny
findings in the form of a ‘Scrutiny Report’. The meeting should be attended by
all the Range Inspectors, Superintendents and DC/ACs of the Divisions whose
supervisory control is with the said ADC/JC. This would provide an opportunity
to the officers from other Ranges to respond to the findings and also share
best practices. The views of the committee on the return scrutiny findings must
be documented and follow up action taken. Important issues may be put up to the
Commissioner for information.
 

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