Small Service Tax Payers will soon find
themselves subjected to detailed manual scrutiny by the Taxman. The Central
Board of Excise and Customs (CBEC) recently
issued detailed scrutiny guidelines for service-tax returns of small taxpayers.
These guidelines are to be followed from August 1.
Typically, only large
service taxpayers come within the ambit of service-tax audit. Small service providers, whose tax liability was not significant, didn’t come under the radar
of this audit and there were possibilities of tax leakages. The scrutiny
procedure aims at plugging such leakages.
The scrutiny will be conducted for those
service providers whose total service tax paid through cash and as a service
tax credit) for the financial year (FY) 2014-15 is below Rs 50 lakh. While a preliminary online scrutiny will take an
overall view such as examination of the timely payment of service tax or
arithmetical accuracy of the tax computed, the detailed scrutiny, which will be
carried out manually, will be a deep-dive exercise. It will involve checking
the taxability of the service rendered, the effective rate of tax applicable,
and also ensure that the service taxpayer has correctly availed any CENVAT
credit. While conducting such scrutiny, the range officer will rely on
documents like agreements, contracts and invoices.
“Service taxpayers will be divided into three
bands based on the tax paid for the FY 2014-15 — up to Rs 10 lakh, between Rs
10 lakh and Rs 25 lakh and between Rs 25 lakh and Rs 50 lakh. An equal number
of service taxpayers will be picked up for the detailed manual scrutiny from
each of the three bands. If a service taxpayer has been audited in the previous
three years, his case will not be picked up for the detailed manual
survey,” explains an EY communique.
“A host of service providers will now fall within
the scrutiny ambit; professionals like chartered accountants, company
secretaries, consultants, small restaurant and hotel owners, small businesses
like courier agencies, commission agents and share-brokers will all be
covered,” says Bipin Sapra, indirect tax partner at EY.
“To an extent, there is an apprehension that the
manual scrutiny, which involves interaction by the service tax authorities with
small service taxpayers, could lead to harassment,” admits a committee
member of a business association.
While the focus is on the small service taxpayers, on
the direction of the chief commissioner, service-tax returns of larger service
taxpayers can also be scrutinized. But in no case can a service taxpayer be
subjected to both audit and the detailed manual scrutiny. The detailed manual
scrutiny will be done on a yearly basis, by combining two half-yearly
service-tax returns so that reconciliation with the income-tax (I-T) returns is
The CBEC, in its circular, has also clarified that
“even after the introduction of Goods and Service Tax (GST) it may be
appreciated that the basic principles of scrutiny of returns and reconciliation
of records would remain the same”.
During the current fiscal commencing April 1, 2015,
indirect tax collections for the first two months were Rs 96,128 crore with
service-tax collections standing at Rs 27,607 crore.