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TMI BlogGuidelines regarding detailed scrutiny of Service Tax Returns (ST-3) w.e.f. 01/08/2015.X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the returns; and a detailed manual scrutiny of select returns, identified on the basis of risk parameters, to be done by the Division/ Range offices. 1.2 The Board vide Circular No. 113/07/2009-ST dated 23-4-2009 had laid down the procedure for carrying out detailed scrutiny of returns and had circulated a Return Scrutiny Manual for Service Tax. However, with the introduction of the Point of Taxation Rules, 2011, which shifted the liability of payment of service tax from receipt basis to accrual basis, and the advent of negative list-based comprehensive taxation of services in 2012, it was felt that the guidelines for detailed scrutiny of returns needed a revision. In this background, it has been decided that detailed scrutiny of ST-3 returns, with effect from 01.08.2015, should be carried out in the manner outlined below:- 2.0 PRELIMINARY ONLINE SCRUTINY 2.1 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. On the basis of the validation checks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 lakhs, ₹ 10-25 lakhs and ₹ 25-50 lakhs for the financial year 2014-15. 4.3 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 in the following manner:- 43.1 The risk score files will be placed on a server. Chief Commissioners of Service Tax & Central Excise Zones are required to nominate a 'Zonal Nodal Officer' who shall access these data and distribute the same to the Zonal Commissionerates dealing with Service Tax. The said officer should preferably be of the rank of Additional/Joint Commissioner and should necessarily have an official email id (ICEGATE or NIC email). 4.3.2 The nomination of Zonal Nodal Officers should be informed to the Service Tax Wing, CBEC by email addressed to [email protected] alongwith attaching a scanned copy of the nomination letter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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 in a format given as Annexure I. 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 format given as Annexure II. Since this information is based on the returns, it can be obtained from the returns filed in ACES without making any reference to the assessee. Returns scrutiny must be done for a complete financial year by looking at two half-yearly returns in conjunction. Before scrutinizing the return for evaluating the correctness of assessment, the information available in the assessee master should be carefully studied by the Divisional DC/AC and discussed with his officers, much like Desk Review in Audit. To begin with, the returns for the financial year 2013-2014 should be taken up for detailed scrutiny. 5.2 One of the important objectives of return scrutiny is to ensure validation of the information furnished in the self-assessed ST-3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant column given in the observation sheet. In cases where detailed scrutiny of returns results in detection of defaults in service tax payment and it appears that the proviso to section 73(1) of the Finance Act, 1994 is invokable, the ST-3 returns of the past periods should also be verified and the results of such verification should be recorded. 6.2 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' given as Annexure V. 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. The minutes of the meeting and the decisions including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to the income tax return. The scrutiny of returns will be done on a yearly basis by combining two half-yearly returns so that reconciliation with the income tax return can be done. You are requested to kindly cooperate in this task. Yours faithfully, ( ) Deputy/Assistant Commissioner ANNEXURE II ASSESSEE MASTER INFORMATION 1. Details of the assessee 1. Name of the assessee 2 15 digit STC 3 Details of Unit/Organization 4 Details of services provided 2. Details of ST-3 returns filed Period Due date for filing return Return filed on Number of days of delay Penalty payable for late filing of return Penalty paid From To Apri'13 Sep'13 Oct'13 Mar'14 Apr'14 Sep'14 3. Service tax payable as disclosed in ST-3 returns (Rs in lakhs) Period Value of services Total Service Tax payable From To Taxable Exempted Total Received April'12 Mar'13 Apr' 13 Mar'14 Apr 14 Mar' 15 4. Total Service tax paid Period Service Tax From To Payable Paid Short-paid Ratio of payment Cash CENVAT credit Total Cash CENVAT credit 1 1a 1b 2 3(2-1) 4a 4b April'12 Mar'13 Apr' 13 Mar'14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AX RECONCILIATION : METHODOLOGY:- The verification may be done using the ITR 4 151 6/26AS depending on the nature of the Company. Under the Head of Credits to the 'Profit and Loss Account', there is an entry which reads "Duties, taxes and cess received or receivable in respect of goods and services sold or supplied". In respect of Service Tax, item B(ii) reads as 'total service tax paid or payable'. Match this figure with the total service tax paid amount indicated in the ST-3 return. Examine entry at item 36 titled 'Rates and taxes paid or payable to the government or any local body (excluding taxes on income) for service tax. Ideally it should match with the figure indicated against item B(ii) of the specific ITR. A.2 : CENVAT CREDIT RECONCILIATION METHODOLOGY:- Under the head of 'Credits to the Profit and Loss Account', there is an entry titled "Duties and taxes paid or payable in respect of goods and services purchased". In respect of Service Tax against item 7(v), there is an entry which reads as 'total service tax paid or payable on services purchased'. Match it with the total service tax availed as per the ST-3 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Relevant Section of IT Act Corresponding Taxable service 1. Payment made to Contractors / Sub-Contractors 194C (i) Works Contract Service; (ii) Construction of Commercial Complex; (iii) Construction of Residential Complex; (iv) Repair and Maintenance Service; (v) Erection, Commissioning and Installation service (vi) Site Preparation Service; (vii) Mining Service; (viii) Survey and exploration; (ix) Cleaning Services; (x) Transport Services (xi) Advertising Services; (xii) Broadcasting Service; (xiii) Business Auxiliary Services; (xiv) Business Support Services; (xv) Courier Services; and (xvi) C & F Agent Services, (xvii) 2. Insurance Commission 194D (i) Insurance Auxiliary Services (General Insurance) (ii) Insurance Auxiliary Services (Life Insurance). Payments to Non-resident Sportsmen / Sports Associations 194E (i) Sponsorship Services (ii) Business Auxiliary Services 4. Commission on sale of Lottery tickets 194G Business Auxiliary Service 5. Commission on brokerage 194H (i) Business Auxiliary Service (ii) Banking and other financial services. 6. Rent 1941 Renting on Immovable Property 7. Fees for professional or technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TIONS FROM THE GROSS VALUE CHARGES (REFER B1.12 OF THE RETURN), THEN CALL FOR REASONS FOR SUCH DEDUCTIONS AND SUPPORTING DOCUMENTS LIKE INVOICES/BILLS ETC. C. ISSUES RELATING TO VALUATION C.I : Issues relating to non-inclusion of Cost and Expenditure in the taxable value on the grounds that these are reimbursable and are incurred by pure agents. METHODOLOGY:- Check whether the claim of benefit to pure agent is correct. Call for agreement/ invoices/debit Notes to verify the correctness. Look at the definition of pure agents in the Service Tax Rules. Are the reimbursements billed in the invoice or whether any debit/credit note have been issued for this purpose? Call for the bills/invoices raised by the third party against the assessee. In case the claim of the assessee is correct, then the assessee should not take credit against those invoices raised by the third party. C.2 : Non inclusion of any cost / expenditure in the taxable value while providing taxable service. METHODOLOGY: Check some sample debit notes and corresponding invoices to see whether such cost / expenditure have been included in the taxable value. D. ISSUES RELATING TO CENVAT CREDIT D.I : ELIGIBILITY OF THE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012 and Place of Provision of Rules, 2012, on import of services. Basically, they are the expenses incurred by the services receiver. Some of them are available in the ITR at" Debits to Profit Loss Account" at SI. Nos 22(i), 23(i) and 24(i). E.5 : REVERSE CHARGE OTHER THAN IMPORTS : Service Tax is payable by the receiver of the Services as per Sec 68(2) of the Finance Act, 1994 read with notification No. 30/2012-ST dated 20.06.2012 on these services (other than imports). Basically, they are the expenses incurred by the services receiver. Some of them are available in the ITR at "Debits to Profit Loss Account" at SI No. 8 (Freight). Other important services on which reverse charge is applicable are: Manpower supply, Security services, Sponsorships, Legal etc subject to fulfilment of conditions mentioned in the said notification. SECTOR SPECIFIC ISSUES FOR VERIFICATION DURING DETAILED RETURN SCRUTINY:- 1. MANPOWER SUPPLY, SECURITY:- Non inclusion of Employee / Employer's contribution to provident fund in the Gross Taxable Value. : The Employee and Employers contribution to the Provident Fund of the Manpower supplied by them is done by the assessee and cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Reverse charge -Imports E.5-Reverse Charge - other than Imports Any other issue ANNEXURE V SCRUTINY REPORT 1. Name & Address of the Taxpayer M/s. ABC 2. Nature of the taxpayer 3. STC No. and date of issue 4. Name of taxable services provided 5. Name of taxable services received (Reverse Charge) 6. Date of last Scrutiny and Final Scrutiny Report (FSR) No. and period covered 7. Period for which current detailed manual scrutiny was undertaken 8. Total Revenue involved in scrutiny paras 9. Tax, Interest and penalty paid during the current Scrutiny period (Spot Recovery), with details of GAR-7 challan No., date or CENVAT credit account debit entry ( number and date) 10. No. of Revenue paras 11. No. of Procedural paras 12. Gist of Objection (Reproduce relevant Section/Rule if required) and revenue involved 13. Taxpayer's Agreement/Reasons for Disagreement 14. Department's Conclusion with Remarks/Recommendation Note : Repeat point 9,10 and 11 if more than one para is involved 15. Minor paras (if any) 16. Suggestions to improve tax compliance (Inspector) (Superintendent) (Deputy/Assistant Commissioner) ANNEXURE VI MIS Report for the month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... category of 'Renting of Immovable Property Service' under Section 65(105)(zzzz) of Finance Act, 1994. B.3 - Exempted Services Nil NA B.4 - Export of Services Nil NA B.5 - Abatements Nil NA B.6 - Any other deductions Nil NA C.I -Pure Agent NA NA C.2 - Re-imbursements NA NA D.I - Eligibility to Cenvat NA since not availing CENVAT NA D.2 - Common Credit Rule 6(3) NA NA D.3 - Credit pertaining to exempted services NA NA E.I - Adjustment under Rule 6(3)ofSTR No NA E.2 - Adjustment under Rule 6(4A) of STR No NA E.3 - Payment of tax on Advances received No NA E.4 - Reverse Charge -imports No NA E.5 - Reverse Charge - other than imports Yes The assessee is availing transport services. Being receiver of the said services, the assessee has paid full service tax to the provider of the service as verified from the statement and the samples invoices submitted by the assessee. However, in some cases of GTA, the transporter is not a registered service provider. Accordingly, assessee was asked to pay the Service Tax liability on bills received from such transporter. The total duty liability worked out to ₹ 6934/-. The assessee have paid the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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