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Guidelines regarding detailed scrutiny of Service Tax Returns (ST-3) w.e.f. 01/08/2015.

Service Tax - 185/4/2015-ST - Dated:- 30-6-2015 - CIRCULAR NO. 185/4/2015-Service Tax F. No. 137/314/2012-Service Tax GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF EXCISE AND CUSTOMS SERVICE TAX WING NEW DELHI, Dated: 30th June, 2015 To All Principal Chief Commissioners of Central Excise All Chief Commissioners of Central Excise/ Service Tax Principal Directors General of Service Tax/Central Excise Intelligence/Systems Director General of Audit All Principal Comm .....

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n scrutiny was envisaged- a preliminary scrutiny which would be online covering all 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, .....

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ns 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 incorporated in ACES by the Directorate General of Systems & Data Management (DGS&DM), preliminary scrutiny of all returns is done online in ACES and the returns having certain errors are marked for Review and Cor .....

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o account the admissibility of an exemption notification, abatement, or exports, if any; ensuring the correct availment/utilization of CENVAT Credit on inputs, capital goods, and input services in terms of the CENVAT Credit Rules, 2004, etc. In doing this, 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. 3.2 A detailed scrutiny programme typically supplements the au .....

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d in the Commissionerate's 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 thereof. 4.2 The focus of detailed manual scrutiny of the returns would be on the returns of those assessees which are not being audited. The detailed return scrutiny would be conducted in respect of such assessees whose total tax paid (Cash + CENVAT) for the FY 2014-15 is below ₹ 50 lakhs. Each Commi .....

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ted. 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 Commiss .....

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il id, telephone numbers (mobile & land line numbers) of the nominated Nodal Officer. 4.3.3 An email will be sent by DGS&DM to the Zonal Nodal Officer. These Zonal Nodal Officers would need to copy and paste on the internet browser the 'weblink' of the page hosting the folders. They would need to login using the username and password which would be shared with them through a separate email sent on their official email id. They would then need to click on the folder bearing the re .....

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he assessee, local risk parameters (including sensitive and evasion prone sectors), past compliance record of the assessee and manpower availability. The list of the assessees selected will be sent to the respective Divisions. 4.3.6 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. However, the Chief Commissioner, may direct detailed manual scrutiny of an assessee's return who has paid service .....

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party, and which may entail further investigation. 5.0 METHODOLOGY 5.1 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 s .....

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njunction. 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 return. Th .....

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s (Annexure III). 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. 5.4 In case any additional details are required, the same may be obtained from the .....

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exceeding three months. 6.0 DOCUMENTATION OF FINDINGS 6.1 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 format of the observation sheet, enclosed as Annexure IV, bears a one-to-one co-relation with the checklist. The scrutiny officer must record his findings under each of the subject of the checklist namely, reconciliation, taxability, classificati .....

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n 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 .....

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r for information. The minutes of the meeting and the decisions including detection and recovery of service tax dues should be properly recorded and maintained by the Scrutiny Cell of the Commissionerate. 6.3 Zonal Chief Commissioners are requested to submit monthly reports in the format given in Annexure VI to the Directorate General of Service Tax till facilities are developed to enable the Commissionerates to upload the data in the MIS of CBEC. 6.4 Based on the past experiences in performing .....

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on of the list of the returns of the assessees selected for detailed manual scrutiny and dispatch of the Intimation Letter by 15.07.2015 6.5.4 Commencement of detailed manual scrutiny of selected returns by 01.08.2015. 6.6 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. Yours faithfully, (Himani Bhayana) Under Secretary (Service Tax) ANNEXURE I INTIMATION LETTER OFFICE OF THE DEPUTY/AS .....

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compliance verification- the other two being audit and anti-evasion. The principal role of detailed manual scrutiny is to check the correctness of self-assessment which implies checking the correctness of valuation, effective rate of tax and CENVAT credit availment/utilization. These will be done by looking at assessment related documents and will be done in the Range Office. 2. In addition, it is also proposed to do a broad reconciliation with respect to the income tax return. The scrutiny of .....

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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 CENVA .....

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Mar'14 Apr'14 Mar' 15 7. Brief details of Service-wise taxes paid for the last three years (For Major Services) a) Name of Service: (Rs in lakhs) Year Taxable Value Total Service Tax payable Total Service Tax Paid Short-paid, if any 2012-13 2013-14 2014-15 b) Name of Service: Year Taxable Value Total Service Tax payable Total Service Tax Paid Short-paid, if any 2012-13 2013-14 2014-15 8. Brief details of Service-wise exports, exempted services turnover for the last three years: (Rs .....

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hree years: (Rs in lakhs) Year Classification of Service Taxable Value Amount claimed as Pure Agent % of Pure agent amount claimed to total gross amount 2012-13 2013-14 2014-15 11. In case the unit is registered as ISD also, give the details of credit availed and distributed: (Rs in lakhs) Year Credit taken Credit not eligible for distribution Credit distributed Closing Balance of credit 2012-13 2013-14 2014-15 12. CENVAT credit analysis: Year(1) Year (2) Year (3) Credit availed on Input Credit .....

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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) .....

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e total service tax availed as per the ST-3 return. B. ISSUES OF TAXABILITY / CLASSFICATION B.I :VERIFICATION TO EXAMINE WHETHER SERVICES CLAIMED AS NON-TAXABLE ARE IN FACT NON- TAXABLE. METHODOLOGY: - The correctness may be checked in conjunction with sample sales invoices, agreements / contracts. From the appropriate ITRs, find out total service Income and compare it with Taxable value shown in ST-3. Under: "Credits to the Profit and Loss Account" the following information is furnish .....

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roperty". The value of non-taxable service income needs to be verified with respect to statutory provisions in the Act. To verify the claim of the assessee, invoices, agreements may be called for to check whether the transaction is in the nature of service or not. In case, it is a service, then check whether it is covered in a negative list or otherwise. B.2 : CLASSIFICATION OF SERVICES (issues relating to appropriate rate of tax) METHODOLOGY:- To verify the correctness of the Service Tax c .....

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• TAN of the Deductor • Section under which the deduction is made • TDS deducted • TDS deposited The section under which the deduction is made would indicate the taxable service tax category. The list of the various Income Tax provisions under which various taxable issues are categorized for purposes of TDS deduction, is given below:- Sr.No. Nature of payment where TDS is deducted. Relevant Section of IT Act Corresponding Taxable service 1. Payment made to Contractors / Sub- .....

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(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 Imm .....

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n given to the department in the ST-3return. It is also possible to verify whether all Services provided as indicated in the TDS certificate issued by the Income Tax Department to the Service provider have been exhaustively declared in the ST-3 return. This would be a useful reconciliation of the service tax categories declared by the assessee. B.3 : VERIFICATION OF SERVICE CLAIMED TO SPECIFICALLY EXEMPTED IN THE ST 3 RETURN, METHODOLOGY:- Verify the eligibility of such exemption with respect to .....

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on of actual exports can be made with respect to the declarations in the export documents and export details given. For determining the place of provision of service, it is required to know the description of the service that has been provided or to be provided and apply the Rule that is most appropriate. It may noted that to get the benefit of exports, in addition to getting the consideration in convertible foreign currency, the Place of Provision of Service should be outside India. B.5 : ELIGI .....

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EN 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 rei .....

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such cost / expenditure have been included in the taxable value. D. ISSUES RELATING TO CENVAT CREDIT D.I : ELIGIBILITY OF THE ASSESSEE TO AVAIL CENVAT CREDIT ON INPUTS/INPUT SERVICES/CAPITAL GOODS, METHODOLOGY:- Eligibility of inputs/input services to CENVAT credit would have to be determined with respect to rule 2(k) and rule 2(1) of the CENVAT Credit Rules, 2004 which has to be read in conjunction with Section 37(2) of the Central Excise Act, 1944 under which the CENVAT Credit Rules notificati .....

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is Rule, the assessee is expected to give a statement at the end of the year indicating the amount of credit attributable to exempted goods or exempted services and payment thereof. Verify the correctness of the ratio for of reversal of CENVAT credit. D.3 : AVAILMENT OF CENVAT CREDIT USED IN EXCLUSIVELY EXEMPTED SERVICES. METHODOLOGY:- If it is determined that input services are used in exempted output services then CENVAT credit has to be reversed. E . MISCELLAENOUS ISSUES E.I : ADJUSTMENT OF C .....

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MENT OF TAX ON ADVANCES : As per the Point of Taxation Rules,2011, service tax is payable on advance received for the services agreed to be provided. As per the Accounting norms, such advances received shall appear as liability in the Balance Sheet. This item is declared at "Sources of Funds" in the ITR. E.4 : REVERSE CHARGE ON IMPORT OF SERVICES : 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 date .....

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ally, 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 .....

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ervice Tax liability. Is the assessee following the correct practice? 2. BANKING AND FINANCIAL SERVICES:- Banking and Other Financial Services: Is the assessee collecting pre-closure/fore-closure charges, Reset Charges, Commitment Charges from their clients? (Refer F.No.345/6/2008-TRU, dated 11th June, 2008) 3. CONSTRUCTION SERVICES:- If the service falls under Construction of complex service / Commercial Industrial Construction / Works Contract Service, check whether the assessee is receiving a .....

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.: The method adopted and the details of documents that have been seen may be indicated under "Documents Perused" and "Observation" Columns. The results achieved in the form of revenue and non-revenue paras are to be reported in the scrutiny paras as given at Annexure V. A cross reference of these paras is to be mentioned under Observation column given below. As far as possible, a descriptive form may be used while filling this observation column. Business Model and Services .....

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ent under Rule 6(4A) of STR E.3 -Payment of tax on Advances received E.4 - 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 s .....

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tion 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 of....... Table I: Opening Balance of number of assessees whose scrutiny is pending No. of assessees taken up for detailed scrutiny No. of assessees whose detailed scrutiny is completed Closing Balance of number of assessees whose scrutiny was taken up but not com .....

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the month In the month Upto the month In the month Upto the month (6) (7A) (7B) (8A) (8B) (9A) (9B) (10A) (10B) (11 A) (HB) (12A) (12B) (13) ANNEXURE VII OBSERVATION SHEET FOR DOCUMENTING SCRUTINY FINDINDS (To be filled by the Superintendent and countersigned by the AC/DC) Reasons for selection of ST-3 Returns of M/s (STC No. ) for detailed scrutiny for the period 2011-12 to 2013-14: The method adopted and the details of documents that have been seen may be indicated under "Documents Perus .....

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Perused A.I - Output Tax reconciliation Balance Sheet, P&L A/c, ST-3 returns Taxable value as per Balance Sheet: 2011-12-Rs.71,97,240/- 2012-13 -Rs.71,91,240/- 2013-14 -Rs.71,97,240/- Taxable value as per ST-3 Return: 2011-12-Rs.71,97,240/- 2012-13-Rs.71,91,240/- 2013-14 -Rs.71,97,240/- No differences noticed. A.2 - CENVAT Credit reconciliation Not availing CENVAT Credit NA B.I - Claim of Non-taxable services Nil NA B.2 - Classification of Service Renting of Immovable Property Services. Asse .....

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er 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 register .....

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₹ 3730/- all dated 06.05.2015. E.6 - R & D Cess paid NA NA ANNEXURE VIII DRAFT SCRUTINY REPORT NO. /2015 1. Name & address of the Taxpayer M/s 2. Nature of the taxpayer (individual, partnership, etc) Partnership 3. STC No. (Registration) and date of issue 4. Name of taxable services provided Renting of Immovable Property 5. Name of taxable services received (Reverse Charge) GTA 6. Date of last scrutiny and Final Scrutiny Report (FSR) No. and period covered 7. Period for which curre .....

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