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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 ..... s 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 , 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returns' scrutiny from each of the these three total tax paid bands (Cash+CENVAT) viz., ₹ 0 to ₹ 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 Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 scru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the outcome. It is also possible that the officer may come across some issues which may have to be referred to audit or anti-evasion. These should also be noted in the 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 scrut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectness 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apr'14 Mar' 15 5. Interest/penalty payable and paid (Rs in lakhs) Period Interest Penalty From To Payable Paid Short-paid Payable Paid Short-paid April'12 Mar'13 Apr'13 Mar'14 Apr'14 Mar' 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012-13 2013-14 2014-15 9. Brief details of service-wise abatements claimed for the last three years: (Rs in lakhs) Year Classification of Service Taxable Value Amount of Abatement claimed % of Abatement claimed to the total gross amount 2012-13 2013-14 2014-15 10. Brief details of service-wise pure agent benefit claimed for the last three years: (Rs in lakhs) Year Classification of Service Taxable Value Amount claimed as Pure Agent % of Pure agent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANNEXURE III CHECKLIST A. REVENUE RECONCILIATION AJ : OUTPUT TAX 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Department under 203AA of the Income Tax Act to the service provider. Part A, interalia, contains the following details: Name of the Deductor (the Service Tax recipient) 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-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 X X X Extracts X X X X X X X X Extracts X X X X ..... studied to verify whether the conditions of the notifications have been satisfied. B.4 : VERIFICATION OF SERVICES CLAIMED TO BE EXPORTED BY THE ASSESSEE. METHODOLOGY:- The correctness of the claim has to be verified with respect to the Place of Provision Rules, 2012 read with Rule 6A of the Service Tax Rules, 1994. The determination 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 : ELIGIBILITY OF ABATEMENT FROM THE VALUE FOR THE PURPOSE OF APPLYING THE APPROPRIATE RATE OF TAX- METHODOLOGY:- Check the correctness with reference to the conditions specified in the abatement notification especially whether the condition regarding non-availment of CENVAT credit is satisfied. Check whether the conditions of Rule 6(3) of the CENVAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectness 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 CREDIT UNDER RULE 6(3) OF THE SERVICE TAX RULES: These items are given at SI No D4, E4, F4 of the ST-3. To verify this claim, call for credit notes issued by the assessee to the client with regard to the corrections pertaining to renegotiation of the invoice already raised. E.2 : ADJUSTMENT OF CREDIT UNDER RULE 6(4A) OF THE SERVICE TAX RULES, 1994 : These items are given at SI No D55 E5 and F5 of the ST-3 returns. To verify the claim, call for calculation of excess payment made earlier. E.3 : PAYMENT 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 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OBSERVATION SHEET FOR DOCUMENTING SCRUTINY FINDINGS (To be filled by the Superintendent and countersigned by the DC/AC) Reasons for selection of S.T.3 Returns of M/s............................ ..............(STC : ) for detailed scrutiny for the period to...............: 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 provided: Issue as given at Annexure III Documents Perused Observation A. 1 -Output Tax Reconciliation A.2 - CENVAT Credit Reconciliation B.I-Claim of Non-Taxable Services B.2- Classification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 to 2013-14: 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 are 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 provided: Partnership; Renting of Immovable Property Service Issue as given at Annexure Documents Observation III 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 - CENV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 1994 amounting to ₹ 3469/- (Total ₹ 14,000/-) vide Challan No.889 ₹ 5000/-, Challan No.945 ₹ 5270/- and Challan No.967 ₹ 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 current detailed manual scrutiny was undertaken 2011-12, 2012-13 2013-14 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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