Frequency Norms of Audit for Service Tax Assessees

[Ritu Chauhan]

Director General of Audit, New Delhi has prepared Service Tax Audit Manual, 2010. As per the guidelines, tax payers whose annual service tax payment (including cash and CENVAT) was ₹ 3 crore or more in the preceding financial year may be subjected to mandatory audit each year. It is preferable that Audit of all such Units is done by using Computer Assisted Audit Program (CAAP) techniques. The frequency of audit for other taxpayers would be as per following norms:-

1. Taxpayers with Service Tax payment above ₹ 3 crores (Cash + CENVAT) (MANDATORY UNITS) - to be audited every year.
2. Taxpayers with Service Tax payment between ₹ 1 crore and ₹ 3 crores (Cash + CENVAT) - to be audited once every two years.
3. Taxpayers with Service Tax payment between ₹ 25 lakhs and ₹ 1 crore (Cash + CENVAT) - to be audited once every five years.
4. Taxpayers with Service Tax payment upto ₹ 25 lakhs (Cash + CENVAT) - 2% of taxpayers to be audited every year.

The Audit selection guidelines, therefore, would apply to the non-mandatory taxpayers, forming part of the discretionary workload. These taxpayers should be selected on the basis of assessment of the risk potential to revenue. This process, which is an essential feature of audit selection, is known as Risk Assessment. It involves the ranking of taxpayers according to a quantitative indicator of risk known as a “risk parameter”. It is also suggested that the taxpayers whose returns were selected for detailed scrutiny, may not be taken up for Audit that year, to avoid duplication of work. Similarly, the taxpayers who have been selected for Audit, may not be taken up for detailed scrutiny of their ST-3 Returns during that year.

The Service Tax Audit Manual, 2010 is in the process of finalization and publication by D.G. Audit, New Delhi. In the circumstances, till the same is published, the existing instructions on audit shall continue.

http://www.raaas.com

[PAWAN KUMAR]

Thanks for sharing the audit norms.

AI Summary

Audit frequency norms for service tax require tiered audits and risk-based selection to target discretionary audit workload. Service tax assessees are allocated audit frequency tiers based on annual service tax payments inclusive of cash and CENVAT, with the highest-payment category subject to mandatory annual audit and lower categories audited at longer intervals or sampled. Non-mandatory audits are selected through a quantitative risk assessment ranking taxpayers by a risk parameter to focus discretionary workload, and taxpayers subject to detailed return scrutiny should generally be excluded from audit in the same year to avoid duplication. The Service Tax Audit Manual, 2010 is pending publication; existing instructions continue until then.