TaxTMI 
TaxTMI 
Guidelines 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
....crutiny 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, 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 retu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rying out returns' scrutiny from each of the these three total tax paid bands (Cash+CENVAT) viz., Rs. 0 to Rs. 10 lakhs, Rs. 10-25 lakhs and Rs. 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 ....
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
....he findings should clearly outline the process of scrutiny that led 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 bes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rectness 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 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 ret....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; 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 in lakhs) Year Classification of Service Value of Exports Value of exempted/non-taxable services Details of exemption Notification and conditions attached to them 2012-13 2013-14 2014-15 9. Brief deta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espect 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 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, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nstruction 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 technical services 194J (i) Consulting Engineer Services (ii) Architect Serv....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 ASSESSE....
X X X X Extracts X X X X
X X X X Extracts X X X X
....20.06.2012 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 client....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o CENVAT credit D.2 -Common Credit under Rule 6(3) D.3 - Credit pertaining to exempted services E.I- Adjustment under Rule 6(3) of STR E.2 - Adjustment 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2 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 - CENVAT Credit reconciliation Not availing CENVAT Credit NA B.I - Claim of Non-taxable services Nil NA ....