Circular 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
WH
New Delhi, dated 30" 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 Commissioners of Central Excise/Service Tax
All Commissioners of Central Excise/Service Tax
All Principal Commissioners/Commissioners LTU
Subject: Detailed Manual Scrutiny of Service Tax Returns
Madam/Sir
1.1 In the era of self-assessment, the need for a strong compliance verification mechanism
cannot be over emphasized. Such a mechanism has three important prongs — audit, anti-
evasion and return scrutiny. In order to put in place a strong ‘return scrutiny’ system, a two-
part system of return 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, 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:-
2.00 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 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
Correction (RnC). These have to be processed accordingly by the Range Officers.
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3.0 SCOPE OF DETAILED MANUAL SCRUTINY
3.1 The purpose of detailed manual scrutiny of returns is to ensure the correctness of the
assessment made by the assessee. This includes checking the taxability of the service, the
correctness of the value of taxable services in terms of Section 67 of the Finance Act, 1994,
read with the Service Tax (Determination of Value) Rules, 2006 and the effective rate of tax
after taking into 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 audit programme. The scope of
audit, on the other hand, is to inspect the financial records of a company for a complete
financial year in order to identify non-compliance issues and to evaluate the assessee’s
internal control system. The two processes of audit and scrutiny are, in fact, complementary to
each other.
4.0 SELECTION OF RETURNS FOR DETAILED SCRUTINY
4.1 The detailed manual scrutiny programme must replicate some of the best practices in
audit. A Return Scrutiny Cell should be created 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 Rs 50 lakhs. Each Commissionerate has to select equal number of assessees for
carrying 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:-
4.3.1 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 - oo-Coce tfc alongwith attaching a scanned copy of
the nomination letter. The said ¢ communication should contain the nomination by the Chief
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Commissioner along with the designation, email 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 respective Zone name (available on the left panel) to
access the files placed there.
4.3.4 The Return Scrutiny Cell, through an officer authorized by the Commissioner, shall
collect the Risk Score data for the Commissionerate from the Zonal Nodal Officer.
4.3.5 The list of returns to be taken up for detailed scrutiny would be finalized by the
Additional/Joint Commissioner in-charge of Division (or in his absence by the
Commissioner) as per the risk score in conjunction with the total tax paid by the 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 tax (Cash + CENVAT) more than Rs 50 lakhs in certain specific cases. In no event
should an assessee be subjected to both audit and detailed manual scrutiny.
4.3.7 All the officers should maintain strict confidentiality regarding the Risk Score
data including the original score, further selection by the Commissionerate, etc. Under
no circumstances it is to be shared with the assessee or any other authority since this is
information available in a fiduciary relationship, pertaining to a third 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 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 return. The validation exercise would require
reconciling information furnished in the ST-3 return with ITR Form Nos. 4, 5, 6 and 26AS
and any third party information made available. In addition to this, the scrutiny exercise must
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also look at the correctness of self-assessment with respect to taxability, admissibility of
abatement and eligibility for exemption, valuation and CENVAT credit availed/utilized.
5.3. A Checklist has been prepared for carrying out detailed manual scrutiny of selected
ST-3 returns (Annexure III). For achieving the stated objectives, the checks have been
categorized as follows:
e 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 Incase any additional details are required, the same may be obtained from the assessee
through requisition rather than through a visit. Calling of such additional documents must be
done with the approval of the jurisdictional DC/AC so as to obviate the complaint of
administrative intrusion. ,
5.5 Based on the experience of some Zones/Commissionerates, it is seen that in a month an
Inspector will be able to perform detailed manual scrutiny of a minimum of three assessees.
While some cases may take time, the scrutiny process of an assessee should be completed in a
period not 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, classification, valuation and
CENVAT credit. Under each of these heads, the officer should record any action that needs
to be taken by the Range. The 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 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 detection and recovery of service tax dues should be
properly recorded and maintained by the Scrutiny Cell of the Commissionerate.
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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 detailed manual scrutiny, a few
Templates/Case studies have been prepared and are enclosed as Annexures VII and VIII.
These Case Studies will help and guide the officers who are not conversant with the process
of Detailed Scrutiny. -
6.5 The timelines to be followed for starting detailed manual scrutiny as per the above
detailed process are as below:
6.5.1 Forwarding of official mail ids of the Zonal Nodal Officers by 06.07.2015
6.5.2 Forwarding of data by DGS&DM by 08.07.2015
6.5.3 Finalization 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,
. \S
WrF5 no) 6\2°
(Himani Bhayana)
Under Secretary (Service Tax)
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ANNEXURE I
INTIMATION LETTER
OFFICE OF THE DEPUTY/ASSISTANT COMMISSIONER OF SERVICE
TAX/CENTRAL EXCISE
DIVISION ..... ......cccccccccccccscccceccs
Phone: __........... Email: ..........0.
F. No. Dated: . . 2015
To
M/s
(STC : )
Sir/Madam,
Sub: Intimation for conducting detailed scrutiny of ST-3 returns—
This is to inform you that the CBEC has issued revised guidelines for conducting
detailed manual scrutiny of ST-3 returns. Scrutiny of returns forms one of the three prongs of
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 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
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ANNEXURE HU
ASSESSEE MASTER INFORMATION
1. Details of the assessee
Name of the assessee
15 digit STC
Details of Unit/Organization
Bp
Ww)
rire
Details of services provided
2. Details of ST-3 returns filed
Period Due date Return Number of | Penalty Penalty
for filing filed on days of payable for | paid
return delay late filing
of return
From To
April’ 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’ l2 | Mar 713
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 Total Cash CENVAT
credit credit
I la lb 2 3(2-1) 4a 4b
April’ 12 | Mar 7°13
Apr'13 | Mar *14
Apr’ 14 | Mar’1S
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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’l14 | Mar’15
6. Details of the Service Tax paid under reverse charge
(Rs in lakhs)
Period Service Service Tax Paid Service Tax
From To Tax Cash CENVAT Total | short-paid
Payable
April?’ 12 | Mar *13
Apr’13 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
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8. Brief details of Service-wise exports, exempted services turnover for the last three
years:
( Rs in lakhs)
Year Classification of | Value of Value of exempted/non- Details of exemption
Service Exports taxable services Notification and
conditions attached to
them
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 | Taxable Amount of Abatement % of Abatement claimed
Service Value 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 | Taxable Amount claimed as Pure | % of Pure agent amount
Service Value Agent claimed to total gross
amount
2012-13
2013-14
2014-15
11. In case the unit is registered as [SD also, give the details of credit availed and
distributed :
( Rs in lakhs)
Year Credit taken Credit not Credit Closing Balance
eligible for distributed of credit.
distribution
2012-13
2013-14
2014-15
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12. CENVAT credit analysis:
Year (1) Year (2) Year (3)
Credit availed on Input
Credit availed on Capital Goods
Credit availed on Input services
Total credit availed
% of Input credit
% of capital goods credit
% of Input services credit
13. Comparison of income as per ITR 4,5,6/Form 26AS and ST-3 returns:
Income 2013-14
Stream
2014-15
ST-3 ITR 4,5,6 26AS ST-3 ITR 4,5,6 26AS
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ANNEXURE Ul
CHECKLIST
A. REVENUE RECONCILIATION
A.1 : OUTPUT TAX RECONCILIATION :
METHODOLOGY:-
The verification may be done using the ITR 4 /5/ 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
return.
B. ISSUES OF TAXABILITY / CLASSFICATION
B.1 :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 furnished:-
(a) Sales/Gross receipts of business or
profession (Service Income)
(b) Rent
(c) Commission
(a)+(b)+(c) =A TOTAL
(d) Abatements
(e) Value of Exempted Services
(f) Value of export services on which no tax
was paid
(d)+(e)+(f) = B TOTAL
This represents the value on which no
A-B tax has been paid = Non taxable services
Note: Income from House Property (which is not taxable for Service Tax) can be estimated
from details given at Schedule HP of the ITR namely
“Details of Income from House Property”.
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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 category which may have relevance for
payment of Service Tax on reverse charge basis or applicability of the Place of Provision of
Services Rules, 2012, the minor code given in the GAR challan may be cross checked with
the TDS deduction certificate given in Form No. 26AS. This is an annual statement given by
the Income 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 | Relevant Corresponding Taxable service
where TDS is deducted. | Section of IT
Act
l. Payment made to 194C (1) Works Contract Service;
Contractors / Sub- (ii) Construction of
Contractors Commercial Complex;
(1) Construction of
Residential Complex;
(iv) Repair and Maintenance
Service;
(v) Erection, Commissioning
and Installation service
(vi) Site Preparation Service;
(vil) Mining Service;
(viil) Survey and exploration;
(ix) Cleaning Services;
(x) Transport Services
(xi) Advertising Services;
(xii) Broadcasting Service;
(xii) Business Auxiliary
Services;
(xiv) Business Support
Services;
(xv) Courier Services; and
(xvi) C&F Agent Services.
(xvii)
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2. Insurance Commission 194D (i) Insurance Auxiliary
Services (General
Insurance)
(11) Insurance Auxiliary
Services (Life Insurance).
3. Payments to Non-resident 194E (1) Sponsorship Services
Sportsmen / — Sports (ii) Business Auxiliary
Associations Services
4, Commission on sale of 194G Business Auxiliary Service
Lottery tickets
5. Commission on brokerage 194H (1) Business Auxiliary
Service
(i) Banking and other
financial services.
6. Rent 194] Renting on Immovable Property
7. Fees for professional or 194J (i) Consulting Engineer
technical services Services
(ii) Architect Service
Gui) =Practicing CAs / Cost
Accountant.
(av) IPR Services (Royalty)
(v) Scientific & Technical
Consultancy
(vi) Management Consultancy
(vii) IT Services
(vill) Business Auxiliary
Services.
From the section indicated in the TDS certificate, the service tax category indicated by the
service tax provider to the Income Tax Department can be cross checked with the declaration
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 the conditions specified in the
exempted notification. Sample copies of invoices may be examined. The contract / agreement
entered into by the service provider can be studied to verify whether the conditions of the
notifications have been satisfied.
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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.S : 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 credit Rules has been
properly followed.
B.6 : IN CASE THE ASSESSEE IS CLAIMING ANY DEDUCTIONS 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.1 : 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.
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D. ISSUES RELATING TO CENVAT CREDIT
D.1 : 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 notification is issued. Eligibility requires determination as to whether
the input services have been used “in or in relation to the manufacture of the final product
and clearance of final products upto the place of removal” (for input services used by a
manufacturer).
D.2.: USE OF COMMON INPUT FOR BOTH TAXABLE AND EXEMPTED
SERVICES.
METHODOLOGY:-
Check whether the procedure given in rule 6(3A) of CCR’04 has been followed to
determine whether reversal of CENVAT credit is warranted. As per this 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 1s determined that input services are used in exempted output services then
CENVAT credit has to be reversed.
E. MISCELLAENOUS ISSUES
E.1 : 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 re-
negotiation of the invoice already raised.
E.2: ADJUSTMENT OF CREDIT UNDER RULE 6(4A) OF THE SERVICE TAX
RULES, 1994 :
These ttems are given at Sl No D5, ES 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
TTR.
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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 dated 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(1), 23(4) and 24(1).
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 respectively. As per the
provision of Section 67 of the Finance Act, 1994 the taxable value shall be the gross amount
charged by the Service Provider for provision of service. Thus, the value of such
contributions are required to be included in the gross taxable value while discharging the
Service 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 11" 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 any
free material / inputs from the client. If so, details may be called for. Also ascertain if the
value of such free material is being added in the taxable value. If not, determine the reasons
for such non-inclusion.
Circular 185/4/2015-Service Tax Page 16 of 24
ANNEXURE IV
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/Ss............. ..ccccce eee eee
Lette ecee ena (STC : ) for detailed scrutinyfor 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 Documents Observation
Annexure II] Perused
A.1 —Output Tax
Reconciliation
A.2 — CENVAT
Credit
Reconciliation
B.1 — Claim of
Non-Taxable
Services
B.2 —
Classification of
Services
B.3 — Exempted
Services
B.4 — Export of
Services
B.5 —
Abatements
B.6 — Any other
deductions
C.1 — Pure Agent
C.2 — Re-
imbursements
D.1 — Eligibility
to CENVAT
credit
D.2 —Common
Credit under
Rule 6(3)
D.3 — Credit
pertaining to
Circular 185/4/2015-Service Tax Page 17 of 24
exempted
Services
E.1 — 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
Circular 185/4/2015-Service Tax Page 18 of 24
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)
Circular 185/4/2015-Service Tax Page 19 of 24
MIS Report for the month of .......
ANNEXURE VI
Table I:
Opening No. of assessees taken up | No. of assessees whose | Closing Balance | Out of (4),
Balance of for detailed scrutiny detailed scrutiny is of number of number of
number of completed assessees whose | assessees
assessees In the Upto the In the Upto the scrutiny was whose
whose month month month month taken up but scrutiny is
scrutiny 1s not completed | pending for
pending more than 3
months
(1) (2A) (2B) (3A) (3B) (4)=(1)+(2)- (5)
(3A)
Table Il:
Opening | No. of paras Amount Amount No. of SCNs Amount No. of paras | Closing
Balance raised detected Recovered Issued demanded in closed Balance
of no. of the SCNs of no.
paras Inthe | Upto | Inthe | Upto | Inthe | Upto | Inthe | Upto | Inthe | Upto | Inthe | Upto | of paras
pending | month | the | month| the | month| the | month| the | month| the | month| the | pending
month month month month month month
(6) (7A) | (7B) | (8A) | (8B) | (9A) | (9B) | C1OA) | (LOB) | GIA) | GIB) | (2A) | (2B) (13)
Circular 185/4/2015-Service Tax Page 20 of 24
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 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
I] Perused
A.l _ Output Tax | Balance Sheet, | Taxable value as per Balance Sheet:
reconciliation P&L A/c, ST-3 | 2011-12 — Rs.71,97,240/-
returns 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 Not availing | NA
reconciliation CENVAT Credit
B.1 — Claim of Non-taxable | Nil NA
services
B.2. — Classification of | Renting of | Assessee has correctly classified the
Service Immovable service under the category of ‘Renting
Property Services. | 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.1 — Pure Agent NA NA
C.2 — Re-imbursements NA NA
D.1 — Eligibility to Cenvat NA — since not| NA
availing CENVAT
D.2 — Common Credit Rule | NA NA
6(3)
D.3 — Credit pertaining to | NA NA
exempted services
Circular 185/4/2015-Service Tax Page 21 of 24
E.1 — Adjustment under Rule | No NA
6(3) of STR
E.2 — Adjustment under Rule | No NA
6(4A) of STR
E.3.— Payment of tax on | No NA
Advances received
E.4 — Reverse Charge -—/| No NA
imports
E.5 — Reverse Charge — other | Yes The assessee is availing transport
than imports 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
Rs.6934/-.
The assessee have paid the said Service
Tax liability total amounting to
Rs.6934/- along with interest of
Rs.3351/- and Penalty under Section 76
of the Finance Act, 1994 amounting to
Rs.3469/- (Total Rs.14,000/-) vide
Challan No.889 Rs.5000/-, Challan
No.945 Rs.5270/- and Challan No.967
Rs.3730/- all dated 06.05.2015.
E.6 —R & D Cess paid NA NA
Circular 185/4/2015-Service Tax Page 22 of 24
ANNEXURE VI
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 | 2011-12, 2012-13 & 2013-14
undertaken
8. | Total Revenue involved in scrutiny paras
9. | Tax, interest and penalty paid during the current | Total Service Tax amounting to
scrutiny period (Spot recovery), with details of GAR-7 | Rs.6934/- along with interest of
challan No., Date, CENVAT Debit Entry No. and date Rs.3351/- and Penalty = of
Rs.3469/- under Section 76 of the
Finance Act, 1994 paid vide
Challan No.889 Rs.5000/-,
Challan No.945 Rs.5270/- and
Challan No.967 Rs.3730/- all
dated 06.05.2015.
10. | No. of revenue paras One
11. | No. of procedural paras Nil
12. | Gist of Objection (Reproduce relevant Section/Rule if
required):
The assessee is availing transport services.
Though 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 is Rs.6934/- plus interest and
penalty under section 76.
13. | Taxpayer’s agreement/reasons for disagreement:
The assessee have paid the said Service Tax
liability amounting to Rs.6934/- along with interest of
Rs.3351/- and Penalty of Rs.3469/-under Section 76 of
the Finance Act, 1994 vide Challan No.889 Rs.5000/-,
Challan No.945 Rs.5270/- and Challan No.967
Rs.3730/- all dated 06.05.2015 (total Rs.14,000/-)
14. | Department’s contention with remarks/recommendation:
Since the assessee has paid the service tax
liability along with interest and penalty under Section 76
of the Finance Act, 1994, the para may be closed.
15. | Minor Paras (if any) NIL
Circular 185/4/2015-Service Tax Page 23 of 24
16. | Suggestions to improve tax compliance Assessee has been directed to
| hence forth to pay Service Tax on
| Goods Transport by Road under
Reverse Charge Mechanism only
in terms of Notification No.
30/2012-ST dated 20.06.2012
issued under sub-section (2) of
Section 68 of the Finance Act,
1994.
(Inspector) (Superintendent) (Deputy/Assistant Commissioner)
Circular 185/4/2015-Service Tax Page 24 of 24
