Saturday, July 11, 2015

Detailed Manual Scrutiny of Service Tax Returns from 01.08.2015- CBEC

Now this is to file the Income Tax return for Asst Year 15-16 and CBEC has declared on 30.06.2015 the detailed manual scrutiny of St-3 filed for earlier years. So Assessee should reconcile the receipts and service tax liability with income tax return. The St-3 for Financial year 2014-05 have been filed before 25.04.2015 and now before filing of Income Tax return every body subject to service tax should review the ST-3 already filed. The St-3 can be revised with in 90 days from the date of filing.

Central Board of Excise and Customs has passed a circular 185/4/2015-service tax on 30 June 2015, for the manual scrutiny of Service Tax Return.
For a strong compliance verification mechanism there are three important steps:
a) Audit               
b) Anti-evasion and
c) Return Scrutiny

For a strong "Return Scrutiny" system again can be divided into two procedural methods i) Preliminary Online Scrutiny
ii) Detailed Manual Scrutiny.

As per CBEC the detailed scrutiny of ST-3 returns, with effect from 01.08.2015, should be carried out in the manner below:-
Preliminary Online scrutiny
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-filters and stop-filters. On the basis of the validation checks incorporated in ACES preliminary scrutiny of all returns is done online.
Detailed Manual Scrutiny
Purpose of detailed Scrutiny:
The purpose of the detailed manual scrutiny of returns is to ensure the correctness of the assessment made by the assessee. This includes the following measures:
ü  Checking the taxability of the service.
ü  The correctness of the value of taxable service
ü  The effective rate of tax after taking into account the admissibility of an exemption notification, abatement, or exports, if any;
ü  Ensuring the correct availment/utilization of CENVAT Credit on inputs, capital goods, and input services.
Selection of Return of Detailed Scrutiny:
The detailed return scrutiny would be conducted in respect of such assessee whose total tax paid (Cash + CENVAT) for the F.Y. 2014-15 is below Rs 50 lakhs. Each Commissionerate has to select equal number of assessee for carrying out returns scrutiny from each of these three total taxes paid bands viz., Rs 0 to Rs 10 Lakhs, Rs 10-25 lakhs and Rs 20-25 lakhs for the F.Y. 2014-15.

 Checklist for Detailed Manual Scrutiny
ü  Reconciliation for validation of the information furnished in ST-3 return;
ü  Taxability in respect of services which may have escaped assessment;
ü  Classification - for the purpose of due availment of abatement/exemption benifit);
ü  Valuation and
ü  CENVAT Credit availment/utilization.

(Note: In case of any additional details 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 jurisdiction DC/AC  so as to obviate the complaint of administrative intrusion).
The CBEC has tightened the rope by laying down the procedure for Documenting the Findings as given hereunder:
In order to ensure transparency of the Scrutiny Process, for this, an observation sheet should be prepared as Annexure IV, bears one-to-one co-relation with the checklist.
It is also possible that the officer may come across some issues which may have to be referred to audit or anti-evasion.
In cases where detailed scrutiny of returns in detection of defaults in service tax payment it appears that the proviso to section 73(1) of the Finance Act, 1994 is invoked, the ST-3 returns of the past periods should also be verified and the results of such verification should be recorded.
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 where each range should present their scrutiny findings in a form of a 'Scrutiny Report' given as Annexure V.
The timelines to be followed for starting detailed manual scrutiny as per the detailed process below:
ü  Forwarding of official mail ids of the Zonal Nodal Officers by 06.07.2015
ü  Forwarding of data by DGS & DM by 08.07.2015
ü  Finalization of the list of the returns of the assessee selected for detailed manual scrutiny and dispatch of the intimation Letter by 15.07.2015
ü  Commencement of Detailed Manual Scrutiny of selected returns by 01.08.2015
Note: 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.