Service Tax Audit :
Under the provisions of the Service Tax Act,
emphasis is given on self-assessment by the assessee and no
formal assessment is prescribed for each and every case. Therefore,
the department heavily depend on the audit, which is carried
out by its own officials to ensure that the assessee has paid
correct amount of tax and discharged its obligations in proper
manner.
The coverage of the audit is now increased
vide Circular No. 38/1/2002 dated 07.02.2002 and the assessees
are selected on the basis of the amount of service tax they
pay. In other words, high tax payers are selected for the
audit purpose. The Circular prescribes detailed guidelines
for selection of the assessee, internal working by the audit
team, discussion with assessee , preparation of audit plan,
conduct of audit and preparation of the audit report. It has
been decided that the concerned officer will publish the list
of the auditees and also inform the assessee about their audit
plan well in advance. The following are the guidelines as
per Circular No. 38/1/2002 dated 07.02.2002 :
The extensive guidelines issued for the
audit team will require furnishing a lot of important information
to the audit team by the service tax assesses. These aspects
may be pinpointed, and it is preferable to prepare and keep
such information sufficiently in advance. It may be noted
that the audit is required to be completed in respect of each
service tax assessee in not more than 10 working days.
The following areas where audit is directed
to devote its concentration may particularly be noted :
Manner of preparation of business records.
Internal financial statements.
Accounting treatment of service tax transactions.
Special situation, such as services provided
to related units, cancel/revise bills, an excess/short payment
of service tax.
List of major clients, the services provided
to them, and the annual volume of the services in terms of
rupees.
Identification of other revenues, not connected
with notified services.
Other items, such as in-house magazines.
Touring the premises of the service provider,
and identifying areas that may be vulnerable to non-compliance
with the service tax obligations.
Review of high-value transactions and tracing
them through all connected records.
Evaluation of internal controls in an
exhaustive manner, with particular emphasis on key controls
for recording of transactions and for preventing/detecting
under valuation of service tax.
Information to be furnished to the
audit team :Details about the name of the organisation,
its form and other details relating to (i) registration, (ii)
payment of tax, (iii) provisional assessment, if any, (iv)
amount of tax paid, (v) correct availment of exemption, if
any, etc. may have to be kept ready in advance, in order to
facilitate the audit team to enter those details in their
audit report, as required in the Circular. It is also envisaged
that the audit teams will issue objection memos to the organisation
under audit, and the organisation has either to accept the
objection, or to disagree with the findings of audit with
reasons. This work may also have to be attended to with expedition.
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