Sub. : Audit of Service Tax Assesses/Records

S.T.Circular No.38/1/2002-CX
7th February, 2002.

F.No.137/29/2001-CX.4
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

Sub. : Audit of Service Tax assesses/records

Attention is invited to Board’s Circular No.19/13/96 dt.21.11.1996 wherein instructions were issued for auditing of assesses providing services relating to telephones, insurance and stock broking. The following instructions are issued in partial modification of the said instructions.

2. Since service tax has been in operation for over 7 years now, departmental officers as well as the service providers have by now become familiar with the rules and procedures relating to service tax administration. It has therefore been decided by the Board to extend the coverage of service tax audit to other services also on a selective basis.

3. An Expert Group (EV-07) has already been constituted under the CIDA Project to go into this aspect in details and suggest audit procedures for every service, keeping in mind the specific nature and peculiarity of each service. Once this study is completed it is proposed to bring out a comprehensive Service Tax Audit Manual on the lines of the manual issued for Central Excise Audit Till then, the following guidelines are prescribed for immediately initiating audit of selected service tax assessees .

4. Only those assesses will be taken up for audit who are registered in the Metropolitan cities of New Delhi, Mumbai, Chennai and Kolkata and whose names are given in Annexure - I.

5. In respect of Stock broking, Telephones and non-life Insurance, audit will continue to be done as per norms indicated in Board’s Circular of 21.11.96 and selection of assessees by the Commissioners. In respect of these three services the Audit will, obviously, not be confined to metropolitan cities only.

6. The Audit of assesses listed in Annexure-I should be confined to the accounts for the years 1999-2000 onwards only. In respect of services which have been brought under the tax net in July, 2001, the Audit period will be July 2001 till the date of Audit. The Audit of each selected assessee should be completed in not more than 10 working days.

7. The audit would be conducted as per proforma Annexure- II (enclosed). This proforma is based on the EA-2000 Audit being carried out on the Central Excise side.

8. Efforts should be made to have the Audit done by teams of officers who are already familiar with EA-2000 Audit. Before proceeding with the Audit the teams should familiarize themselves properly with the law and procedures relating to Service Tax. The teams should ensure that during the course of Audit there is minimum hindrance in the normal working of the assessee.

9. Attempt should be made to conduct as many such audits during the remaining months of the current financial year so that short levies detected, if any, can be realized during this year itself.

10. Receipt of this Circular may be acknowledged.

11. Hindi version will follow.

ANNEXURE - I

NAMES OF ASSESSEES FOR SERVICE TAX AUDIT DURING 2001-2002

ANNEXURE – II

AUDIT NOTE NO. ------

TAX PAYER - M/S ABC

AUDITORS:

S/ SHRI X,Y AND Z

CUSTOMS & CENTRAL EXCISE COMMISSIONERATE, ------

------

OFFICE OF THE COMMISSIONER OF CUSTOMS & CENTRAL EXCISE, INTERNAL AUDIT BRANCH,

------

F.No. ------Dated --- February, 2002

To,

Assistant Commissioner,

Customs & Central Excise, ------

Sub: - Audit Report drawn in respect of Taxpayer – M/s ABC for the period: ------.

Enclosed please find Audit Report drawn in respect of Taxpayer – M/s ABC for the period: ------. In this connection, you are requested to please take immediate suitable action to safeguard government revenue under intimation to the audit.

Enclosure – ------

Copy to –

1.  The Deputy Commissioner (Prev), Central Excise Hqrs, ------for information.

2.  The Superintendent, Central Excise Range ----

3.  The Audit Report Master file

Index

PART-1

SUMMARY OF AUDIT REPORTS

PART - 2

SUMMARY OF AUDIT RESULTS

[Provide an outline of important and material non-compliance issues identified during the Audit. Indicate if the TAXPAYER has agreed to improve]

------

The important and material non-compliance issues identified and reaction of the assessee is indicated in the table given below: -

PART- 3

WORKING PAPER

1. PRELIMINARY REVIEW:

1.1 audit file review:

[Review audit file to determine nature of the organisation, its operations, service provided, results of last audit and the reasons it was selected for audit this time.]

1.2 Review information in Range Office:

[Review information available in the Range office, i.e. Returns filed, Tax paid & List of records/returns filed. Check if any anti evasion action is in progress]

1.3 Review Amendment in Laws:

[Review amendment in laws after the last audit and its compliance]

1.4 Develop tentative plan for audit, identifying potential area for audit:

[Where necessary, discuss tentative plan with the AC/DC or JC/ADC]

1.5 Contact tax payer & set up an appointment:

[Keep a log where taxpayer appears to be stalling.]

2. Gathering and Documenting Systems Information:

2.1 Interview & organisational information:

A). Person (s) Interviewed and Title:

[Name of the persons who have been interviewed and their statements in brief]

B). Organisational Information:

[Identify the head Office/ registered office or regional/ branch offices of the taxpayer, location of its operations and location of its accounting records. Also the offices who are billing services]

C). Organisational Type and Ownership:

[Confirm organisation, whether proprietorship, partnership or a Pvt Ltd or Ltd company]

D).Organisation Chart:

[Obtain the organisation chart or describe the organisation structure if chart is unavailable. Note responsibilities of key personnel and any recent changes, particularly in personnel involved in tax accounting.]

2.2 Financial and Tax Accounting Information:

A). Business Records:

[Obtain audited financial statements, trial balance and chart of accounts. In case of audited statements, note name of the chartered accountants and review any notes to the financial statements.]