Frequency Norms of Audit for Service Tax Assessees

Direc­tor Gen­er­al of Audit, New Del­hi has pre­pared Ser­vice Tax Audit Man­u­al, 2010.  As per the guide­lines, tax pay­ers whose annu­al ser­vice tax pay­ment (includ­ing cash and CENVAT) was Rs.3 crore or more in the pre­ced­ing finan­cial year may be sub­ject­ed to manda­to­ry audit each year.  It is prefer­able that Audit of all such Units is done by using Com­put­er Assist­ed Audit Pro­gram (CAAP) techniques. 

The fre­quen­cy of audit for oth­er tax­pay­ers would be as per fol­low­ing norms:-

1. Tax­pay­ers with Ser­vice Tax pay­ment above Rs.3 crores (Cash + uti­liza­tion of CENVAT) (MANDATORY UNITS) – to be audit­ed every year.

1. Tax­pay­ers with Ser­vice Tax pay­ment between Rs.1 crore and Rs.3 crores (Cash + uti­liza­tion of CENVAT) – to be audit­ed once every two years.

iii.            Tax­pay­ers with Ser­vice Tax pay­ment between Rs.25 lakhs and Rs.1 crore (Cash + uti­liza­tion of CENVAT) – to be audit­ed once every five years.

1. Tax­pay­ers with Ser­vice Tax pay­ment upto Rs.25 lakhs (Cash + uti­liza­tion of CENVAT) – 2% of tax­pay­ers to be audit­ed every year.

The Audit selec­tion guide­lines, there­fore, would apply to the non-manda­to­ry tax­pay­ers, form­ing part of the dis­cre­tionary work­load.  These tax­pay­ers should be select­ed on the basis of assess­ment of the risk poten­tial to rev­enue.  This process, which is an essen­tial fea­ture of audit selec­tion, is known as Risk Assess­ment.  It involves the rank­ing of tax­pay­ers accord­ing to a quan­ti­ta­tive indi­ca­tor of risk known as a “risk para­me­ter”.  It is also sug­gest­ed that the tax­pay­ers whose returns were select­ed for detailed scruti­ny, may not be tak­en up for Audit that year, to avoid dupli­ca­tion of work.  Sim­i­lar­ly, the tax­pay­ers who have been select­ed for Audit, may not be tak­en up for detailed scruti­ny of their ST‑3 Returns dur­ing that year.

The Ser­vice Tax Audit Man­u­al, 2010 is in the process of final­iza­tion and pub­li­ca­tion by D.G. Audit, New Del­hi. In the cir­cum­stances, till the same is pub­lished, the exist­ing instruc­tions on audit shall continue.