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This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
09 September 2014
Dear Sir,
As in income tax, audit is applicable on the turn over above Rs. 1 crore, Then what is audit limit in service tax?
Please clarify.
As in income tax, audit is applicable on the turn over above Rs. 1 crore, Then what is audit limit in service tax?
Please clarify.
09 September 2014
There is no such Audit limit for service tax.
09 September 2014
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:-
i. Taxpayers with Service Tax payment above Rs.3 crores (Cash + CENVAT) (MANDATORY UNITS) – to be audited every year.
ii. Taxpayers with Service Tax payment between Rs.1 crore and Rs.3 crores (Cash + CENVAT) – to be audited once every two years.
iii. Taxpayers with Service Tax payment between Rs.25 lakhs and Rs.1 crore (Cash + CENVAT) – to be audited once every five years.
iv. Taxpayers with Service Tax payment upto Rs.25 lakhs (Cash + CENVAT) – 2% of taxpayers to be audited every year
i. Taxpayers with Service Tax payment above Rs.3 crores (Cash + CENVAT) (MANDATORY UNITS) – to be audited every year.
ii. Taxpayers with Service Tax payment between Rs.1 crore and Rs.3 crores (Cash + CENVAT) – to be audited once every two years.
iii. Taxpayers with Service Tax payment between Rs.25 lakhs and Rs.1 crore (Cash + CENVAT) – to be audited once every five years.
iv. Taxpayers with Service Tax payment upto Rs.25 lakhs (Cash + CENVAT) – 2% of taxpayers to be audited every year
09 September 2014
Thank you for updation. Please provide section reference and format in which Audit report to be submitted. Please also tell who will be conducting the Audit?
10 September 2014
Please refer Circular No. 775/8/2004-CX dated 17-2-2004
Refer U/s 72A
Refer U/s 72A
13 September 2014
Sir, section 72A has been inserted by the Finance Act, 2012 w.e.f. 28-5-2012 in Chapter V of the Finance Act, 1994 which provides for ‘special audit’.
Whereas the circular reference given above is by you is of 2004.
So question remains who will do the Audit as per criteria given above by you?
Whereas the circular reference given above is by you is of 2004.
So question remains who will do the Audit as per criteria given above by you?
13 September 2014
Section 72A of the Finance Act, 1994 has been introduced with a view to provide for a special audit to be carried out by a chartered accountant or cost accountant nominated by the Commissioner. The special audit shall be ordered where the service tax assessee has failed to declare or determine the value of taxable service or has availed and utilized credit of duty or tax beyond the normal limit or by means of, collusion or willful misstatement or he is having operations spread out in multiple locations. It is further proposed to provide that the chartered accountant or as the case may be, the cost accountant shall submit a report to the Commissioner on completion of the audit and such audit may be ordered even though such accounts had been audited under any other law for the time being in force. Before initiating proceedings on the basis of the report, a reasonable opportunity of being heard shall be given to the service tax assessee so audited.
Thus, section 72A gives comprehensive powers for special audit for service tax purposes. Accordingly,
(a) Special audit can be conducted on the directions of Commissioner of Central Excise.
(b) Commissioner directing such audit can do so if he has reasons to believe that any person liable to pay tax has committed certain action or deeds.
(c) Audit can be in respect of any person liable to pay service tax.
(d) Such person—
has filed to declare or determine the value of taxable service correctly.
has availed and utilized credit of duty or tax paid, which is not in the normal limits compared with the capital, goods, used or other relevant and appropriate factors or by means of fraud, collusion, or any willful misstatement or suppression of facts.
has operation in multiple location and it is not possible or practicable to obtain a true and complete picture of his accounts from the registered premises.
(e) Direction can be given to get his/its accounts audited for the period and scope as specified by the commoner.
(f) Such audit shall be conducted by a chartered accountant or cost accountant as defined in Chartered Accountant’s Act, 1949 and Cost and Works Accountants Act, 1959 respectively.
(g) The audit report, duly signed and certified shall be submitted by the auditor to Commissioner within stipulated time frame.
(h) Audit u/s 72A shall be conducted irrespective of any other audit being carried out of the accounts of such person under any other law in force.
(i) An opportunity of being heard shall be provided to the auditee in respect of material gathered during audit and proposed to be utilized in any proceedings.
Thus, section 72A gives comprehensive powers for special audit for service tax purposes. Accordingly,
(a) Special audit can be conducted on the directions of Commissioner of Central Excise.
(b) Commissioner directing such audit can do so if he has reasons to believe that any person liable to pay tax has committed certain action or deeds.
(c) Audit can be in respect of any person liable to pay service tax.
(d) Such person—
has filed to declare or determine the value of taxable service correctly.
has availed and utilized credit of duty or tax paid, which is not in the normal limits compared with the capital, goods, used or other relevant and appropriate factors or by means of fraud, collusion, or any willful misstatement or suppression of facts.
has operation in multiple location and it is not possible or practicable to obtain a true and complete picture of his accounts from the registered premises.
(e) Direction can be given to get his/its accounts audited for the period and scope as specified by the commoner.
(f) Such audit shall be conducted by a chartered accountant or cost accountant as defined in Chartered Accountant’s Act, 1949 and Cost and Works Accountants Act, 1959 respectively.
(g) The audit report, duly signed and certified shall be submitted by the auditor to Commissioner within stipulated time frame.
(h) Audit u/s 72A shall be conducted irrespective of any other audit being carried out of the accounts of such person under any other law in force.
(i) An opportunity of being heard shall be provided to the auditee in respect of material gathered during audit and proposed to be utilized in any proceedings.
13 September 2014
In a very important Judgement delivered by Hon’ble High Court of Delhi on 04.08.2014, in the case of Travelite (India) vs Union of India and Others W.P.(C) 3774/2013 (Delhi High Court), it was held that Service Tax Audit by tax authorities is ultra vires. Held :
1)Audit could be conducted only in specified circumstances such as if there is reason to believe that tax has not been paid appropriately, wrong credit has been availed and utilised, there are chances of fraud, etc. as specified under Section 72A of the Finance Act.
2) There is no provision extending the power for a general audit that every assessee may be subjected to on demand.
3) Power stipulated under Rule 5A(2) of Service Tax Rules, 1994, along with the Central Board of Excise and Customs' (CBEC) instructions, to access the premises of the assessees and review documents cannot override the Act. Rules or instructions cannot be issued in contravention of the statutory provisions.
4) Accordingly, as there is no power for conducting such an audit under the Service Tax Act, the High Court held that a service tax audit cannot be undertaken by the tax authorities.
Copy of the Judgement may kindly be seen from link given below:
http://lobis.nic.in/dhc/SRB/judgement/04-08-2014/SRB04082014CW37742013.pdf
Also see article from link given below:
http://taxguru.in/service-tax/service-tax-audit-department-cag.html
So Audit can only be done by Chartered or Cost Accountant u/s 72A and there is no such criteria under section 72A.
1)Audit could be conducted only in specified circumstances such as if there is reason to believe that tax has not been paid appropriately, wrong credit has been availed and utilised, there are chances of fraud, etc. as specified under Section 72A of the Finance Act.
2) There is no provision extending the power for a general audit that every assessee may be subjected to on demand.
3) Power stipulated under Rule 5A(2) of Service Tax Rules, 1994, along with the Central Board of Excise and Customs' (CBEC) instructions, to access the premises of the assessees and review documents cannot override the Act. Rules or instructions cannot be issued in contravention of the statutory provisions.
4) Accordingly, as there is no power for conducting such an audit under the Service Tax Act, the High Court held that a service tax audit cannot be undertaken by the tax authorities.
Copy of the Judgement may kindly be seen from link given below:
http://lobis.nic.in/dhc/SRB/judgement/04-08-2014/SRB04082014CW37742013.pdf
Also see article from link given below:
http://taxguru.in/service-tax/service-tax-audit-department-cag.html
So Audit can only be done by Chartered or Cost Accountant u/s 72A and there is no such criteria under section 72A.
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