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Self Assessment To Selfish Scrutiny – Service Tax

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Self Assessment To Selfish Scrutiny – Service Tax

With effect from 1st August 2015 Department is coming out with a strong ‘return scrutiny system. It is going to be a two part system of Preliminary and Detailed Scrutiny.CBEC has issued Circular No.185/4/2015 – Service Tax dated 30th June 2015 providing instructions on detailed manual scrutiny of Service tax returns. These instructions for Service Tax will be applicable from 1st August 2015 onwards.

So we will have to satisfy the selfish motives of Department also.

Detailed description of both types of scrutiny provided below:

I. Preliminary Scrutiny under Service Tax:


To ensure:

Accuracy of the information furnished
Arithmetic Correctness
Timely Payment
Timely Submission of Returns
Identify Non filers and stop filers
All Service tax Returns will be subjected to preliminary scrutiny.


Preliminary Scrutiny of returns would be done on the basis of validation checks incorporated in ACES by the Directorate General of Systems & Data Management.


Returns having errors marked for Review and Correction which will then be processed by the Range Officers.

II. Detailed Scrutiny


To ensure the correctness of the assessment done by the Assessee.

Scope :-

Dtailed Scrutiny under Service Tax cover the following:-

Checking of ;-

Taxability of service
Correctness of the Value of Service [(Section 67) and Service Tax (Determination of Value) Rules 2006].
Effective Rate of tax after
Admissibility of exemption (Notification no. 25/2012-ST)

Abatements (Notification no.26/2012-ST)
Exports (Rule 6A)
Correctness of availment and utilization of Cenvat Credit (CENVAT Credit Rules , 2004)
It has been clearly specified in the circular that detailed scrutiny is supplementary to audit but not audit and hence, detailed financial records should not be called
for in routine manner and officer should rely mainly on assessment related documents like agreements/Contracts and Invoices.

Selection of Returns

Focus of detailed scrutiny is for those assessees are not audited and whose service tax payment (cash and cenvat) for the year 2014-15 is below 50 Lakhs. However,
Chief Commissioner may direct manual scrutiny of assessees who have paid service tax (cash and cenvat) more than Rs. 50 lakhs. Each Commissioner will select equal
number of assessees from each of the 3 tax brackets which are made on the basis of tax paid viz. Rs. 0 – 10 Lakhs, Rs. 10-25 Lakhs and Rs. 25-50 Lakhs.

In addition to the above, risk parameters and risk tools would also govern the selection of returns for detailed scrutiny.

The list of returns to be taken up for detailed scrutiny would be finalized by AC/JC in-charge of the Division. Assessees who have been selected for audit or have been
audited in past 3 years should not be taken up for scrutiny. It has been provided that in no case, an assessee should be subjected to both audit and manual scrutiny.
It has been provided that, returns of FY 2013-14 shall be taken for detail scrutiny

The following methodology would be followed at Department’s end:

1. Intimation Letter

The assessee must be given prior intimation of atleast fifteen days Before return scrutiny is initiated and the purpose of the exercise must be spelt out in an
Intimation Letter in prescribed format.

2. Assessee Master Information

Once an assessee’s returns are taken up for detailed scrutiny , the Range officer compile the information of assessee Master to facilitate trend analysis in a
prescribed format.

One of the important objectives of return scrutiny is to ensure validation of the information furnished in ST-3 Return. It will include reconciling information
furnished in Service tax returns with ITR Form No. 4,5,6 & 26AS.

3. Comprehensive Check List

A comprehensive checklist has been prepared which enumerates the lengthy exercises to be undertaken with respect to the following:

Reconciliation for validation of the information furnished under ST-3
Taxability of services which may have escaped assessment
Classification (for the purpose of due availment of abatement/exemption benefits)
Valuation and
Cenvat Credit availment / utilization
It has been specified that an Inspector may undertake a detailed scrutiny of a minimum of 3 assessees in a month. Also, the scrutiny process shall not exceed a period
of 3 months.

4. Documentations and Scrutiny Findings ( Observation Sheet )

The scrutiny officer is supposed to record his findings along with any action that needs to be taken by the Range. The officer may also compiled issues which can be
referred to audit or anti- evasion. If the detailed scrutiny results in detection of any frauds and it appears that Section 73(1) of Finance Act, 1994 is invokable,
ST-3 returns of past periods should also be verified.

5. Scrutiny Monitoring Committee Meeting

All the finding shall be scrutinised in Monthly by Monitoring Committee Meeting headed by AC/JC where each Range should present Scrutiny Report.

Further Circular mentioned that even after introduction of GST basic principles of returns and reconciliation of records would remain the same.

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