STAGE II
AUDIT REPORT
1. About the Unit
A
B
C
Name of the Assessee
STC
If the opted for Centralised Registrations, please state
whether the assessee is following conditions prescribed
under Trade Notice No 03/2011, dtd 20.10.2011
Dates of Audit
Period of Audit covered
Name of Assessee’s Rep. who was associated with
Audit
D
E
F
2. List of Documents in the file
Sl No
1
2
3
4
5
6
7
Name of Documents
Preliminary Audit observations
made with the assessee
Replies of the assessee to the above
preliminary observations
Reconciliation Statement for income
Reconciliation Statement for 66A
Reconciliation Statement for other
reverse charge services
Business profile of the assessee
Cenvat Rule 6(3) Calculation sheet
for proportionate reversal
Page No
Remarks
3. List of Documents in the Folder( part of Master File)
Sl No
A
B
C
D
E
F
G
H
I
Name of Documents
Half yearly ST-3 for 4/07 to 9/07
Half yearly ST-3 for 10/07 to 3/08
……….
Form 3 CD for 07-08
Form 3 CD for 08-09
………..
Balance Sheet for 07-08
Balance Sheet for 08-09
Trial Balance for 07-08
Trial Balance for 08-09 etc
Other Reports (Specify like VAT
Returns, Returns to DG Shipping
etc)
A copy of the list of all accounts
maintained by the taxpayer under
Rule 5 (2) of Service Tax Rules,
1994.
A copy of the previous audit reports
Page No
Remarks
Page 1 of 12
J
K
L
by the Department
A copy of the previous audit reports
by CERA
Copy of Service specific Profiles, if
any, prepared in the department.
A copy of any other return /
declaration sent to any other
department / agency or to designated
regulatory authority.
D. Brief details of the annual turnover and the Service Tax paid for the last five years and the
current year( Only Income side to be mentioned, and as regards Value and Taxes, they refer to
only output services- Reverse charge taxes not to be mentioned)
( Rs in lakhs)
Year
Turnover
as per
P&L A/c
Income
Value of
on
Taxable
interest/F Services
Ds etc
Total
Service Tax
paid
Service Tax
Paid-Cash
Service
Tax paid –
Cenvat
% of
Cenvat
2008-09
2009-10
2010-11
2011-12
2012-13
E. Brief details of the annual expenditure and the Service Tax paid for the last five years and the
current year( Only Expenditure to be mentioned, and as regards Value and Taxes, they refer to
only taxes payable under reverse charge-except 66A)
( Rs in lakhs)
Year
Expenditu
re and per
P/L
statement
Value of
Taxable
Services
Total
Service Tax
paid
Service Tax
Payable-Cash
2008-09
2009-10
2010-11
2011-12
2012-13
F. Brief details of the expenditure in foreign currency and the Service Tax paid for the last five
years and the current year( Only Expenditure to be mentioned in relation to 66A liability)
( Rs in lakhs)
Year
Expenditu
re as per
P/L
statement(
Foreign
currency)
Value of
Taxable
Services
Total
Service Tax
payable
Service Tax
Payable-Cash
2008-09
2009-10
Page 2 of 12
2010-11
2011-12
2012-13
G. Brief details of taxes paid for the last five years and the current year(All taxes)
( Rs in lakhs)
Year
Value of
Taxable
Services
Total
Service Tax
paid
Service Tax
Paid-Cash
Service
Tax paid –
Cenvat
% of
Cenvat
2008-09
2009-10
2010-11
2011-12
2012-13
10. List of input services on which credit is availed.
( % of total credit)
Input Service 2008-09
2009-10
Name
2010-11
2011-12
2012-13
1.
2.
Total
Total
Credit
Availed(Rs in
lakhs)
100
100
100
100
100
(a)Remarks on the variation seen in the revenue:
(b)Remarks on the variation seen in the CENVAT / Total Tax Ratio also comments on
4. Any significant variation in the understanding of the activities developed at the time of
desk review and during actual audit
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5. If the assessee is holding centralized registration, verify whether centralized accounting
or billed is maintained. Mention results of verification . Also mention results of
verification conducted at the branch(s) of the centralized registered assessee.
19. Comments of paras of previous audit (IAD)
FAR No
Audit Period
Gist of Para
Compliance(like whether SCN issued,
party agreed, whether the party is still
violating the same issues etc)
Para No
6.
Sr.
No.
1
Group No and Names of Officers
Report on AUDIT PLAN
Subject
Source
document
Selection
Criteria
Result of examination
(Only mention relevant para no, in case of
any detection)
2
3
7.
Report on observations of DC/AC and ADC / Commissioner (pointwise)
7. Physical Verification of Documents ( List the documents / gist of documents which were
examined during audit)
8. Results of Walkthrough :
9. Evaluation of Internal Control :
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10.
Questionnaire on Cenvat :
Issue
A
B
C
D
E
Comments(If
detected,
mention para no. of DAR)
Check for violation of the following :
The input invoices on which Cenvat was availed
 Do not have name of the assessee;
 Do not have registration no of the input service
provider;
 Do not contain amount of Service Tax charged
 Did not produce original copies of invoices ;
 on mobiles which are in the name of employees;
 credit was taken on photo copies;
 Credit has been availed twice on the same
invoice;
 availed excess credit than shown in the invoice;
 availed credit of VAT;
 availed credit of additional duty of customs(Rule
3(1)(viia);
 Credit availed in respect of branch offices which
were not covered in the centralized registration;
 Credit availed on the basis of some letters issued
by their HQ;
Cenvat Credit is not available in respect of :
 Group/Mediclaim insurance for the staff;
 Car insurance;
 Rent a Cab;
 Meal Coupons;
 AMC of Paper Shredder;
 Car Parking;
 Event Management;
 Mandap Keeper;
 Club Membership/Health club;
 Gardening;
 Outdoor catering;
 Catering Service in guest house,
 Credit card/Debit Card;
 Works Contract Services for construction of
building meant to be given for renting/office
premises;
 Input services in respect of post-clearance
activities including GTA
Whether CENVAT credit is taken after payment as per
Rule 4(7) of CCR ?
In case of Reverse charge payment, credit is allowable on
Challan and after payment of such tax as indicated on the
Challan.
Whether Credit availed on inputs ? Whether such inputs
are removed as such, or stolen etc. If so, appropriate
credit has been reversed ?
From the Reconciliation sheet, check whether assessee is
providing exempted service. If so, whether assessee is
reversing credit as required under Rule 6(3) ?
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F
G
H
I
J
If the assessee opted for Rule 6(3A), whether he
submitted a copy of intimation give to Division ?
Whether CENVAT Credit availed on services exclusively
used on exempted services ?
Whether Cenvat Credit availed on Capital Goods ? If So :
 Are they specified capital goods[Rule 2(a)] ?
 Whether credit availed is only 50%/50% ?
 Whether such goods are removed as such ? If so,
appropriate credit is reversed[Rule 3(5)]
 Whether such goods are used only for providing
exempted services(Ex. Installed in J&K) ?
As per Rule 3(4) of CCR, Cenvat credit shall be utilised
only to the extent such credit is available on the last date
of month for payment of tax relating to that month. To
verify this, check the closing balance of Cenvat ledger at
the at end of the month.
Cenvat credit availed on invoices issued by ISD : Are
they proper ? Whether passing of credit as per Rule 7 and
7A of CCR is proper ?
Check whether the assessee claimed and received any
insurance claim for loss of property. The claim may
include loss of any input services also. In that case, the
proportionate amount of credit is to be reversed.
11. Exemption Notifications and Abatements :
Issue
A
B
C
Comments(If
detected,
mention para no. of DAR)
Reconciliation of Income : Whether availing any
exemption/ abatement prohibiting use of CENVAT
credit?
Reconciliation of Income : Whether the assessee is
claiming exemption from payment of tax on account of
supply to SEZ units ? Is he eligible for exemption ?
Under Notf No 1/2006, abatement is available for person
providing Erection, Commissioning and Installation. But,
to claim that Notf, to arrive at taxable value, we have to
add value of equipment at the time of erection and
commissioning. They are supposed to take entire value of
the contract before applying abatement.
12. Valuation
A
Issue
Comments
Whether the taxpayer is splitting up the bill as
reimbursement of expenses and service charges? If yes,
whether the reimbursement expenses are genuine and
supported by actual payment bills?
Examine whether the assessee fulfills the condition of
pure agent ?
Or whether the assessee is raising a separate debit note for
the reimbursement of expenses ?
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B
C
D
Examine and record the accounting treatment given to
such reimbursement of expenses.
Example : The assessee is providing Business Exhibition
Service. It is their main income. While conducting such
Exhibitions, they receive income on account of cafetaria
income, parking income, and furniture income. This
income is also classifiable under Business Exhibition
Service and tax liability has to discharged accordingly.
However, the assessee is showing such income under
Other Income.
Works Contract Composition : The value of goods are
also part of taxable value : Example - The KEC is
providing Works Contract Service to various Electricity
Distribution Authorities(EDAs). It entered into contract
with EDA for manufacture, supply and erection of
transmission towers and paying tax on Works Contract
Service. The EDA placed two separate orders for (i)
supply portion and (ii) erection portion. But the KEC is
paying tax only on Erection portion and not on supply
portion. Whereas the two portions of the contracts are
dependent on each other. Thus, there is undervaluation.
However, the assessee has the option to opt for Rule 2A
of Valuation Rules.
Non inclusion of Employee/ Employer’s contribution to
provident fund in the Gross Taxable Value. : The
assessee is providing service under the category of
‘Manpower Recruitment Agency’. The Employee and
Employers contribution to the Provident Fund of the
Manpower supplied by them is done by the assessee and
client,respectively which is not included in the gross
taxable value while discharging the Service Tax liability.
As per the provision of Section 67 of the Finance Act,
1994 the taxable value shall be the gross amount charged
by the Service Provider for provision of service.
During the course of Audit it is observed that the assessee
has received the amount of Rs. 2,35,000/- towards the
cost of raw stock, tapes, beta tapes bought on behalf of
M/s.J.B.Marketing & Finance Ltd. By issuing a debit
note No.DN/A00ID/1117/05-06 dt. 17.11.05 as
reimbursement of expenses. The above said materials are
consumables for providing the advertising agency in film
shooting and sound recording and it’s value is not taken
into consideration for the purpose of gross value as per
section 67.
Any such observation ?
13. Import of Services :
A
B
Issue
Comments
Check Notes to Accounts and see if assessee is incurring
Foreign Currency Outgo. Whether the assessee is paying
proper taxes under Sec 66A( Import of services).
Keep Reconciled sheet in the file.
In the case of Reverse payment under Sec 66A, the
Page 7 of 12
C
taxable value is total amount charge, including TDS
amount. Some cases, it is seen that the assessee is paying
tax only on the actual amount paid excluding TDS
amount. But for the service Tax purpose, the TDS amount
is also to be added.
Whether tax liability under Reverse charge is discharged
only through Cash and not through Cenvat a/c ?
14. Reverse Charge other than Sec 66A
A
B
C
Whether assessee is incurring expenses on account of
Transportation ? If so, tax liability arises under GTA
Sponsorship Service : The assessee provided sponsorship
service But did not pay tax. Some times, to avoid
payment of tax, they account this expenditure under
Advertisement Expenditure.
Whether tax liability under Reverse charge is discharged
only through Cash and not through Cenvat a/c ?
15. Short payment/Delayed payment/Adjustment of tax
A
B
C
D
E
F
Is there any instance of income being written off and if so
whether such written off amount is provisional or final?
Is there any realization from such written off amounts at a
later date and whether service tax was remitted on such
realization?
Any amount collected by the service provider in excess of
the Service Tax assessed or determined and paid on any
taxable service from his client in any manner as
representing Service Tax ? (Section 11 D of Central
Excise Act, 1944 as made applicable to Service Tax under
Section 83 of Chapter V of Finance Act, 1994).
Banking and Other Financial Services : Is the assessee
collecting pre-closure/fore-closure charges, Reset
Charges, Commitment Charges from their clients ? (Refer
F. No. 345/6/2008-TRU,dtd 11.06.2008)
Check Challans and Cenvat Debit entry dates. Is the
assessee remitting tax before the due dates ?
Whether assessee is receiving advances ? If so, tax being
paid on such advances ? In case of construction industry,
there is a practice of ‘Mobilization Advance’.
Check for instance narrated below :
The assessee paid excess tax in Jan 2009. They have
adjusted some quantity in Feb 2009 and some in Mar
2009. The adjust of excess paid tax twice is not permitted
under Rule 6(3) of the Service Tax Rules,1994.
One of the Authorised Service Stations of M/s Hyundai
Motors, were providing three free services of the vehicles
on their sale by issuing three free service coupons to their
customers. As per the agreement with the parent company
Page 8 of 12
i.e. M/s Hyundai Motors, the free service of the motor
vehicle can be availed by the customer, from any
Authorised Service Station of the company, anywhere in
India.
Against these coupons, free service was done by the
servicing dealer (other than the ORIGINAL DEALER,
who sold the vehicle & provided the free servicing
coupons), Service Tax was paid by the servicing dealer
and the same was then claimed from the ORIGINAL
DEALER (i.e., who has sold the vehicle & provided the
free service coupons).
The Original Dealer availed CENVAT Credit of
Service Tax paid by them to the servicing dealer as
indicated on such bills which is inadmissible to them, as
the Original Dealer is neither providing any service to the
customer nor receiving any service from the servicing
dealers and hence reimbursement to them can not be
treated as input service.
The assessee rendered service and raised bill in foreign
currency, and simultaneously paid the tax liability, on the
bill amount, taking the exchange prevalent at the time of
billing. Subsequently, the assessee realised the amount in
equivalent Indian Rupees. But meanwhile there is
exchage gain. Had the assessee paid the tax on receipt
basis, the government would have got more tax.
Others Questions
Compliance
1
2
3
4
5
6
7
8
9
10
11
12
13
Result of Reconciliation : Whether all the revenue
streams are offered for tax ? Details of such streams not
offered for tax, with justification
Details of any non-taxable income
Comments on correctness of classification of services
Comments on correctness of claim of abatements
Comments on correctness of claim of exemption
notifications
Comments on correctness of claim of exports
Comments regarding Associated Companies and
payment of tax; See some ledgers and check whether the
payment of tax has been made on time ?
Comments on valuation practice, including reimbursements, pure agent etc, adopted by the assessee
Is the P/L statement is made by netting of the income
against expenses, if so, comments thereon
Is the assessee claiming benefit of Notf 12/2003-ST, if
so, correctness thereof :
Is the assessee discharging tax liability under Sub-rule
(7), (7A), (7B) or (7C) of Rule 6 of Service Tax Rules ?
If so give comments on correctness.
Results of Reconciliation of Import of Services
Results of reverse charge payments other than import of
services
Page 9 of 12
11. Check if returns ST 3 and ST 3A are filed on time.
Return Period
Due Date
Filed on
Any delay ? If so any penalty levied ?
12. Check whether the Service Tax has been paid in the respective accounting code for the
particular services.
Sl No
Classification of Accounting code
Is Code correctly used while paying tax
Service
1
2
3
14. Comments on conducting of CAAP audit
15. Results of random verification of genuineness of GAR-7 challans.
16. Results of random verification of genuineness of input service provider
17. Any other observation:
H. Mention details of past audit objections(including CERA) along with their current status
Sl No
Observations
1
2
3
H. Mention details of SCNs pending against the Assessee and comments thereon
SCN No and Date
Short details
I. Mention details of Arrears pending against the Assessee and comments there on
OIO No and Date
Short details
Page 10 of 12
J. If ST-3 is provisionally assessed, comments thereon :
K.
Comments on Questionnaire for the audit period :
R.
Comments on ST-3 scrutiny :
S.
Comments on Form 3CD ( for each year of the audit period) :
T:
Comments on Annual Report/ Director’s Report/ Notes to Account : (for each year of the
audit period) :
date:
(
)
Insp (Audit Gp )
(
)
Supdt (Audit Gp
(
)
)
Supdt (Audit Gp )
Page 11 of 12
ANNEXURE A
MASTER FILE
(For Planning Cell only)
(To be kept in the folder)
Photocopy of Stage I
Photocopy of Stage II
Scored Working Papers.
Minutes if Service Tax Monitoring Cell.
Page 12 of 12