“Auditing is a systematic and independent examination of data, statements,
records, operations and performances(financials or otherwise) of an enterprise for
a stated purpose.” ---- ICAI
Dr Shobhit Jain



Service Tax Audit: Audit process
Department’s processes and pysche: insider
story
A professional’s role
•
•
•
•
•
DG Audit- New Delhi:
Zonal Units at Ahmedabad, Bangalore,
Chennai, Delhi, Hyderabad, Kolkata and
Mumbai
Local Commissionerate (ST&Ex)
Six Metro: additionally Excise
Commissionerate if a manufacturing concern
Professionals themselves: Cost Accountant
(Dept) or Sec 14A (CWA or CA)
Stationary Group: Assessee Master Profile; notice & collection
of data before audit, tracking after audit objection
 Audit Team: Superintendent , Inspector: ultimate auditors;
first level of discussions
 Cost Accountant: expert guidance
 Dy Commr/ Asstt Commr: daily monitoring, second level of
discussions
 Addl Commr/ Jt Commr: approval of audit plan, scheduling of
audit, second and final level of discussion
 Commr: approves the objection
 Range: Inspector, Superintendent, AC/DC: objection goes to
Range for recovery or proceeding after approval
‘Auditor’ means a Central Excise/ Service Tax officer entrusted with
the duty of conducting audit.

Rule 5A. Access to a registered premises. —
(1) An officer authorised by the Commissioner in this behalf shall
have access to any premises registered under these rules for the
purpose of carrying out any scrutiny, verification and checks as
may be necessary to safeguard the interest of revenue.
(2) Every assessee shall, on demand, make available to the officer
authorised under sub-rule (1) or the audit party deputed by the
Commissioner or the Comptroller and Auditor General of India,
within a reasonable time not exceeding fifteen working days
from the day when such demand is made, or such further period
as may be allowed by such officer or the audit party, as the case
may be, (i) the records as mentioned in sub-rule (2) of rule 5;
(ii)
trial balance or its equivalent; and
(iii)
the income-tax audit report, if any, under section 44AB of
the Income-tax Act, 1961 (43 of 1961), for the scrutiny of the
officer or audit party, as the case may be
Rule 5(2) of the Service Tax Rules, 1994 requires every
taxpayer to furnish to the Superintendent of Central
Excise, at the time of filing his return for the first time or
the 31st day of January 2008, whichever is later, a list of all
accounts maintained by the taxpayer in relation to Service
Tax including memoranda received from his branch
offices.
Rule 6(6) Where the assessee submits a memorandum in
Form ST-3A under sub-rule (5), it shall be lawful of the
[Assistant Commissioner of Central Excise or the Deputy
Commissioner of Central Excise, as the case may be] to
complete the assessment, wherever he deems it necessary,
after calling such further documents or records as he may
consider necessary and proper in the circumstances of the
case.
Sec 14 of Central Excise Act 1944: Summons
•
•
•
•
LTU and Taxpayers with Service Tax payment above Rs.3
Crores (Cash + CENVAT) (mandatory units) – to be audited
every year.
Taxpayers with Service Tax payment between Rs.1 Crore and
Rs.3 Crores (Cash + CENVAT) – to be audited once every two
years.
Taxpayers with Service Tax payment between Rs.25 Lakhs
and Rs.1 Crore (Cash + CENVAT) – to be audited once every
five years.
Taxpayers with Service Tax payment upto Rs.25 lakhs (Cash
+ CENVAT) – 2% of taxpayers to be audited every year.
•
OTHERS:
• ‘risk parameter’: Rupee risk
Overlap of scrutiny and audit
• Referrals and intelligence
• Board instructions
•
•
•
•
Taxpayers with Service Tax payment above Rs.3
Crores (Cash + CENVAT) (mandatory units) – upto
maximum 10 working days.
Taxpayers with Service Tax payment between
Rs.1 Crore and Rs.3 Crores (Cash + CENVAT) –
upto maximum 7 working days.
Taxpayers with Service Tax payment between
Rs.25 Lakhs and Rs.1 Crore (Cash + CENVAT) –
upto maximum 5 working days.
Taxpayers with Service Tax payment upto Rs.25
lakhs (Cash + CENVAT) – upto maximum 3
working days.
•
•
•
•
•
•
•
Profiling and selection
Receipt of documents
Desk Review
Approval of Audit Plan
Post visit analysis, Queries
Finalisation of department’s
views (MCM) and
communication
Showcause or closure
•
Notice (Sevottam: 15 days)
Submission of documents
•
Consultation
•
Visit- verification
•
Consultation and written
submissions
•
Yes/No acceptance and
compliance option
•
•
•
LONG LIST
Period: retrospective period up to the
previous audit by the Departmental Audit
Party or the last 5 years ( generally limited to
the commencement of levy on a particular
service) whichever is less and should extend
up to the last completed Financial Year
preceding the date of commencement of the
audit.
Desk Review
Visit
• Walk Through
• ABC Analysis
Verification:
• Audit Plan
• Documents and Data submitted
• Cenvat Verification
• Sample checks
Consultation






Gross, risk based
Less accurate
Less intrusive
Quicker/ less
manpower intensive
Non digitalised
environment
Eg service value audit
Top to Down Audit






Transaction based
More accurate
More intrusive
Slower/ more
manpower intensive
Digitalised
environment
Eg Cenvat audit
Down to Top Audit
•
•
•
•
•
•
•
The audit should be conducted in a systematic and
penetrative manner.
Emphasis should be on the identified risk areas and on
scrutiny of records maintained in the normal course of
business.
Audit efforts should be based on materiality i.e. degree of
scrutiny will depend on the nature of risk factors
identified.
Recording of all checks and findings.
Audit should be normally distinct from anti-evasion
operation in as much as it can detect irregularities only to
the extent of their reflection in the books of accounts.
Consultative approach
Opportunity for guiding the assessee
•
•
•
•
•
Compliance Issues: submission of documents
and data
Coordination Issues: convenient dates,
interact with officers
Consultancy role: Sec 73(3) option,
acceptance of objection, discussions
Preaudit compliance exercise
Do’s & Don’ts for professionals
Service Tax Audit Manual
2010