ST - Import of Services - CAG raps CBEC
THE CAG has presented to Parliament a ‘Report for the year ended March 2012 on the performance audit of levy and collection of service tax on import of services.'
The Report says,
"An ideal tax administration system would be one in which all the tax due reaches the Government through voluntary compliance. Tax gap captures the gap between the collectible tax and the tax collected by the Government. Minimising the tax gap would be a goal a good tax administration would strive for.
The department could not arrive at reliable figures of tax gap relating to import of services in the absence of sufficient data on value of taxable services and mechanism to analyse tax collected data."
CAG observed that out of the 14 Commissionerates selected for audit coverage, only Chennai ST Commissionerate had initiated action by addressing RBI in connection with remittances to service providers outside India. ST II Commissionerate in Mumbai stated that efforts were being made to collect data from RBI. DGST Mumbai had also not collected data from RBI/authorised dealers until July 2012.
Audit noted that the Income Tax department is another source for information relating to remittances to non-residents. Section 5 of the Income Tax Act, 1961 provides that income which accrues or arises (or is deemed to accrue or arise) in India and income received (or deemed to be received in India) is liable to be taxed in India. The law also provides for deduction of tax at source in respect of such remittances. Audit observed that payments to non-residents would include cases of provision of service from outside India. ST liability would exist in such cases.
Audit enquired from the selected 14 Commissionerates whether the department accesses information available with Income Tax authorities regarding remittance to foreign service providers. Ten Commissionerates informed in the negative. Mumbai ST- II Commissionerate stated that efforts were on to collect data from the Income Tax department. Mumbai LTU indicated that it would collect such data henceforth. Barring Hyderabad-II, which indicated conducting surveys for the purpose of identifying potential assessees, no other Commissionerate indicated any other specific procedures having been resorted to identify unregistered service recipients. DGST is yet to provide information relating to accessing of information from sources such as the Income Tax Department. The Ministry informed (in March 2013) Audit about the constitution of a committee consisting of representatives of both departments to work out modalities for sharing of information. Further, the department was examining the possibility of a system in which the Income Tax server can be linked to CBEC's server for secure data transfer.
Audit observes:
1. The department does not have a mechanism to arrive at a reliable estimate of value of taxable services imported. The department has however, initiated steps (since November 2011) to utilise primary data available with authorised dealers; the process is on going.
2. The department did not have any prescribed specific accounting codes or any alternative mechanism to arrive at reliable figures of the taxes collected relating to import of services.
3. The system was not robust enough to provide information on the gap between the collectible tax and the tax actually collected.
4. The department did not have a system to utilise data available with the Income Tax department relating to remittances to NRls.
5. RBI permits remittances towards import of services irrespective of non-fulfilment of corresponding service tax liability by the service recipient, in the absence of any requirement for submission of an undertaking by remitter/certificate from Accountant on the lines of the prescription in Income Tax.
6. There was no system of calling for an Annual Information Return from identified parties such as authorised dealers.
7. Non-fulfilment of liability by export oriented units and associated enterprises indicated the need for strengthening of monitoring on this front.
8. The department did not have in place a system to utilise data on high value transactions of specific nature available with certain Central Ministries/RBI to check possible cases of evasion of tax.
Recommendations
Audit recommended that:
a. DG (Systems) consider the inclusion of facility in ACES to automatically update category of registrant assessee to include service recipient or to flag such cases where category of remitter in database needs updating, going by the data in returns filed.
b. The department take steps to encourage importers of service to get themselves registered as lack of awareness concerning liability on service recipient under reverse charge mechanism could be a factor for non-registration.
c. The department utilise data from authorised dealers for broadening of ST base by identifying non registered importers of service by linking with ACES data.
d. The department consider tapping data relating to Export Oriented Units available with the Development Commissioner's office as a lead for the purpose of assessing ST liability.
e. Priority be given to scrutiny and audit of units having transactions involving associated enterprises/holding company-subsidiary company transactions etc.
f. The department may consider issuing a clarification on whether incurring of expenses on behalf of an associated enterprise registered abroad would amount to evidence of import of service from the foreign company.
g. The department may take up with RBI the need for issue of suitable instructions to Authorised dealers concerning precautions to be taken for ensuring fulfilment of ST liability by remitter.