Service Tax - 15 lakh returns pending corrective action - CAG
THE primary job of a tax officer is to assess the tax payable/paid by the assessees and this is one aspect grossly neglected by the Central Excise and Service Tax officers. There is hardly any scrutiny of the returns filed by the assessee.
In a recent Audit report the CAG pointed out that:
As on 31 March 2013, 14.74 lakh returns (80 per cent of returns marked for review and correction) were pending corrective action.
Nearly 50 per cent of Service Tax assessees paying revenue over Rs. 1 crore annually which were due for audit by the Central Excise and Service Tax department remained unaudited during 2012-13.
Over 2000 refund claims involving Rs.11,000 crore were pending disposal for over 1 year as of March 2013.
Adjudication cases involving Service Tax implication of over Rs. 64,599.24 crore were pending finalisation as on 31 March 2013.
Cases involving Service Tax of Rs. 1,37,950.40 crore were pending before appellate forums as on 31 March 2013.
On assessment and scrutiny, the CAG observed,
"With the introduction of self-assessment, the department also envisaged the provision of a strong compliance verification mechanism, inter alia, through scrutiny of returns. Even in the self-assessment era, the primary function of departmental officers continues to be assessment or confirmation of assessment as it is they who have a statutory liability to ensure correctness of tax payment. This is undertaken through scrutiny of Service Tax returns, which in turn are to be selected on the basis of risk parameters. The Manual for Scrutiny of Service Tax Returns, 2009 envisages that scrutiny is to be carried out in two stages i.e. preliminary scrutiny of the return which is to be carried out by ACES (Automation of Central Excise and Service Tax) application and detailed scrutiny of assessment which is to be carried out manually on the returns marked by ACES or otherwise.
Preliminary Scrutiny of Returns
The purpose of preliminary scrutiny is to ensure completeness of information, timely submission of the return, timely payment of duty, arithmetical accuracy of the amount computed as duty and identification of non-filers and stop-filers.
We observed that a very high percentage of cases, scrutinized by ACES each year is marked for review and correction; the percentage ranged between 75 and 83 per cent during FY 11 to FY 13 period. Further, the number of marked returns still pending for review and correction process as on 31 March each year has been showing a sharply rising trend; this is not a healthy sign considering the fact that mandatory electronic filing of Service Tax returns had been introduced with effect from 1 October 2011 and hence returns scrutiny through ACES should have stabilized at least by 2012-13. One of the main intentions behind introducing preliminary scrutiny online was to release manpower for detailed manual scrutiny, which could then become the core function of the Range/Group; the high figures of pendency for correction after R & C identification indicates that the same is far from being achieved. The very high percentage of scrutinized returns being thrown up for review and correction (R & C) and resultant high number of returns pending corrective action are indicative of deficiencies in the ACES application which the department needs to address urgently.
Detailed Scrutiny of Service Tax Returns
The purpose of detailed scrutiny is to establish the validity of information furnished in the tax return and to ensure correctness of valuation, availing of cenvat credit, classification and effective rate of tax applied after taking into consideration the admissibility of exemption notification availed etc. Unlike preliminary scrutiny, detailed scrutiny is to cover only certain selected returns, identified on the basis of risk parameters, developed from the information furnished in the returns submitted by the taxpayers.
It is a cause for concern that there are several selected returns pending scrutiny for periods even exceeding 2 years. Other than in certain types of cases such as those involving fraud, there is no scope for issue of a demand notice to an assessee beyond 18 months from the date of filing of returns by assessee. It is essential that the department takes steps to analyse the reasons for long pendency so as to ensure revenue due to the Government is adequately safeguarded.
When will they complete those assessments? They are all so busy with Show Cause Notices and registrations and … that they don't have time for scrutiny of returns. After all they can always blame the assessees and demand the tax for five years - for all their mistakes.
Source: CAG's Report No. 6/2014.