Extending the scope of the service tax audit scheme, the revenue department has empowered the central excise officials to audit service tax returns filed by providers of all services. The scheme, which initially covered services relating to telephones, insurance and stock brokers, will now apply to about 63 services on which service tax is levied.S. Madhavan, executive director of PricewaterhouseCoopers said, “extension of the scheme would mean more visits by tax officials. The industry, however, must reconcile to such visits by tax officers. There is no harm in tax audit as long as tax-payers are not harassed.”Empowered by the regulation, the central excise officers will be able to visit premises of assessees for conducting audit of services relating to all services on which the service tax is levied. The officers visiting the premises, however, will be required to follow the guidelines and procedures prescribed in the service tax audit manual.The selection of assessees for auditing of returns will also be subject to norms laid down in the manual. Madhavan said, “the tax officials will pick up returns for audit on the basis of quantum of service tax paid.” The audit, he said, will also help tax officials in verifying utilisation of the input tax credit scheme by service providers. Under the input tax credit tax mechanism a service provider can take credit for the service tax paid. The service provider will be required to produce documents in support of his claim for availing service tax credit, he said.The tax audit was initially made applicable to telephone, insurance and stock brokering services because the collection was high. These services have continued to be the top three highest service tax contributors. The service tax collection from telephones was Rs 3,024 crore (revised estimates 2003-04) followed by insurance Rs 1,044 crore and brokerage Rs 378 crore. Total service tax collection in the current financial year is expected to be Rs 8,300 crore, Rs 300 crore more than than the budget target of Rs 8,000 crore.As per the interim Budget, service tax collection is expected to go up to Rs 13,500 crore in 2004-05. The telephone service alone is expected to contribute about Rs 5,000 crore.Extending tax auditing to all services also assumes significance in view of the fact that incidence of tax has been increased from 5 per cent to 8 per cent from April 2003. It is also imperative for tax-payers to ensure that no one takes unfair advantage by avoiding payment of 8 per cent service tax.
