Director General of Audit, New Delhi has prepared Service Tax Audit Manual, 2010. As per the guidelines, tax payers whose annual service tax payment (including cash and CENVAT) was Rs.3 crore or more in the preceding financial year may be subjected to mandatory audit each year. It is preferable that Audit of all such Units is done by using Computer Assisted Audit Program (CAAP) techniques. The frequency of audit for other taxpayers would be as per following norms:-
- 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.
The Audit selection guidelines, therefore, would apply to the non-mandatory taxpayers, forming part of the discretionary workload. These taxpayers should be selected on the basis of assessment of the risk potential to revenue. This process, which is an essential feature of audit selection, is known as Risk Assessment. It involves the ranking of taxpayers according to a quantitative indicator of risk known as a “risk parameter”. It is also suggested that the taxpayers whose returns were selected for detailed scrutiny, may not be taken up for Audit that year, to avoid duplication of work. Similarly, the taxpayers who have been selected for Audit, may not be taken up for detailed scrutiny of their ST-3 Returns during that year.
The Service Tax Audit Manual, 2010 is in the process of finalization and publication by D.G. Audit, New Delhi. In the circumstances, till the same is published, the existing instructions on audit shall continue.