Service Tax - Audit of the Audit
29.05.2015
Friday
AUDIT of Service Tax assessees by CAG as well as the Department's Audit wing is a hotly debated and litigated issue. In a recent Audit Report, the CAG found serious lapses in the Audit by Department's Audit. The CAG observed,
The three important prongs of the compliance verification system adopted by the department comprise returns' scrutiny, audit, and anti-evasion. Compliance verification through audit entails conduct of audit at assessee premises by following prescribed procedures including selection of assessee units based on risk parameters and scrutiny of records of the assessee to ascertain the level of compliance with the prescribed rules and regulations. Internal Audit is empowered under the Service Tax Rules, 1994, to access the records of the assessees at their registered premises. Every Commissionerate has, within its Internal Audit section, an Audit cell, manned by an Assistant/Deputy Commissioner and Auditors and headed by an Additional/Joint Commissioner. The Audit cell is responsible for planning, monitoring and evaluating the audits conducted. Audit parties consisting of Superintendents and Inspectors carry out the audit at assessee premises in accordance with the Audit Plan and as per the procedures outlined in the Service Tax Audit Manual, 2011.
CAG checked the adequacy of coverage of assessees as well as the quality of audits undertaken by the internal audit parties and noticed several lapses like 1.Non-payment of Service Tax, 2.Non-payment of interest on belated payment of Service Tax, 3.Non compliance with Point of Taxation Rules, etc., in units already audited by Internal Audit Parties of the Department.
The CAG can audit the internal audit of the Department, but can the Service Tax Department Audit do a similar exercise and find out the flaws in the CAG Audit?
Service Tax - No Scrutiny of Assessment
CAG found that out of 2,45,240 returns receivable during 2011-12 and 2012-13 only 1,39,349 (57 per cent) returns were received in the selected Commissionerates and 1,05,891 (43 per cent) returns were not received at all. CAG observed that:
(a) ACES system did not list out returns for detailed scrutiny.
(b) Out of 1,39,349 returns received in 2011-12 and 2012-13 only 121 returns were scrutinised by the selected Commissionerates which is less than 0.1 per cent of the total returns received.
CAG concluded: Though CBEC's expectation was that with the introduction of online automated scrutiny of returns, efficiency would increase and manpower would be released for detailed scrutiny which would become the core function of the ranges, the actual situation in field leaves much to be desired. A lot more needs to be done before scrutiny of assessments can claim its place as the core function of the Ranges.
Periodical show cause notice not issued : CAG observed, "As per Section 73 of Finance Act, 1994, in normal course show cause notice is to be issued within one year (with effect from 28th May 2012, '18 months') and in case of fraud, Collusion, Wilful misstatement, suppression of facts etc. with intent to evade duty, within a period of five years from the relevant date. Further as per Section 73(6)(b) of the Act, 'relevant date' inter alia means where no periodical returns as aforesaid filed, the last date on which such returns to be filed under the said rules. The Supreme Court in the case Nizam Sugar Ltd. Vs Commissioner of Central Excise - 2006-TIOL-56-SC-CX has held that the extended period of five years was not available to the department for the subsequent show cause notice which was issued based on the same set of facts of the earlier show cause notice as the full facts were known to the Department and hence suppression cannot be alleged."
Audit noticed that a Commissioner issued a Show Cause Notice in October 2010 for non payment of Service Tax under reverse charge basis, for the period 2005-06 to 2008-09. The show cause notice was adjudicated vide Order In Original dated 30th March 2012. However, the Commissionerate had neither covered the period of 2009-10 in the first show cause notice nor had issued a periodical show cause notice for the period 2009-10 within the stipulated period of one year.
When Audit pointed this out to the Department, the Commissionerate replied that a draft show cause cum demand notice amounting Rs. 63.13 lakh for non-payment of Service Tax for the period of April 2009 to March 2011 was submitted to the Adjudication Section in June 2013 for issue. The last date for issuance of SCN was stated to be 24 October 2014.
CAG observes, However, the process of issuance of periodic show cause notice for 2009-11 period applying provisions for extended period after a lapse of four years is irregular in view of the decision of Supreme Court in the case of M/s Nizam Sugar Ltd. Vs Commissioner of Central Excise. Thus, an amount of Rs. 63.13 lakh has got time-barred due to improper monitoring of the need for issue of periodic show cause notices.
Now that no less authority than the CAG of India has confirmed that the demand is time barred, what will be the view of the adjudicating authority?
FEMA - Foreign Exchange Facility
GOVERNMENT has amended the Foreign Exchange Management (Current Account Transactions) Rules, 2000 :
Facilities for individuals- Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit for the following purposes shall require prior approval of the Reserve Bank of India.
1. Private visits to any country (except Nepal and Bhutan).
2. Gift or donation.
3. Going abroad for employment.
4. Emigration.
5. Maintenance of close relatives abroad.
6. Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.
7. Expenses in connection with medical treatment abroad.
8. Studies abroad.
9. Any other current account transaction
Facilities for persons other than individual - The following remittances by persons other than individuals shall require prior approval of the Reserve Bank of India.
(i) Donations exceeding one per cent. of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for-
(a) creation of Chairs in reputed educational institutes,
(b) contribution to funds (not being an investment fund) promoted by educational institutes; and
(c) contribution to a technical institution or body or association in the field of activity of the donor Company.
(ii) Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or five percent. of the inward remittance whichever is more.
(iii) Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India.
MoF Dept. of Economic Affairs Notification, Dated: May 26, 2015
ITAT Imposes Costs on CAs
THE ITAT Jaipur Bench on Wednesday (27.05.2015) imposed costs of Rs. 25,000/- and Rs. 10,000/- respectively on two Chartered Accountants, who are father and son.
The senior CA sent letters to the President of ITAT, Law Secretary and Assistant Registrar. The Tribunal noted, "making wild accusations of all sorts like corruption, collusion, insulting, bias, prejudice and what not. These contemptuous letters speak by themselves, frivolity of language, distorted contents and apparent self contradictory contents of his letter demonstrate that it is a crude attempt to influence independent judgment process for petty professional ends. There is nothing to even remotely suggest any reason on the part of bench to show partiality, prejudice, bias or intention to insult Mr.xxx or his son who are unknown to us as they come from a far away place ' Sumerpur'' and are rarely seen in the ITAT proceedings. They were treated with deserving dignity by offering help and guidance in open court proceeding."
ITAT also observed,
His misadventure doesn't stop here, camouflaging under the self proclaimed virtue of an RTI activist, motivated to bully the judicial officers, he deliberately filed various RTI applications asking for about 81 queries in respect of number of personal details about the judicial officers including their leave, HQ leaving permission, use of car, attendance in office, timings of holding courts, in whose case adjournments were granted or not granted, when officers go to Delhi, whom do they meet etc. etc. The above facts prove that RTI attack is not for any public purposes but to intimidate judicial officers, seized with his judicial matter. A trick to masquerade his blackmailing tactics for mean professional interest, to extract desired result in a sub-judice appeal. The RTI fiat unfolded by Mr.xx is an apparent colorable device, an attempt to influence/obstruct independent judicial process. The attempt amounts to a total misuse of professional position for dubious gains.
These acts amount to interfering and obstructing judicial process which apart from awarding of cost u/r 32A of ITAT rules is liable for appropriate contempt of court proceedings as well. Such attempts need to be seriously deplored, firmly tackled and suitably dealt with to send a message in professionals fraternity to behave properly and conduct themselves as ordained by ITAT rules and standing orders; court rules, ICAI instructions, professional ethics and etiquettes; Bar council of India guidelines in this behalf.
Considering all the facts, circumstances and material on record by invoking rule 32A of the ITAT Rules we hold that Shri xxx and Shri xxxx are liable for levy of costs as prescribed by said rule 32A. Consequently, we impose cost of Rs. 25,000/- on Shri xxx and Rs. 10,000/- on Shri xxxx for their delinquencies as mentioned above. Separate proposal under Contempt of Court Act will be duly forwarded to Hon'ble Rajasthan High Court.
The cost is recoverable u/r 32A(2) of the ITAT Rules and shall be deposited in the 'Prime Minister Relief Fund'. Copy of this order to be sent by registry to Institute of Chartered Accountants of India to take appropriate disciplinary action against them in terms of ICAI rules and guidelines. The progress may be communicated to bench through registry.
But Can payment be ordered to PM's Relief Fund? Please See DDT 2315.
Until Monday with more DDT
Have a nice weekend.
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