The country is passing thorough a phase where the need of transparency at all levels appears to be explicitly essential. There is a trust deficit at all levels, be it the Civil society, public at large or government machinery. The assessees are entrusted with a self-assessment system wherein the tax paid by them is treated as true and fair. There is a trust deficit here too as such the Service tax department apprehends that there might be instances where either assessee deliberately avoids and evades tax or a case where ignorance of laws leads to non-payment of Service Tax. In both the cases government loses its revenue. To prevent such leakage of revenue, one of the basic tools employed by department is Audit of the assessee. The phrase ‘departmental audit’ instills fear in the mind of the assessee. Smaller the assessee; higher the fear of facing audit. The Finance minister has announced in Budget 2011 that small assessee would be relieved from formalities of audit. Accordingly, such benefit was forwarded vide D.O.F. No. 334/3/2011-TRU dated : 28.02.2011; the said circular clarified that individual and sole proprietor assessees with a turnover upto Rs 60 lakhs shall not be subject to audit. It is pertinent to note here that such relaxation only for individuals and it is not extended to Partnerships, Companies, Trusts, etc.
The department carries out audit of the assessee based on guidelines provided in Audit Manual. The audit manual outlines procedures to be adopted for conduct of audit. The recent Circular No. 135/4/2011 dated 19.04.2011 states that, the existing Service Tax Audit Manual has been in use since 2003. With rapid change in service tax law over the years, growth in service tax categories, assessee base as well as revenue, there was desperate need felt to update the manual. The need for professionalism has been felt by the department and therefore new audit manual drives towards assessee friendly approach. According to the new Audit Manual, while conducting audit, the Auditor (departmental officer) is required to carry out his duties with utmost sincerity, integrity and diligence. As per this new audit guideline the Auditor has to aim at detection of non-compliance, procedural irregularities and leakage of revenue due to deliberate action or ignorance on the part of the taxpayer. The Auditor should keep in view the prevalent transactional and professional practices, as also the practical difficulties faced by a taxpayer. Therefore, the Auditor should take a balanced, fair and rational approach while conducting the audit. During the course of the audit, if any purely technical infractions, without any revenue implications, are noticed, the Auditor is expected to exercise sense of proportion and should guide the taxpayer in correcting the procedures.
Government's objective is to collect correct amount of tax levied under the Service Tax law in a cost-effective, responsive, fair and transparent manner and also to maintain public confidence in the integrity of the tax system. The audit should be participative and a fact finding mission, as against a fault finding exercise, with the objective of guiding the taxpayer while at the same time guarding against any leakage of revenue.
The Department expects that the Auditor should recognize the rights of the taxpayers, such as the right to impartial and uniform application of law; the right to be treated with courtesy and fairness, the right to information permitted by law and the right to confidentiality of information disclosed only for Departmental audit. Auditor should use a constructive and tactful approach to gain the goodwill and confidence of the taxpayer. Further it is directed that confidentiality should be maintained in respect of sensitive and confidential information furnished to an Auditor during the course of audit. All records submitted by the service provider to the audit parties, in electronic or manual format, should be used only for verification of levy of service tax and tax compliance. These shall not be used for any other purposes without the express written consent of the taxpayer. Further, the officers should not disclose to outsiders any particulars learnt by them in their official capacity.
Thus, auditor is expected to ensure that audit is carried out in systematic manner, with optimum utilization of time and resources. Further auditor has to take care that the rights of the assessee are not violated in guise of audit. This is one step which will help decreasing the trust deficit. The department expects that attitude of the auditor should be friendly and he should guide the service tax payers for better compliance rather than creating futile litigations.
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