Query on service tax rule 5(2) - most urgent

ANNEXURE-‘A’ 

RISK LOSS ANALYSIS

[SAMPLE RECONCILIATIONS]

A. RECONCILIATION OF TAX BASE AS SHOWN IN RETURN WITH INCOME STATEMENT

1. TOTAL REVENUE FOR THE PERIOD PER INCOME STAEMENT =A
2. DEDUCT REVENUE ITEMS NOT SUBJECT TO SERVICE TAX
   • Sales revenue= B
   • Non taxable service= C
   • Misc. Income= D
3. TAXABLE SERVICE REVENUE BASE = S = A – (B - C -D)
4. ESTIMATED TAX @ 5% =T= S*0.05
5. DEDUCT: TAX REPORTED ON RETURN = t
6. VARIANCE AMOUNT OR POTENTIAL RISK = V = T-t
7. VARIANCE PERCENTAGE ON TAXES PAYABLE = V*100/T
8. RESPONSE / CONCLUSION -

B.        RECONCILIATION OF SERVICE TAX PAID AS PER RETURN WITH THAT SHOWN IN FINANCIAL ACCOUNT

Tax reported in Return i.e. " t " should invariably be first reconciled with the amount of tax paid in the financial accounts. For this purpose, the relevant account heads where service tax transactions are recorded should first be identified and then a reconciliation be first made between Service Tax paid as per Return vis a vis Service Tax paid as shown in financial accounts. Depending upon the accounting policy being followed, whether service tax collected from customers and service tax paid to the Government are accounted separately or combined, the auditor must fires ascertain the accounting system. If both the above accounts are clubbed then, a detailed extract of the combined account must be scrutinized and then tabulated so as to make meaningful comparison. If the two transactions are accounted for separately, then the two accounts should first be reconciled and then compared with the tax return.

C.            Auditor should also look towards the Income vs Expenses incurred (including capital investment) , whether there is any possibility of suppressing the income liable for service tax. Auditor should also weigh the changes in the current charges for billing service (with the charges for billing service during audit period as per record). Any large variation in such charges without any reasonable basis is an indicator for suppression of income and therefore service tax.

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https://www.servicetax.gov.in/st38-2k2.htm

.A Samsung Mobile and its parts Importer and  Distributor Company  in India has tied up with Shops in Delhi and provides Mobile parts to the Shops and charges Vat thereon .The Company also provides his men hired from outside agency in the shops to repair the mobiles. He charges service-tax on the services of the men provided to the shop. How it should get  registered under Service-tax as  Centralised /Single Registration. It provides no services from its office and only hires Men from Agency and provides them to the Shop.