Excise and service tax audits had long been the taxpayer’s nightmare with the authorities selecting cases almost randomly, subjecting even honest taxpayers to hassles.
Excise and service tax audits had long been the taxpayer’s nightmare with the authorities selecting cases almost randomly, subjecting even honest taxpayers to hassles. The situation is now changing for the better, albeit slowly, reports Siddhartha P Saikia in New Delhi. According to official data, the ratio of detection (of alleged tax evasion) to recovery has improved steadily in recent years. Last financial year saw an even bigger rise in the ratios —
from 23.95% to 39.52% in the case of excise audit and from 21.8% to 25.56% when total (excise + service tax) audits are taken into consideration.
Official sources attribute the trend to the Modi government’s efforts at minimising the troubles to taxpayers and making the audit mechanism more efficient. The increased utility of the audit process, they say, reflected the improved functional efficiency of field officers and resulted in compliance increase and enhanced tax revenues.
While efficiency improved, the number of audits reduced by 7.3% to 35,310 in 2015-16 against 38,115 in 2014-15.
“During the past few years, the excise and service tax authorities have been using increasingly refined methods to ascertain cases of evasion,” said MS Mani, senior director, Deloitte in India.
He added: “They have also received training on correlating the returns with the financial statements. In addition, they also appear to be collaborating with other tax authorities in comparing data filed by assesses with various authorities. The fact that most of the data is submitted electronically makes their task easier compared to the past. These have led to an increase in the ratio of recoveries to detection.”
According to a Central Board of Excise and Customs (CBEC) note, new audit norms have been rolled out to “provide for risk-based selection of taxpayers based on identified/quantified risk parameters and also introduce jurisdictional specific criteria — as opposed uniform norm across the country — for segmenting the taxpayers into large, medium and small categories.” Earlier, CBEC used to select assesses based on threshold limit of taxes paid in the previous financial year. Taxpayers were categorised into mandatory and non-mandatory units based on taxes paid and the units were required to be audited as per the frequency norms stipulated for each category. The criteria did not take into account the risk factors and the resources available for undertaking audit. The audit coverage in service tax was below satisfactory levels on account of huge taxpayer base and limited availability of manpower in major cities such as Mumbai, Delhi and Bengaluru, among others.
“Though the standards of department audit has improved marginally, a lot of ground need to cover to make the system robust. The training of the auditors on legal provisions and interpretation and change of mindset of the auditors are key to make the audit more effective. One of the reasons why 80% of the audit objections are rejected at higher judicial forums reflects gap in the system, which is the cause of frivolous litigation clogging the judiciary,” said Sachin Menon, national head (indirect tax) at KPMG.
In order to motivate officials, CBEC offers a reward of Rs 10,000 to one audit team from each audit commissioners in a financial year who has prepared working papers. The audits are being carried by Directorate General of Audit, headquartered in New Delhi, with seven zonal units: Delhi, Ahmedabad, Mumbai, Bangalore, Chennai, Hyderabad and Kolkata.
Meanwhile, a new central excise and service tax audit manual 2015 has been launched in October last year. At the same time, a mobile-based feedback mechanism has been put in place where the taxpayer can provide feedback on the conduct of the audit.