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Posted on:2011-03-21


Director General of Audit, New Delhi has published 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 pre following norms:-



Taxpayer with Service Tax payment above Rs. 3 Crores


To be audited every year

Taxpayer with Service Tax payment between Rs. 1 Crore

And Rs. 3 Crore (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 up to Rs. 26 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.

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