SKP Tax Alert
11 July 2015 | Volume 8 Issue 13
Service Tax and Central Excise - Recent Clarifications 

Digital Signatures and Maintaining Records in the Electronic Form
The Union Budget 2015 introduced several amendments under the indirect tax laws and one of the key propositions was permitting the use of digital signatures on the invoices and maintaining records in an electronic format under the central excise and service tax laws. Amendments were made under the central excise and service tax legislation for allowing the use of a digital signature for issuing invoices and preserving records in the electronic form, however, procedures and conditions for the same were not prescribed. The Central Board of Excise and Customs (CBEC) has now issued Notification (No 18/2015 dated 6 July 2015) and Instructions (F.No. 224/44/2014-CX.6 dated 6 July 2015) for the procedure to be followed by businesses for using digital signatures and maintaining records in an electronic form.

The procedure prescribed for the use of digital signatures for invoices and maintaining records in the electronic form has been summarised below:
  1. Filing intimation for digital signatures
    Businesses proposing to use digital signatures for signing invoices or maintaining records in the electronic form shall be required to use Class 2 or Class 3 Digital Signature Certificate duly issued by the Certifying Authority. Further, businesses shall be required to intimate the following details to the jurisdictional Deputy Commissioner or Assistant commissioner of Central Excise, at least 15 days prior to the date from which digital signatures would be used:
  • name, e-mail id, office address and designation of the person authorised to use the digital signature certificate
  • name of the Certifying Authority
  • date of issue of digital certificate and validity of the digital signature with a copy of the certificate issued by the Certifying Authority along with the complete address of the Authority

    Businesses already using digital signatures shall intimate the jurisdictional Deputy Commissioner or Assistant Commissioner of central excise all the aforesaid details within 15 days of the issue of notification i.e. by 21 July 2015.

    Furthermore, in case of any change the aforesaid submitted details, the complete details are required to be resubmitted to the Authorities within 15 days of such a change.
  1. Submission of records in the electronic form to the authorities
    The authorities may request the businesses, during an enquiry, audit or investigation (under central excise or service tax laws) by way of a letter or an email, to submit the records for verification. In cases where the business maintains the records in an electronic form, businesses may produce the same to the authorities in an electronic form through email or a web link or on a storage device for verification of the authenticity.

    Businesses opting to maintain records in an electronic form are required to ensure that a backup of such records in electronic form are maintained and preserved for a period of five years immediately after the financial year to which they pertain. Also, businesses with more than one factory or service tax registration shall maintain separate electronic records for each factory and each service tax registration.

    Further, the procedure to be followed by the authorities is specific to verifying the authenticity of the information submitted by the businesses. It includes the review of pop up messages on the invoices, signature validation status, signature certificate, etc.
Scrutiny of Service Tax Returns by the Authorities
Another clarification was issued for implementing effective compliance verification under the service tax legislation. Compliance verification mechanism is bifurcated into audit, anti-evasion and return scrutiny. CBEC has issued a Circular (No. 185/4/2015-ST dated 30 June 2015) specifying the process for Return Scrutiny.

A two-part system of return scrutiny has been envisaged by the Authorities i.e. a preliminary scrutiny which would be online covering all the returns; and a detailed manual scrutiny of selected returns, identified on the basis of risk parameters. Here is a summary of the procedure prescribed for the scrutiny of service tax returns by the authorities-
  1. Preliminary Online Scrutiny
    The Preliminary Scrutiny would be conducted for all returns filed online on the Automation of central excise and service tax (ACES) web-portal. The purpose of preliminary scrutiny of returns is:
  • Completeness of the information furnished in the return
  • Arithmetic correctness of the amount computed
  • Timely payments and submission of returns
  • Identification of non-filers and stop-filers

    The returns with errors would be marked for review and correction and would be further processed by the authorities.
  1. Detailed Manual Scrutiny
    Scope and Selection of the assessee
    The focus of detailed manual scrutiny of the returns would be on the returns of those assesses which are not subject to an audit by the authorities and whose total tax paid (Cash + CENVAT Credit) for FY 2014-15 is below INR 5 million. The purpose of the detailed manual scrutiny is to ensure the correctness of the assessments made by the assessee. It would mainly include:
  • Checking the taxability of the service
  • Correctness of value of taxable service
  • Effective tax rate levied after considering exemptions/abatements/exports
  • Verifying the availment/utilization of CENVAT credit

    There would be three tax bands created based on the total tax paid (Cash + CENVAT credit) viz. 0-1 million, 1-2.5 and 2.5-5 million. Each Commissionerate of Service tax would be required to select an equal number of assesses for carrying out the scrutiny under each tax band. The risk parameters and risk tools have been developed by the authorities to govern the selection of the service tax returns for detailed manual scrutiny

    It must be noted that the assesses who have been audited by the authorities in the last three years would not be taken up for detailed scrutiny and further, no assessee would be subject to both audit and detailed manual scrutiny.

    The methodology for detailed manual scrutiny is mentioned below:
  • Step I: An assessee would receive an intimation at least 15 days prior in the form of an Intimation Letter
  • Step II: The Range Officer would compile the assessee master information to facilitate trend analysis
  • Step III: The selected service tax returns would be scrutinised to achieve the following objectives:
    - Reconciliation for validation of the information furnished in the service tax returns
    - Taxability in respect of services which may have escaped assessment
    - Classification (for the purposes of due availment of abatement/exemption benefit)
    - Valuation; and
    - CENVAT credit availment/utilisation
  • Step IV: The scrutiny officer would prepare an observation sheet in which the findings with respect to reconciliation, taxability, classification, valuation and CENVAT credit would be recorded. The findings should clearly outline the process of scrutiny that led to the outcome.
The authorities have laid down the format for the intimation letter, to record the assessee's master information, to record findings while scrutinising, maintaining observation sheets, etc.
SKP's Comments
Introducing digital signatures for invoices and maintenance of electronic records would be a welcome move for businesses as this would lead to ease of storing documents, sharing them, and ultimately lead to a paperless office. It would be advisable that businesses comply with the procedural requirements contained in the notification before the prescribed time limit in order to avoid incompliances, wherever this option is chosen. The aforesaid amendments can be linked as a step towards the government's Digital India Initiative.

Specifying the processes for return scrutiny would lead to an increase in the importance of the compliances as the businesses would have to be cautious while filing returns, preparing workings, etc. as there are chances of a scrutiny by the authorities

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This SKP Tax Alert contains general information existing at the time of its preparation only. It is intended as a news update and is not intended to be comprehensive nor to provide specific accounting, business, financial, investment, legal, tax or other professional advice or opinion or services. This tax alert is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and also refer to the source pronouncement/documents on which this tax alert is based. It is also expressly clarified that this tax alert is not a solicitation or an invitation of any sort whatsoever or a source of advertising from SKP Group or any of its entities to create any adviser-client relationship.

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