SCRUTINY OF ITR/ TDS RETURNS VS SERVICE TAX RETURNS

SCRUTINY OF ITR/ TDS RETURNS VS SERVICE TAX RETURNS
Recently, Central Board of Indirect Taxes and Customs has alarmed the tax officials to take into consideration the high magnitude of the mismatch arising between the service tax returns and income tax returns filedfor the financial year 2015-16 and 2016-2017. It could indicate the possibility of revenue leakage which cannot be ignored from the end of revenue department.
The reasons for the mismatch are Permanent Account Numbers (PANs) that are either not at all registered in Service Tax or PAN’s that are so registered but have not filed the Service Tax returns. Also there is mismatch between the turnover declared in the ITR/TDS and the Service Tax returns which can be attributed to a number of valid reasons such as exempted or exported services not being declared in the Service Tax returns, missing Service Tax returns, RCM, services outside the scope of service tax etc.
For example, say as per provisions of Finance Act, 1994, loading, unloading, storage or warehousing of agriculture produce is exempted from payment of service tax. However, if rent is being collected on storage of such produce, TDS is being deducted as per section 194I if it exceeds prescribed limit.Since TDS is deducted on such income and no service tax is paid or he is not liable to get registered under service tax, this will be a reason of mismatch between the returns.
A numerable reasons exist which can be a reason of difference like services provided falls under RCM, service provider is providing exempt services, service tax was paid on receipt basis but TDS was deducted on accrual basis etc.
As per the officials, a considerable gap of Rs 12 lakhs crore between the turnover on account of services as per the ITR/TDS data and the value of services declared in the the corresponding service tax returns for fiscal 2015-16 was found.
Net service tax collections during 2016-17 stood at Rs 2.54 lakhs crore as compared with Rs 2.11 lakhs crore in 2015-16.
Even this exercise took place in 2011-12 also when data was shifted from income tax department to service tax department. Number of reasons was noticed for such mismatch. Even the department does not have machinery to conduct inquiry in such cases and reach to a conclusion. Every time the officer was changed then the letter was issued to the all the assesses though they have already replied the earlier letter. This was due to the fact that hundreds of letters was issued from each range and two employees in a range does not find to file such reply and conclude the matter. Whenever a new officer comes, he will issue a fresh letter to each assesse as he cannot see all the correspondence. This also gave a impression to genuine assesses that such type of letters were being issued by the department. Hence they also stopped replying the same. Even if a sincere officer started analyzing the Balance Sheet then all the issues like payment of tax on GTA and legal services under reverse charge mechanism, other incomes like commission, job work were raised and the inquiry was not fixed on such mismatch. Hence, the poor assesses were afraid of giving details. Even these notices were issued to those assesses whose accounts are regularly audited by the department. Hence, earlier notices have not reached to a desirable conclusion and department and assesees are feed up of this inquiries then these inquiries will add fuel to the fire.

Service tax was subsumed GST with effect from July 1, 2017, and the period under scrutiny is the last two financial years before the new indirect tax regime was rolled out. This raises the burden of the assessee financially as well as mentally even he is not guilty in the eyes of law. This cost a lot of time to both the tax officials as well the assessee to which such notice is issued.

This is solely for the educational purpose.

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