Manual scrutiny of small service providers under Service Tax Laws

Trust me, this government is confused. In that way, UPA government was better. We knew for sure that their approach to taxpayers was close to ‘harassments’. Contrarily, NPA government talks about ease of doing business, trusting the people, transparency, digitization, less human intervention, etc. But when it comes to action, they do exactly the opposite. One such bad example of not walking the talk is ‘manual scrutiny of small service providers.’


First of all, what manual scrutiny means to a small businessman? It means ‘harassment’. Honestly; I call it as harassment because –

  • The scrutiny would be conducted in respect of taxpayers whose total tax paid for FY 2014-15 is below Rs.50 Lakhs. (Circular 185/4/2015 dated 30th June 2015). This means, someone doing a maximum business of Rs.1 Lakh per day will the target taxpayers for scrutiny.


  • In today’s inflated cost, Rs.1 lakh per day is a small turnover. Those small businessmen can’t afford to have a full-fledged accounts/finance team. They may either have a part-time accountant or one full-time In case of scrutiny, the accountant has to spare his time and run behind the officers. The circular says each scrutiny should be completed in 3 months. This means the accountant will have to prepare the documents for FY 2014-15 and visit the department atleast 6-7 times.


  • If the businessmen decide to hire the services of professionals, it will be very expensive. An additional cost to be borne by the tax payer.


  • Unlike Income Tax where the owner has to pay the taxes from his pocket, Service tax is collected from the customers and paid to the department. This being the case companies will comply with the tax laws. However, either by ignorance or by misreading or less reading, they may fail to collect taxes in some cases. Or the officer conducting the scrutiny may ask the company to pay taxes because of his over reading or reading between the lines of tax provisions.


  • If the department slaps notice to pay taxes, either the company has to pay extra along with interest or prefer to appeal against the order. Again, the company has to cough up the professional fee and wait for the judgment for years.


Is this what NDA Govt. means – Minimum Government and Maximum Governance?


The circular says that they will pick up cases in three tax bands, i.e., upto Rs.10 Lakhs, Rs.10 to 25 Lakhs and Rs.25 to 50 Lakhs.

As per the circular there are two types of scrutiny, namely (a) preliminary scrutiny and (b) detailed manual scrutiny.

The purpose of the preliminary scrutiny of returns is to ensure that complete and correct information has been furnished, and the taxes have been paid on time.

The purpose of the detailed manual scrutiny of returns is to ensure the correctness of the assessment made by the taxpayer. The scrutiny may include checking the taxability of the service, the correctness of the value of taxable services, effective rate of tax after taking into account the admissibility of an exemption notification, abatement, or exports, if any etc.

Reconciliation of information furnished in the ST-3 return with ITR Form Nos. 4, 5, 6 and 26AS and any third party information made available.

(SuggestionThose who are filing Income Tax returns for FY 2014-15 may kindly reconcile the information with ST returns and keep reconciliation statement ready for verification)

In addition to this, the scrutiny exercise will also look at the correctness of self-assessment with respect to taxability, admissibility of abatement and eligibility for exemption, valuation, and CENVAT credit availed/utilized.

Friends, you can’t miss the last line of the Circular. It says ‘Even after the introduction of GST, it may be appreciated that the basic principles of scrutiny of returns and reconciliation of records would remain the same.’

If the Government believes that this process is not harassment, then I believe that the ruckus the opposition creates in Parliament is not harassment.

According to me, both have the same effect. You (government) are not allowing the citizens to do business peacefully, and your opposition is also not allowing you to do any business (bills/acts or so) in the Parliament.

Download Guidelines regarding manual scrutiny of Service Tax Returns (ST-3) w.e.f. 01/08/2015.

Thought for the day

Life is an echo. What you send out, you get back. What you give, you get.  

Please follow and like us:
0 0 vote
Article Rating
Share This :

About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at

Check Also

Windfall Gain and Taxes

Windfall is a fairly known term among finance professionals. As I read, windfall originally referred …

Notify of
Oldest Most Voted
Inline Feedbacks
View all comments
2022 years ago

I totally agree with your views,its not scrutiny its actually harassment of the small tax payers.I also wanted to know whether the service tax office at bangalore is still under the old scheme of providing service tax registration to the assessees.I had filed ST 1 on 01.07.15 and thought that under the new scheme of providing registration i would be getting the ST 2 CERTIFICATE within 2 days from the date of applying.So i patiently waited for the certificate checking my mail as well as Service tax ID day in and day out,but when i asked one of my friends he told me that i have to submit the requisite documents to the department as we were suppose to do hitherto.Then what is the point of issuing new notifications that under new method the department will make trust based registrations and all ST 2 will be issued within 2 days of uploadind details in ST 1,so my query to you is, is this old scheme of providing registration is only at BANGALORE jurisdiction or it is still followed all over india,please reply.

Would love your thoughts, please comment.x