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CAG report bares lapses in service tax recovery
May, 17th 2010

The Comptroller and Auditor General of India (CAG) has highlighted glaring lapses in the recovery of service tax being administered by the Union Government, while the number of cases and amount entailed in demands for service tax outstanding for adjudication/recovery keep escalating.

In its report on Indirect taxes - service tax, laid in Parliament recently, the CAG said a total of 88.286 cases involving tax of Rs 22,432.91 crore were pending with different authorities (Commissioners of Central excise/service tax have been authorised to collect service tax within their jurisdiction).

Of this, a major chunk, amounting to 65 per cent or Rs 11,575 crore, was with the adjudicating officers of the department. A particularly distressing feature is pendency for recovery of demands has escalated from 19.470 cases in 2007-08 to 22,513 cases in 2008-09, an increase of 16 per cent.


Stating that the Revenue Department detected a total of 6,512 cases of fraud/presumptive fraud during the years 2006-09 involving tax of Rs 5149.32 crore, the CAG said the department raised a demand for R 3,097.90 crore only and recovered barely 32 per cent or Rs 9,996.65 crore. What is worse is out of a penalty of Rs 405.48 crore that was slapped, the department could collect only Rs 5.99 crore or 1.48 per cent.

The report said in the last five years, including the current year's report, the CAG has brought to focus short levy and other deficiencies in service tax machinery with revenue implication of Rs 1,084.33 crore in 569 audit observations. Of these, the Government had accepted audit points in 456 places, involving Rs 508.91 crore and had since recovered Rs 190.98 crore.

In its 2009-10 report, the audit highlights 155 points with a revenue implication of Rs 375.55 crore, while the department has accepted till January 2010, the audit points in 130 cases involving revenue of Rs 305.13 crore and reported recovery of Rs 125.40 crore.

Interestingly, in one draft audit point, though the reply of the department has not been received, the assessees have accepted the audit observations and disbursed tax of Rs 0.18 crore, while in another case, though the department has not accepted the audit point, the assessee has paid the tax of Rs 1.91 crore. Accordingly, tax aggregating Rs 127.49 crore has been recovered till January 2010, out of the Rs 375.55 crore highlighted through the report.

Under-valuation of services

The report said service tax totalling Rs 328.22 crore was not levied or was not paid by the registered service providers, recipient of services and unregistered service providers. In a few cases, it said, exemption from service tax totalling Rs 24.93 crore was availed of in contravention of notifications of the Central Board of Excise and Customs' instructions or without a notification being in place.

Instances of under-valuation of services due to incorrect deduction of charges from assessable value, non- inclusion of tax deduction at source (TDS) in the gross value and adoption of lower value were also detected, the CAG said adding that service tax paid short in these cases amounted to Rs 8.16 crore.

The CAG also found cases of incorrect self-assessment of tax, incorrect suo motu adjustment of service tax, suppression of value of services, service tax collected but not paid to the Government, non-monitoring of returns with service tax implications of a staggering Rs 12.38 crore.

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