Custom, Excise & Service Tax Tribunal
Verifone India Sales Private Limited vs Delhi South on 16 April, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
New Delhi
PRINCIPAL BENCH - COURT NO. 3
Service Tax Appeal No. 50722 of 2019
[Arising out of Order-in-Original No. 34/Commr./RK/Audit-II/2018-19 dated
28.12.2018 passed by the Commissioner of Central Goods and Service Tax, Audit-
II, New Delhi]
Verifone India Sales Private Limited : Appellant
B-wing, First Floor, D-3, P3B, District Centre
Saket, New Delhi-110017
Versus
Commissioner of Central Goods & : Respondent
Service Tax, Audit-II, Delhi South Plot No. 2-B, 1st Floor, E.I.L. Annexe, Bhikaji Cama Place, New Delhi-110066 APPEARANCE:
Shri Ashwini Chandrasekaran, Advocate for the Appellant Shri Aejaz Ahmad, Authorized Representative for the Respondent CORAM :
HON'BLE MS. BINU TAMTA, MEMBER (JUDICIAL) HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL) FINAL ORDER No. 50491/2025 Date of Hearing:17.12.2024 Date of Decision:16.04.2025 HEMAMBIKA R. PRIYA The present appeal has been filed by M/s Verifone India Sales Private Limited1 to assail the Order-in-Original No. 34/Commr./RK/Audit-II/2018-19 dated 28.12.2018 wherein the Commissioner confirmed the demand of Rs. 4,26,09,828/- under proviso to S. 73 (1) of the Finance Act, 1994 for the period April 2010 to March 2015 along with interest and equal penalty.
1 the appellant 2 Service Tax Appeal No. 50722 Of 2019
2. The brief facts of the case are that the appellant was engaged inter alia in the business of supply of PoS terminals and spare parts etc., which are portable devices, used for secured online payment and other value added services. An Audit was conducted for the period March 2010 to March 2012 wherein the Department noted that the appellant was engaged in providing exempted (trading service) as well as taxable service, but had failed to reverse the proportionate credit as per Rule 6(3) of the CCR. When the issue was raised by the audit officers, the appellant reversed proportionate credit of Rs. 6,57,523/-, for the period 2010-2011, along with interest of Rs. 2,35,313/-. For the period 2011-2012 and 2012-2013 (till September 2012), the appellant had reversed the entire common credit availed, along with interest. A Show Cause Notice dated 30.09.2015 was issued to the appellant for the period 2010-2011 to 2014-2015, under proviso to S. 73(1) of the Act, proposing a demand of Rs. 4,34,29,598/- along with interest. The SCN alleged that the appellant had failed to reverse the credit (5/6% of value of exempted service) towards exempted services as per Rule 6(3) of the CCR, during the period 2011-2012 to 2014-
2015. It was also alleged that the appellant had availed credit on the basis of photocopies/ without the documents and thus, such credit was inadmissible. The said show cause notice was adjudicated by the Commissioner vide the impugned order wherein the demand was confirmed on the following basis:-
During the period 2011-12 to 2012-13 (till September 2012), the option under Rule 6(3)(ii) was not absolute but subject to conditions, which have not been met in the present case. The Appellant has not even given intimation to the Superintendent.3
Service Tax Appeal No. 50722 Of 2019 The contention of the Appellant that for the period 2012 (from October 2012)-13 to 2014-15 they did not avail common credit/ credit towards exempt services is not sustainable. The CA certificate for the period 2014-15 cannot be treated as a certificate due to the use of the word "such as".
The claim of the Appellant that audit was conducted for the period 2013-14 and 2014-15 and no objection was raised is not sustainable, Credit cannot be availed basis photocopies and hence credit of INR. 4,115/- is denied.
The stand of the Appellant that the original copy of invoices has been verified is incorrect as the letter relied upon is not acknowledged.
Extended period is invokable as the fact of excess availment of credit came to the knowledge only during the audit.
2.1 Aggrieved by the said order, the appellant has filed the present appeal.
3. Learned counsel for the appellant submitted that on the demand raised for the period 2011-2012 and 2012-2013 (till September), the stand that the reversal option under Rule 6(3)(ii) is not absolute and the Appellant had not given any intimation and thus there is a requirement of reversal of 5/6% of value of exempted service, is untenable. He contended that the Tribunal on various occasions has held that the assessee is free to choose any of the options of reversal prescribed in Rule 6(3) and the revenue cannot insist the appellant to avail a particular option. In support of his submission, he relied upon the following decisions:-
4
Service Tax Appeal No. 50722 Of 2019 Agrawal Metal Works Pvt. Ltd. vs. Commissioner of CGST, Alwar2 Mercedes Benz India (P) Ltd. vs. Commissioner of C. Ex., Pune-13 Aster Pvt. Ltd. vs. Commissioner of Customs & C. Ex., Hyderabad-
III4 Surya Vistacom Pvt. Ltd. vs. Commissioner of Service Tax-1, Kolkata5 3.1 Further, learned Counsel submitted that the reversal made by the Appellant cannot be rejected merely on the ground that the appellant has failed to follow the procedure prescribed in the Cenvat Credit Rules, 2004. In this regard, learned Counsel relied upon the following judgements:-
Jai Balaji Industries Ltd. vs. Commissioner of C. Ex. & S.T., Raipur6 Bhingar Urban Co-Op. Bank Ltd. vs. C.C.E., Cus. & S.T., 7 Aurangabad Jubilant Motor Works (South) Pvt. Ltd. vs. Commissioner of GST & Central Excise, Chennai8 3.2 Learned Counsel further stated that for the period October 2012
- March 2015, the contention of the appellant that no reversal was required as no common credit was availed, was rejected on the ground is that the same was not certified properly, was not a valid ground to raise a demand. Learned Counsel further stated that the CA certificate produced for the period 2014-2015 was rejected by stating that the same is not comprehensive and watertight. Learned Counsel submitted that it is settled law that a CA certificate is an expert evidence and the same cannot be brushed aside, unless there exists evidence to the 2 2022 (65) G.S.T.L. 372 (Tri.-Del) 3 2015 (40) S.T.R. 381 (Tri-Bom) 4 2016 (43) S.T.R. 411 (Tri-Hyd) 5 (2023) 4 Centax 291 (Tri-Cal) 6 2017 (352) E.L.T. 86 (Tri.-Del) 7 2016 (41) S.T.R. 673 (Tri.-Bom) 8 (2024) 17 Centax 239 (Tri.-Mad).) 5 Service Tax Appeal No. 50722 Of 2019 contrary. In this regard, Learned Counsel relied upon the following case laws:-
Shyam Textile Mills vs. Commissioner of C. Ex. & S.T., Ahmedabad 9 Afcons Infrastructure Ltd. vs. Commissioner of C. Ex. & S.T., Daman10 Supreme Industries Ltd. vs. Commissioner of Central Excise, 11 Mumbai He further contended that the appellant had also provided a CA Certificate for the period October 2012 - March 2015, to substantiate its stand that no credit relating to common input services was availed by the Appellant for the period October 2012 onwards. Learned Counsel further stated that the letter dated 03.09.2015 has the stamp and due acknowledgment of the Department. In fact, the original invoices were submitted vide letter dated 11.03.2014, which is also a part of the RUD's to the SCN. There is no finding on the reversal of Rs.
1,81,432/-made by the Appellant. Furthermore, he stated that the demand on this ground, if at all, can be restricted only to Rs. 4,115/-.
3.3. Learned Counsel further stated that the demand was time barred as per the table given below:-
For the period Date of Filing Time Limit Last Date Date of SCN as per Act 2010-11 April to September 22.12.2010 1 year 21.12.2011 30.09.2015 October to 28.04.2011 1 year 27.04.2012 30.09.2015 September 2011-12 April to September 22.12.2011 1 year 21.12.2012 30.09.2015 October to March 23.04.2012 1 year 22.04.2013 30.09.2015 2012-13 April to June 29.11.2012 18 months 28.05.2013 30.09.2015 July to September 19.04.2013 18 months 18.10.2014 30.09.2015 October to March 30.08.2013 18 months 29.02.2015 30.09.2015 2013-14 April to September 23.10.2013 18 months 22.04.2015 30.09.2015 9 2015 (328) E.L.T. 390 (Tri.-Ahmd) 10 2015 (329) E.L.T. 390 (Tri.-Ahmd) 11 2017 (358) E.L.T. 318 (Tri.-Bom) 6 Service Tax Appeal No. 50722 Of 2019 3.4 Learned Counsel for the appellant also submitted that the extended period of limitation under proviso to S. 73(1) was not applicable in the present case as there is no finding of suppression. He stated that in order to raise a demand under proviso to S. 73(1), there has to be fraud, suppression, etc. In the present case, there is no such finding of any fraud suppression by the appellant and hence, the invocation of extended period is bad in law. He relied on the following decisions:-
Mount Everest Breweries Ltd. vs. Commissioner of CGST & Central Excise12 GD Goenka Pvt. Ltd. vs. Commissioner of Central Goods and Services Tax13 Oil and Natural Gas Corporation Ltd. vs. Commissioner of Central Excise and Service Tax14 3.5 In addition, Learned Counsel submitted that it is a settled law that extended period cannot be invoked when demand is raised pursuant to audit. In this regard, he relied upon the following case laws:-
Kalya Constructions Pvt. Ltd. vs. Commissioner of Central Excise, Udaipur15 Computer Science Corporation India Pvt. Ltd. vs. Commissioner of Service Tax16 Rungta Sons Pvt. Ltd. vs. Commissioner, Central Excise, Customs and Service Tax, Bhubaneswar17
4. Learned AR for the Department submitted that the appellant's argument against the reversal of Cenvat Credit for the period between 12 (2024) 18 Centax 340 (Tri.-Del) 13 (2023) 11 Centax 2 (Tri.-Del) 14 (2024) 20 Centax 589 (Tri.-Del) 15 (2024) 21 Centax 199 (Tri.-Del) 16 (2024) 18 Centax 495 (Tri.-All) 17 (2024) 22 Centax 495 (Tri.-Cal) 7 Service Tax Appeal No. 50722 Of 2019 October 2012 and March 2015, wherein it has been claimed that no credit was taken for services common to both taxable and exempt services, and that subsequent audit did not raise objections, were not convincing, as the CA certificate was ony for the period of 2014-2015. No certificate was provided for the period Sept 2012 to March 2014. Learned AR stated that the appellant has argued that they have reversed credit on common input services and provided original invoices for verification. However, the adjudicating authority has disallowed the claim holding that photocopies cannot be recognized as valid documents for claiming credit. As regards the appellant's submission that they had the original invoices verified by the Range office, Learned AR stated that this claim was not acceptable in the absence of proper acknowledgment and identification of the signature on the submission letter. Learned AR stated that the appellant had failed to produce the original invoices during the hearing. 4.1 Learned AR further contended that Section 73(1) of the Finance Act, outlines the recovery of service tax and the circumstances under which the extended period of limitations can be invoked are also clearly defined. He contended that had the audit not been undertaken, the irregularity would not have noticed. Learned AR stated that Under the self-assessment, it was incumbent upon the appellant to adhere to regulatory provisions. The appellant had evidently failed to do so hence the extended limitation period is invokable and they were liable them for imposition of penalty. The question of Imposition of penalty has been decided by the Hon'ble Supreme Court in UOI Vs. 8 Service Tax Appeal No. 50722 Of 2019 Dharmendra Textile Processors and others18 wherein it was held that penalty u/s 11AC of the CEA is mandatory. Similar view was taken by the Hon'ble Supreme Court in the case of UOI v. Rajasthan Spinning & Weaving Mills19. In the light of the above, he prayed that the impugned order may be upheld and the appeal may be dismissed.
5. We have heard the learned Counsel for the appellant and the learned AR for the Department and perused the case records.
6. These are the issues before us for decision:-
(i) Whether the proportionate credit reversal for the period April 2011-Sept. 2012 is sufficient compliance to Rule 6(3) of the Cenvat Credit Rules, 2004.
(ii) Whether credit is required to be reversed for the period Octber 2012-March 2015.
(iii) Whether credit availed on photocopies of documents is admissible.
(iv) Whether extended period is rightly invoked.
7. We take up each issue individually. Learned Counsel for the appellant submitted that as long as the proportionate credit was reversed by the appellant for the period 2011-2012 and upto September 2012. We find that the impugned order has held that as the appellant did not give any intimation to the Range Officer as required under the Cenvat Credit Rules, 2004, the appellant could not have exercised the option of proportionate reversal of cenvat credit. We find that this issue is no more res-integra. Once the appellant have 18 2008 (231) ELT 3(SC) 19 2009(238) ELT 3 (SC) 9 Service Tax Appeal No. 50722 Of 2019 reversed proportionate credit on common input service attributable to the exempted service, along with interest, it restores the position of cenvat credit not having been availed at all, and the demand for 5%/6% of the value of exempted services cannot be sustained. In the case of Chandrapur Megnet Wires P. Limited vs. CCE, Nagpur20, the Hon'ble Supreme Court has held as follows:-
"6. It is true that the assessee has not maintained separate accounts or segregated the inputs utilised for manufacture of dutiable goods and duty free goods, as should have Been done. The contention of the Department that in this situation, the assessee is not entitled to reverse the entries and get the benefit of the tax exemption is a question which merits serious consideration. There is no doubt that the assessee should have maintained separate accounts for duty free goods and the goods on which duty has to be paid. But our attention was drawn to a departmental circular letter on this problem in which it has been clarified by the Ministry of Finance as under :-
"3. The credit account under MODVAT rules may be maintained chapterwise, MODVAT credit is not available if the final products are exempt or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end use notification) and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products."
This circular deals with a case where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on 20 1996 (81) ELT 3 (S.C.) 10 Service Tax Appeal No. 50722 Of 2019 which duty will have to be paid. This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products.
7. In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties pald on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods.
8. The appeal is therefore, allowed. The order of the Customs, Excise and Gold (Control) Appellate Tribunal dated 17th May, 1995 is set aside. There will be no order as to costs." 7.1 Similarly, in the case of PI Industries vs. CCE21, the Tribunal has held as follows:-
"4. He also submits that it is an accepted principle of law that reversal of Cenvat Credit attributable to exempted goods or service amount to not taking Cenvat credit at all. However, the Learned Commissioner while appropriated entire amount of Cenvat credit along with interest attributable to common input services for the period April 2004 to June 2009, dropped demand only for the period April 2004 to March 2008 being covered under Rule 6 (7) of the Cenvat Credit Rules and confirmed the demand and recovery amounting to Rs. 1,26,19,534 along with interest for the period April 2008 to June 2009, which is bad in law. Appellant having reversed entire amount of Cenvat Credit availed on common input services related to SIAPTON, the demand is not sustainable. He placed reliance on the following judgments:-
(i) Welspun Corporation Ltd. vs. CCE-2019(368)ELT 179(Tri.) 21 2023 (6) TMI 455 CESTAT 11 Service Tax Appeal No. 50722 Of 2019
(ii) Star Agriwarehousing & Collateral Management Ltd. vs. CCE-
2021 (44) GSTL 271 ((Tri.)
(iii) Ahemdnagar District Central C-op Bank Ltd. vs. CST- 2018(364)ELT 1098 (Tri.)
(iv) Reliance Life Insurance Co. Ltd. Vs. CST-2018(363)ELT 1050 (Tri.)
5. On the other hand, Shri Ganasyam Soni, Additional Commissioner (AR) reiterated the findings in the impugned order.
Xxxxxx xxxxxxxx xxxxxx
7. We find that the case of the department is that since the assessee has availed the Cenvat credit in respect of common input service used in the manufacture of dutiable and exempted goods, the appellant is required to pay 10% of the value of the goods cleared without payment of duty (exempted goods). From the facts it is undisputed that the appellant have been reversing Cenvat credit proportionate to the credit on input service used for exempted goods along with interest, therefore, first the credit though availed at the time of receipt of input service but after reversal thereof along with interest the position is as if credit was not availed. We are also of the view that Rules of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods. Moreover this issue has been consistently considered in various judgments wherein it was held that if the assessee reverse the Cenvat credit in respect of common input service used in the manufacture of exempted goods the demand equal to 10%/5% will not sustain. Therefore, we do not find any merits in the impugned order confirming demand for the period April 2008 to June 2009."
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Service Tax Appeal No. 50722 Of 2019 7.2 In the case of Jost's Engineering Co. Limited vs. CCE, Mumbai - III22, the Mumbai Bench of the Tribunal passed the following order:-
"5.2 In the present case it is an admitted fact the appellant did not maintain separate accounts for the input services used in or in relation to the manufacture of product dutiable as well as exempted products even though they maintained such accounts in respect of inputs. Therefore, two options were available to them, i.e., either to pay 5%/10% of value of the exempted goods or pay an amount equal to the credit attributable to the input services used in or in relation to manufacture of exempted goods subject to the provisions of Sub-Rule (3A). When the mistake was pointed the appellant reversed not only the credit taken on input services used in the manufacture of exempted goods but also the credit taken on input services used in the manufacture of dutiable goods. In other words, the appellant reversed the entire credit taken along with interest thereon. Therefore, Rule 6(3)(i) will not have any application, when a credit is taken wrongly and the same is reversed along with interest as it tantamounts to non-taking of the credit. The Hon'ble High Court of Allahabad in the Hello Minerals. Water (P) Ltd. case cited supra clearly held that "reversal of Modvat credit amounts to non-taking of credit on the inputs and even if such reversal was done after the clearance of the case of Chandrapur Magnet Wires (P) Ltd. (supra) also held that reversal of Modvat Credit at the time of clearance of the goods amounts to non-availing of credit. All the judgments relied upon by the appellant also confirm the above position. The Hon'ble High Court of Karnataka in the case of Himalaya Drug Company held that the provisions of Rule 6(3)(i) of the Credit Rule, 2004 would not be attracted if reversal of credit is done in respect of inputs used in the manufacture of exempted final products. In view of these decisions, we are of the considered view that the reversal of credit by the appellant on the entire service tax taken along with interest thereon both in respect of dutiable goods as well as exempted goods amounts to non-availing of credit and, therefore, the provisions of Rule 6(3)(i) are not attracted and the confirmation of demand by the adjudicating authority directing the appellant to pay an amount at the rate of 5%/10% of the value of the exempted goods is not sustainable in law. Consequently, the imposition of 22 2015 (320) ELT 157 (T) 13 Service Tax Appeal No. 50722 Of 2019 penalties on the appellant and appellant firm and its manager are also not sustainable in law and accordingly, they are set aside. However, the appellant has Initially availed credit and only on pointing out by the department they have reversed the credit and, therefore the appellant is liable to penalty under Rule 15(3) of the Cenvat Credit Rules, 2004 for contravention of the provisions of Cenvat Credit Rules. The maximum penalty imposable under the said Rule is Rs. 2000/- and accordingly the appellant is liable to pay penalty of Rs. 2000/- under Rule 15(3) of the Cenvat Credit Rules, 2004.
6. The appeal is disposed of in the above terms."
7.3 In the case of Burn Standard Co. Ltd. vs. CCE23, the Chennai Bench of the Tribunal passed the following order:-
"3. As per the decision of the Tribunal in Foods, Fats & Fertilisers Ltd. v. Commissioner of Central Excise, Guntur [2009 (247) E.L.T. 209 (Tri.-Bang.)], this amendment being procedural, is held to be retrospective in operation. Further, the Finance Act, 2010 has retrospectively amended Rule 6 of the CENVAT Credit Rules, whereby reversal/payment of proportionate credit attributable to inputs used in the manufacture of exempted goods, either before or after the clearance of such goods is an option available to a manufacturer not maintaining separate records for receipt, consumption and use of common inputs, taking credit on common inputs used for manufacture of dutiable and exempted final products."
Hence, the said demand cannot be sustained.
8. We now take up the second issue. Learned Counsel has submitted that for the period October 2012 to March 2015, the appellant did not avail credit on common inputs/service. It has also been submitted that a CA Certificate to this effect was submitted. The adjudicating authority has rejected the appellant's contention that the CA Certificate was only for the year 2014-2015. However, a copy of 23 2010 (262) ELT 786 (T) 14 Service Tax Appeal No. 50722 Of 2019 the CA Certificate for October 2012 - March 2013 (dated 18.03.2019) has been submitted before us. From the date of the certificate, it is evident that this was not presented before the adjudicating authority. However, we do not find any infirmity in the said CA Certificates. It has been categorically held as follows:-
"On the basis of examination of Audited financial Statements, service tax returns and others relevant records produced before us for verification and based on such other necessary information and explanation provided during the course of our review for this certificate, we hereby certify that:
1. During the period October 2012 to March 2015, Company has availed the CENVAT Credit of Rs. 3.07,95.982/- as per service tax returns and attached annexure. Such input services were used for provision of taxable output services of business support services, maintenance or repair services, etc. by the company on which service tax was duly discharged.
2. The Company did not avail CENVAT Credit on input services such as clearing and forwarding, freight, marine insurance etc. exclusively used for exempt services or common input services such as Chartered Accountant services, Renting of Immovable Property service, Telecommunication services for office and similar nature of services which are commonly used both for taxable and exempt services."
It is not clear as to in what form, the adjudicating authority wanted the CA Certificate to be submitted in order to satisfy the requirements of the Department. It is well settled principle that CA Certificate cannot be rejected unless it is evidenced that the same is fake or forged. Consequently, we hold that the CA Certificates submitted are acceptable to establish that no credit was availed on common input services for the period October, 2012 to March 2015. 15
Service Tax Appeal No. 50722 Of 2019
9. As regards the availment of credit on photocopies, we find that the appellant has claimed that the original invoices were submitted to the Range Office vide their letter dated 11.03.2014, a copy of which is annexed to the appeal paper book. We note that the said letter is addressed to Superintendent, Service Tax, Range-I, Division-I, Noida and the receipt stamp of the Range date 12 March 2014 is clearly visible. This contention of the appellant has been boldly rejected by the adjudicating authority holding that the letter has not been acknowledged and the signature appended is not identifiable. Once a evidence of producing the original invoices before the Jurisdictional Officer has been submitted, unless it is evidenced that the seal/signature was forged, the submission deserves to be accepted.
10. As regards the extended period, it is on record that the appellant's records were audited in the year 2012. It is seen that the CBIC issued a detailed manual, Service Tax Audit Manual, 2011. The audit records of an assessee is a very detailed process undertaken by the Department. It involves several preparatory steps before actually visiting the premises of the assessee for audit of the records. The steps are as follows:-
(i) Profiling of a taxpayer- Audit requires a strong database for profiling each assessee/taxpayer so that risk-factors relevant to an assessee/taxpayer may be identified in a scientific manner and audit is planned and executed accordingly. Some of the relevant data has to be collected from the assessee/taxpayer during the course of audit, while the rest is to be extracted from the registration documents and returns filed by the assessee/taxpayer as well as from his annual report, reports/returns submitted to regulatory authorities or other agencies, Income Tax returns, contracts with his clients, audit reports of earlier periods as well as audits conducted by other agencies, (like office of C&AG), etc. A 16 Service Tax Appeal No. 50722 Of 2019 comprehensive data base about an assessee/taxpayer to be audited is an essential pre-requisite for selection of units as well as for undertaking preliminary desk review and effective conduct of audit.
(ii) Creation of Assessee Master File (AMF): The first step towards an effective audit is to collect all relevant information about the assessee/taxpayer from various sources, arrange it in a systematic manner so that the audit can be planned in a result-
oriented manner. The AMF should contain all the useful information about an assessee/taxpayer, in the form of statistical data as well as in narrative form.
(iii) Desk Review: Desk Review lays emphasis on gathering data about the assessee/taxpayer, his operations, business practices and an understanding of the potential audit issues, understanding his financial and accounting system, studying the flow of materials, cash and documentation and run tests to evaluate the vulnerable areas. The preliminary review assists in development of a logical audit plan and focus on potential issues.
(iv) Audit Plan is the most important stage before conduct of audit. The audit team should examine the Assessee Master File, the ST-3 returns, Third party data and other Statutory Returns to identify vulnerable areas, abnormal trends and unusual occurrences that warrant detailed verification.
(v) Physical Verification of Documents: A detailed scrutiny of the financial records of the assessee/taxpayer is to be undertaken based on Desk Review. The documents to be examined include Annual Financial Accounts containing Director's Report, Statutory Auditor's Report, Balance Sheet and Profit & Loss Account. If necessary, the auditor must go into details of the figures mentioned in the Annual Financial Statements and for that he must examine Trial Balance, Ledgers, Journal Vouchers and Invoices. He may also examine Cash Flow Statement, Groupings, Cost Audit Report and Tax Audit Report. He should also check whether the assessee/taxpayer is maintaining the statutory records as required under various statutes especially under the Companies Act, 2013.Audit objections raised must be fully supported by documentary and legal evidence. This will greatly help in explaining and discussing the objections with the assessee/taxpayer and other follow up action.
(vi) Checking of cross utilization of credit on inputs and input services:
While carrying out audit of Central Excise cases, the Service Tax return filed by the assessee/taxpayer should also be scrutinized in 17 Service Tax Appeal No. 50722 Of 2019 order to ensure that CENVAT credit claimed in both the returns does not vary and vice versa. Further, where both the returns are filed in the same Commissionerate, audit of both the activities should be undertaken simultaneously. If these returns are being filed separately (one with the Excise Commissionerate and the other with the Service Tax Commissionerate, then this can be tackled by undertaking integrated audit for Central Excise and Service Tax. While undertaking the combined audit, both the Central Excise and Service Tax returns should be scrutinized in order to verify whether CENVAT credit claimed in both the returns is different.
(vii) Apprising the assessee/taxpayer of irregularities noticed and ascertaining his view point: It is important that the auditor discusses all the objections with the assessee/taxpayer before preparing draft audit report. The assessee/taxpayer should have the opportunity to know the objections and to offer clarifications with supporting documents. This process will resolve potential disputes at an early stage and avoid unnecessary litigation.
The ultimate aim of conducting an audit is to increase the level of tax compliance of assessee/taxpayer. Therefore, no audit can be considered to be complete unless the auditor has made all efforts to ensure maximum recovery of short levy before leaving the premises of the assessee/taxpayer. As the Audit system adopts a transparent methodology, it is necessary that all the audit objections noticed by the Audit Group are conveyed to the assessee/taxpayer with a view to ascertain his point of view before preparing the Draft Audit Report. Accordingly, the audit objections should be intimated in writing to the assessee/taxpayer, clearly stating that the same is not in the nature of any show cause notice and is only a part of participative and fact-finding audit scheme under which even the preliminary and tentative audit observations are being shared with the assessee/taxpayer for ascertaining his point of view.
11. From the above, we note that the Audit team carries out a very comprehensive action beginning from creation of the Assessee Master file to the actual audit of the records of an assessee. In the instant case, it is noted that the audit was undertaken over 3-4 days in the year 2012, looking into all the records maintained by the appellant. Further, as the appellant being subjected to audit from time to time we find that invocation of extended period is neither warranted not 18 Service Tax Appeal No. 50722 Of 2019 substantiated. Once all the statutory records of the appellant has been audited and the appellant has filed this returns regularly, the Department cannot invoke the extended period.
12. In view of the above, we set-aside the impugned order. Consequently, the appeal is allowed.
(Order pronounced in the open Court on 16.04.2025) (BINU TAMTA) MEMBER (JUDICIAL) (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) G.Y.