CAG: 1,142 NBFCs slipped service tax net

The Comptroller and Auditor General (CAG) has suggested the revenue department should liaise with the Reserve Bank of India (RBI) to bring non-banking financial companies under the service tax net.

The CAG found 1,142 service providers in the banking and financial services segment were liable to pay service tax but not on the tax department’s registration list. About 65 of them were liable to pay service tax to the tune of Rs 92 crore in 2009-10.

In its report tabled in Parliament on Tuesday, the CAG said there were procedural deficiencies in registration of assessees, receipt of returns and scrutiny of returns, beside ambiguities in rule provisions and non-compliance. “We recommend the department may liaise with statutory authorities such as the RBI to obtain information regarding non-banking financial companies, to bring them under the service tax net,” it said.

It advised the department to take up various measures, including surveys, to identify potential assessees for service tax and get these registered.

CAG also conducted a performance audit of the Duty Drawback Scheme and found instances of procedural deficiencies and absence of clear provisions. It observed no supplementary rules were framed, laying down parameters for identification of goods in case of re-exports.

The auditor noticed there were no instructions specifying how to determine whether goods were “used” or not and recommended instructions be issued.

It suggested the tax department frame rules, indicating parameters for identification of re-exported goods with originally imported items, and issue instructions to clarify the conditions under which goods are to be treated as “used after import”.