In a U-turn, the Central Excise has reversed its stand on levying service tax on the Comptroller and Auditor General (CAG) saying it does not come under the business support service ambit.

The new circular issued by the Tax Research Unit (TRU) of CBEC on June 19 says, "CAG would not be covered by the service head Business Support Service."

The new circular comes just 22 days after the chief commissioner of service tax wrote to all the Commissioners of Central Excise and Service Tax (on May 30), saying "CAG was not discharging its service tax liability all over India against the services provided by them and had defaulted Rs 33 lakh of tax."

Later, another circular was issued on June 6 stating, "no action should be taken till further orders by the Board".

"A doubt has been raised whether service tax is leviable on the audit fees collected by the CAG for conducting directly audit of corporations.

"Reportedly some field formations are inclined to take a view that such 'audit fee' collected by the CAG is leviable to service tax under the authority of the inclusive portion of the definition of 'practising chartered accountant'...", read the recent circular.

The circular added that services of CAG are not as rendered by a chartered accountant even though both may be engaged in auditing.

The scope of work of the CAG goes far beyond that of a statutory company auditor and is often carried out by persons who may not be professional chartered accountants, it states.

"It is evident that this circular has clarified that the new service was meant to capture such services as are ordinarily outsourced by business entities. The audit activity is not an outsourced function but is carried out in statutory fulfilment of duties. Thus the services by CAG would also not be covered by 'Business Support Service'," the June 19th circular said.

The circular issued on May 30 had said enquiry conducted so far has revealed that the office of auditor general (Audit II), Nagpur is conducting audit of accounts of certain Central Public Sector undertakings, statutory corporations, autonomous organisations and collecting fees/charges from them for the same.

"Preliminary enquiry reveals that they have received Rs 3.3 crores (approx) from three organisations in last five years for providing services, but have failed to pay Rs 33 lakh as tax on services provided by them," the letter had said.

Further, the letter had also said it has been noticed that the commercial audit by the AG's office Nagpur is conducted only in a few cases and major activities are being undertaken in metro cities.