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Audit by the Central Excise Department

Audit by the Central Excise Department :

History of provisions: In conventional sense, “audit” means scrutiny and verification of documents, events and processes in order to verify facts and, draw conclusions regarding the correctness of recording of facts and the efficiency of a system under study. For Central Excise purposes “audit” means scrutiny of the records of assessee and the verification of the actual process of receipt, storage, production and clearance of goods with a view to check whether the assessee is paying the central excise duty correctly and following the central excise procedures.

Under the conventional /traditional system of central excise audit, audit parties visited assessees unit without much preparation and verify all the statutory records (i.e. those prescribed under the Central Excise law) to check compliance of procedures and also leakage of revenue, if any. Experiences showed that such audits did not result in detection of major aberrations. Most of the audit objections pertained to either minor procedural irregularity or duty short payment of small amounts mostly due to human error. Further, this method of auditing did not envisage checking of the internal records of the assessee as well as those records which are maintained by the assessee under the other laws like Income-tax Act, Sales Tax Act, Companies Act etc.

In the year 2000, as a measure of simplification of procedures, the maintenance of all statutory records under the central excise law was dispensed with. No longer was the assessee required to record the receipt of raw material, production and clearance/sale of finished goods etc. in registers/documents prescribed by the central excise department. As a result, the assessees are now allowed to maintain all their records in whichever form they like (including maintenance of the entire records in electronic form) provided the essential information required for calculation of central excise duty liability can be obtained from such records. Under these circumstances it becomes necessary for the auditors to look into the assessees own (private) records to verify whether the assessee is paying central excise duty correctly and following the laid down procedures.

Another change brought in recent years is doing away the system of assessment of the returns by the departmental officers. Now the assessee is required to self assess his monthly tax returns before filing the same with the department. The departmental officers only scrutinise this return to check for any apparent mistake made by the assessee. They are not required to carry out detailed verification. Therefore, the entire burden of checking whether the assessee actually paying his taxes correctly, now lies with audit.

The statutory changes resulting in dispensation of statutory records as well as self assessment of central excise duty by the assessee has led to the conventional/traditional system of audit bec oming irrelevant.

Departmental Excise Audit: The Central Excise Department has thus, evolved a new system of departmental audit in view of the fact that all the statutory records to be maintained by the assessee have been abolished in year 2000/01.

Director General of Audit at Delhi supervises audit functions. An Audit section is attached to each Commissionerate. Audit of assessee‟s factory is carried out by visit by “audit party‟. The Audit Party usually consist of 2/3 inspectors and a Deputy Office Superintendent, headed by a Excise Superintendent. In case of larger units, Assistant/Deputy Commissioners may also accompany the audit parties. Audit by these audit parties is called “Departmental Audit‟.

The detailed guidelines, formats and check lists for audit is provided in the Audit Manual prepared by the CBEC for the use of its auditors.

Submission of records at the time of audit: Rule 22(3) of the Central Excise Rules, 2002 requires every assessee, and first stage and second stage dealer to submit to his range officer empowered by Commissioner or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India or Cost Accountant/ Chartered Accountant nominated under section 14A/14AA of the Act, the following for scrutiny within the time limit specified by the said officer or the audit party or the Cost Accountant or Chartered Accountant, as the case may be-

(i) the records maintained or prepared in terms of rule 22(2);

(ii) the cost audit reports under section 233B of the Companies Act, 1956 ; and

(iii) the Income-tax audit report under section 44AB of the Income-tax Act, 1961

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