Central Excise Law

By April, 2002, conventional routine audit done annually/ once in 2 years in Central Excise Department was replaced by Excise Audit 2000, a modern, transparent and systematic technique, of Canadian origin, based on scrutiny of business records of the assessee and with assessee’s participation all the way through so that explainable flimsy and purely procedural or technical objections are dropped at the earliest, thus reducing in-fructuous litigation. E.A.2000 is conducted stage-wise as follows:

1.Selection of Assessees (about 300 to 400 units should be selected in each financial year out of 1000-1500 units in the Commissionerate) on the basis of bad track record of the assessee and ‘risk factors’ (evasion prone/ high duty final products, use of high duty/costly inputs or availing Customs end-use exemption, unit showing fall in revenue but increase in Cenvat availment, manufacturing dutiable ass well as exempted final products and so on). Selected units should be assigned to the auditors at the beginning of the financial year.

2. Desk Review- The auditor should gather as much relevant information about the assessee as possible from departmental records, published documents like balance sheets, annual statements etc. and through market enquiry.

3.Touring/Visit of the premises. This is intended to see the actual running of the unit, records maintaining systems of various sections, movement of goods and the related documents within the unit with a view to spotting out possible loopholes leading to revenue leakage.

4.Audit Plan to list out on the basis of information gathered the vulnerable areas and selection of relevant related records for actual verification later. The audit plan is flexible and can be altered mid way so as to drop explainable objections and add new areas of suspicion coming to notice.

5.Verification or actual audit.- This is carried out in presence of the assessee on a scheduled date (informed to the assessee in advance) and in accordance with the audit plan. It can also include checking of clearance figures in excise returns with corresponding figures in balance sheets, sales tax returns, Bank Statements etc., inquiries about vague entries like ‘misc income’. Te assessee may be asked to make spot payments for admitted mistakes.

6.Draft Audit Report to list out pursuable audit objections or audit paras after considering assessee’s explanations, with short levy tabulated wherever possible, for further discussion with senior officers.

7.Audit Report prepared, after discussing with superior officers and screening out flimsy draft objections, from the point of view of sustainability of objections. The Report is then sent jurisdictional officer to make recoveries/issue demand notices.

Periodicity and duration of Audit- These have been prescribed as under: