Introduction of Selective Audit - Instructions regarding - Central Excise - 267/101/96-CX

Circular No. 267/101/96-CX dated 13/11/96 F.No. 206/2/96-CX.6 Government of India Ministry of Finance Department of Revenue, New Delhi Subject: Introduction of Selective Audit - Instructions regarding I am directed to refer to above subject and to say that the following instructions should be followed:- 2. The system of internal audit by the Central Excise Officers has been modified so as to introduce a new system of Selective Audit. Henceforth, the following guidelines shall be followed :- 2.1 (i) Selective Audit of duty paying units other than those in SSI sector and medium scale units will ordinarily be conducted by Audit groups located at the Commissionerate Head quarters about once a year for all major units. However, in some Commissionerates, some Audit Parties may function from important industrial centers where D.C. (s) have been posted. (ii) However, this frequency can be modified by the Commissioner keeping in mind, inter alia, the following:- (a) Compliance Record of an assessee: Previous audit report of internal audit and / or CERA indicating serious irregularities, and cases detected by Anti-Evasion units etc. could call for a higher frequency of audits. (b) Type of Commodity/ Industry Turnover/ Revenue paid Units manufacturing the commodities prone to duty evasion; a list of commodities prone to evasion identified by DGAE in (Annexure-A) enclosed* and those paying less duty in comparison to the duty paid during corresponding period of the previous year, without apparent convincing reasons could be subject to a stricter scrutiny. (c) Special Marketing pattern adopted by an assessee: Significant differences and anomalies in prices at factory gate, depots, and at retail outlets could be indicative of an unjust study of the valuation aspect. (d) Types of discount given by an assessee (e) Nature of end-use exemptions availed: Units making substantial use of end-user based customs duty exemptions with high stakes of revenue could be selective for more frequent audit. (f) Trends of increase or decrease in revenue in respect of any commodity / unit. (g) Units clearing the goods under provisional assessment (h) Rising trend in availment of Modvat Credit by an assessee. (i) Whether in the same factory both dutiable and exempted goods are being produced 2.2 SSI units and medium units paying annual revenue of less than 1 crore need not be audited in the above manner. Instead there will be a system of Selective Audit keeping in mind the units which are manufacturing evasion prone commodities, using costly raw materials, showing negative growth of revenue etc. SSI units should be visited only on written permission of an officer not below the rank of Assistant Commissioner. Chef Commissioner may decide industry-wise/ sectoral Audit of such units on the basis of list of sensitive commodities as may be identified by the Director General, Anti Evasion. 2.3 Where any units produces both dutiable and exempted goods, it should also be subjected to comprehensive audit once a year. 3. In suitable cases, services of Cost Accountants can be utilised for audit of selected units where revenue stakes are high. 4. The audit should call for and scrutinise in depth the statutory records and returns, with assessee's internal records relating to production, and storage, delivery and disposal of finished goods and raw materials, as envisaged in Rule 173G(5) including Balance Sheets and Bank Statements and stores ledgers, Buyer-wise ledgers etc. All these checks should be done in a selective manner. 5. Since the assessees are not required to submit the copies of invoices alongwith RT 12, the Audit parties will be required to selectively examine invoices along with the private and statutory records, returns, etc. to ensure correctness of valuation and assessment in general. 6. Audit parties should suitable endorse the relevant documents and records scrutinised in token of audit: 7. Composition of Audit Parties:- The composition of the Audit Parties should be as per guidelines laid down in the audit Manual. However, in view of the availability of a larger number of Superintendents w.e.f. 1.10.96 the composition of some of the audit parties may be reorganised taking into account the work load. For some of the large units, there could be two Audit Parties headed each by a Superintendent and comprising at least two Inspectors. Each of the two Audit Parties assigned to such larger unit can be allotted specific items of work. 8. The Audit Schedule Number of days to be sent normally: 1) Unit paying duty Rs. 5 crore and above per annum 7 days 2) Unit paying duty Rs. 1crore to 5 crore 5 days 3) Unit paying duty Rs. 50 lakhs to Rs. 1 crore 4 days 4) Unit paying duty Rs. 10 lakhs to 50 lakhs 3 days 5) Unit paying duty less than Rs. 10 lakhs 2 days The Commissioner may, however, issue special or general instructions in respect of particular unit or particular commodity, a different schedula, keeping in mind the local requirements. 9. The existing arrangements in the Commissionerate Headquarters/ Divisional Headquarters for examining classification, valuation and MODVAT aspects be strengthened. 10. Ranges should, as far as possible, located within the Industrial Estates both for facilitation of the assessees and for preventing evasion. 11. The Director General of Inspection (DGICCE) will monitor the working of the scheme and furnish a report to the Board every six months. Sd/- (P.K. Sinha) Under Secretary (CX.6)