Check list for Central Excise officers on their inspection/visit of factories - Central Excise - 26/88

Check list for Central Excise officers on their inspection/visit of factories Circular No. 26/88 Dated 4-4-1988 [From F. No. 213/8/88-CX.6] Subject : Check list for Central Excise officers on their inspection/visit of factories. A check list for use by senior Central Excise Officer (of the rank of Assistant Collector and above) in course of their inspections/visits to factories is appended below. Board has directed that checks pointed out should be conducted by the officer in depth. PRELIMINARY 1. A study of the manufacturing process of the commodities manufactured in the factory (from available literature/sources etc.) before visiting. 2. A critical study of Tariff and the exemption notifications, if any, issued, relating to the commodities. 3. Ascertain the reputation of the factory so as to decide the line of action for checking on the visit. CHECKS IMMEDIATELY ON VISIT 1. Whether L4-L6 licence (if any) issued to the manufacturer are renewed from time to time and are valid. 2. Whether the prescribed registers like raw material account, Production account are maintained by the manufacturer. 3. Whether RG-1 register and PLA are posted upto-date. 4. Whether the physical stock in BSR and in the finishing room tallies with the book balance shown in RG-1. REVENUE Check the revenue yield. Broadly look into the causes of fall in revenue, if any, with reference to corresponding period of previous two years. Indicate the time of investigation for divisional/range officers or Hqrs. preventive officers, if any leakage of revenue is suspected. CHECKS REGARDING PRODUCTION 1. On the spot comparative study of the balance sheet of company for the last three years to know the production trends and sales achievements of the factory. 2. An attempt may be made to find out whether the assessee has made any efforts to conceal any records from the Department, while furnishing the list under Rule 173G(5). 3. It should be specifically checked whether the range staff has exercised all the required checks as per the frequency prescribed under PBC/RBC. 4. Checking of some of the entries of production shown in RG-1 with production/packing reports to see whether the production is being accounted for in RG-1 correctly. 5. Check at what stage the product is being accounted for in RG-1 register and whether it is being postponed without valid reasons. 6. Check if there are any guidelines indicating correlation between "input" and "ourput" and if so, the production is broadly in accordance with the guidelines and the production plan of the manufacturer. 7.Check the production figures in C. Ex. records and returns with the returns submitted by the assessee to various other departments/authorities/Banks etc. and records maintained for them. 8. Compare the production with production capacity of the unit and find out the reasons for variation. P.L.A. 1.Check some of the credit/debit entries in P.L.A. with credit challans/GPN. 2.Whether the monthly extracts are sent to the proper authorities in time. CLASSIFICATION LISTS 1. Check the Classification Lists exhaustively, to ascertain whether the complete range of commodities including intermediate products manufactured by the assessee have been declared (This has to be done by making a survey of the factory). 2. See whether classification lists have been finally approved. In case of provisional assessment, look into the stage of pendency and the reasons for undue delay. 3. Check whether any intermediate goods have been cleared. Whether they were assessed to duty? (This can be found from sales-invoices.) 4. Check whether by-products, waste products and products taken into the reprocessing cycle have been included in the list and properly classified. 5. Check with reference to sales invoices/bills whether goods have been described by their Trade nomenclature. If the description in the invoice is different from what is given in the classification lists, does it affect the classification or rate of duty? 6. See whether the conditions of exemption or notifications availed of, are satisfied and adequate evidence to that effect is available. PRICE LISTS 1. Check whether the price lists where required to be approved prior to clearance of goods. In case of provisional approval comments on the aspect of delay in finalisation. Whether provisional approval has been given at the lower value or lower rate of duty particularly where the incidence of higher duty is being passed on to the customer/dealer. (Provisional assessment may be called for at the higher value or higher rate of duty under Rule 9B). 2. Check carefully whether the sale of goods is to (i) an independent wholesale dealer or (ii) a related person or (iii) own depots/branches. Accordingly, carry out a test check of the declared prices with the invoices of the manufacturer or related person or of depots/branches, as the case may be, check if the information provided by the manufacturer with regard to the pattern of sale is in order. The constitution of the company has to be studied for this purpose. 3. Examine the independent status of the wholesale dealer with reference to agreement/actual practice. In this connection, refer to the definition "inter connected undertakings" as given in the Monopolies and Restrictive Trade Practices Act, 1969 and such other laws, as may be relevant. 4. Check whether trade discount actually claimed and allowed, have been granted out-right at the time of removal of the goods. 5. Check whether other discounts claimed and allowed, are admissible. 6. Check whether any debit notes/supplementary invoices are issued by the assessee to any of the dealers/customers and whether these debit notes/supplementary invoices have the effect of changing the assessable value because of a possible 'kick back'. Customer- wise ledger maintained is useful in carrying out this check. In some cases, without issue of debit notes, the assessee may treat his dealers as "Sundry Debtors". Check the list of Sundry debtors to ascertain whether any wholesale dealers or distributors is shown as a debtor. A scrutiny of this account will reveal if any of the discounts given have been withdrawn treating them as loans and the parties as "Sundry Debtors". CLEARANCES 1. Check selectively to see whether the quantities of clearances as per delivery notes or other covering documents tally with the quantities cleared according to excise gate passes, if the assessee is having separate documents for excise clearances. 2. Check clearances selectively with reference to transfer slips etc., where sale is not effected (for example, branches/depots). 3. Check clearances of excisable goods for destruction/denaturation. Comment whether there is a high percentage of such goods to the production. 4. Compare entries in the RT-12s with the production and clearance Accounts and note down discrepancies, is any. DUTY PAID GOODS RECEIVED FOR REPAIR, PROCESSING ETC. AND THEIR ACCOUNTS 1. Check whether notice of receipt/declaration of duty paid goods, as required under the rules/instructions has been given/filed by the assessee. 2. Also check whether there is proper correlation between the quantity received and that actually obtained after reprocessing etc., keeping in view the resultant wastage and its disposal. 3. Ensure that the provisions of rule 173H have not been extended/availed of in respect of processes amounting to manufacture. 4. Proper and separate accounts of goods received and reprocessed etc. and maintained. (56A (PROFORMA CREDIT) 1. Whether conditions for availing of proforma credit are satisfied or not? 2. Whether permission has been granted by the competent authority? 3. Whether intimation (D3)/receipt of components and raw materials is being given/verified before credit is taken? 4. Whether waste products/by-products are being cleared as per the provisions of the rules. MOVEMEMT UNDER RULE 56B 1. Check whether the goods moving under bond under rule 56B have been acknowledged by the consignees where, further processing is undertaken and that proper permission has been granted by the Competent Authority. 2. If the goods after processing are cleaned from the consignee's factory, cheak whether evidence to the effect that duty has been duly paid, is available and also wastage if any, has been properly accounted for. 3. Check whether semi-finished goods and finished goods remain under same sub-heading after reprocessing. RULE 57A (MODVAT) 1. Whether the inputs and other materials declared and final products manufactured are specified in the relevant Notification issued under Rule 57A. 2. Whether declaration in proper form has been filed. 3. The goods which are not declared as inputs are not eligible for credit. Check up if there is any such case. 4. Whether the inputs are being used in any final products on which no duty is paid. 5. Whether each consignment for which credit is taken is accompanied by the prescribed documents evidencing payment of duty such as G.P.I, A. R.s Sub-Gate pass, B/E, etc. 6. In case inputs are used in the manufacture of goods chargeable to duty whether an amount of duty on the inputs used in final products chargeable to nil rate of duty has been debited before clearance of final products. 7. Whether the RO/AC has exercised checks regarding verification of duty paying documents in respect of the Modvat unit according to the prescribed percentage. 8. Whether it has been ensured in respect of metals on which deemed credit at specified rates has been taken that (i) no credit was already availed under any rule or notification granting such credit. (ii) that such inputs are not clearly recognisable as being non-duty paid or charged to nil rate of duty. RECEIPT OF GOODS UNDER CHAPTER X AND THEIR ACOUNTAL 1. Check selectively the entries in R.G. 16 with the A.R. 3A on which goods have been received on Bond. 2. Check whether the Bond amount is adequate to cover the duty involved on the goods received under Chapter X. 3. Whether the goods have actually been used for the purpose for which the same were brought. EXAMINATION OF RT-12 1. Check whether RT-12s have been filed in time. 2. Check whether assessments of RT-12 are up to date. Indicate the R.T.12s which have not been completed within six months of the dates of their receipts. The matter should be promptly taken up with the Divisional Officer through the Assistant Collector/ Deputy Collector (Audit). SAMPLE ACCOUNTS/TEST RESULTS 1. Check whether samples have been drawn according to the prescribed frequency, if any. 2. Check whether the duty has been demanded for the correct period in case a sample has not been found to conform to declaration in a test memo. 3. Check whether conditions (including post clearance) imposed by a notification/executive instructions relating to duty-free clearance of samples have been satisfied. Check whether any duty free clearance of samples is allowed by executive instructions and comment whether legal backing is required. EXPORTS 1. Check whether running bond account maintained properly? 2. Whether demands have been issued in case of those A.R. 4/A.R. 4A where proof of export has not been received within 5 months period and where the exporter has not furnished attached photo copy of A.R. 4/A.R. 4A (export copy). AUDIT OBJECTIONS 1. Check the pendency, objection of A.R. (Audit) Internal audit objects. COURT CASES 1. Check the present position of Court cases. 2. Whether period of Bank guarantee have been extended where requied under court's order. ARREARS OF REVENUE 1. Check part-wise pendency of all arrears of revenue and efforts make for revocery. 2. Suggest measures for recovery. REFERENCES 1. Check whether all references made by the assessee with the Deptt. have been replied to or not. 2. Pending references may be seen and measures suggested for immediate reply.