GUIDELINES FOR CONDUCTING AUDIT OF MULTI LOCATION UNITS (MLU) AND MULTI LOCATION SERVICE PROVIDERS (MLSP) - Central Excise and Service Tax Audit Manual - CBEC - Service Tax

CHAPTER 9 GUIDELINES FOR CONDUCTING AUDIT OF MULTI LOCATION UNITS (MLU) AND MULTI LOCATION SERVICE PROVIDERS (MLSP) 9.1 Definition: 9.2 CENTRAL EXCISE: A single manufacturer having more than one unit on the same PAN number is called a Multi Location Unit (MLU). 9.3 SERVICE TAX: A single service provider having more than one Service Tax Registration falling under different Commissionerates for providing services is called a Multi Location Service Provider (MLSP). 9.3.1 There may be three different situations in which the co-ordination of audit has to be done as detailed below: i. in case there is only one Audit Commissionerate in the PCC/CC Zone- identify all the assessees/tax payers, with a common PAN , in the jurisdiction of the Audit Commissionerate and audit of all the units should be covered simultaneously even though the assessees/tax payers are falling under different Audit Circles. ii. in case there are multiple Audit Commissionerates in the PCC/CC Zone- Audit of such assessees/tax payers should be covered/scheduled simultaneously by the coordinating Audit Commissionerate (to be decided by the PCC/CC based on the jurisdiction of the highest Duty/Tax Paying Unit). iii. In case of Registrants falling in multiple PCC/CC Zones The Zonal ADG, under whose jurisdiction, the highest duty paying unit/service provider falls, will be the nodal agency for co-ordinated audit. 9.3.2Identification of MLUs/MLSPs: For identifying Multi Location Units/Service Providers, the Audit Commissioners/Principal Chief Commissioners /Chief Commissioners/ Additional Directors General (Audit), of Zonal Units may use the Automation of Central Excise Service Tax (ACES) Registration database. This could be done by identifying the assessees/taxpayers having the same PAN but more than one Central Excise/Service Tax Registration falling under different jurisdictions for manufacture of goods/provision of service. 9.3.3Selection of Units for MLU/MLSP: (a) In respect of MLU/MSLP categories (i) and (ii) mentioned above, the details of such units/service providers will be finalised by the DG (Audit)/Zonal ADG (A), while drawing up the Annual schedule in consultation with the Audit Commissionerate. (b) The preliminary list of MLUs/MLSPs of category (iii) above i.eassessees/tax payers falling in multiple PCC/CC Zones would be generated by the 30th of April in each financial year and circulated by the DGA on a CD or any other electronic media to the Zonal ADGs. 9.3.4 Procedure for selection of MLUs/MLSPs: (i) Five MLUs and five MLSPs per annum will be selected by each Zonal Unit for coordinated audit. The selection would be based either on MLUs manufacturing sensiti ve or evasion prone goods showing adverse revenue trend and service providers providing evasion prone services and showing adverse revenue trend or selected randomly. (ii) The Zonal ADG (Audit) would send short listed assessees/taxpayers for coordinated/simultaneous audit to the Audit Commissionerate. (iii) On receipt of such a list from the Zonal ADG , the Audit Commissioner should send the information maintained in electronic/ soft-form from the Assessee/Tax Payer s Master File in respect of thoseMLUs/MLSPs to the Zonal ADG. (iv) The Zonal ADG should finalise the list of such MLUs/MLSPs selected for co-ordinated audit by 31st May every year so that such assessees/taxpayers are not covered in the annual Audit schedule prepared by the Audit Commissionerate.Actual audit verification may generally be planned during November/December of that year and this period should be blocked by the Audit Commissionerate for conducting these audits. 9.3.5 Guidelines for conduct of audit of MLUs/MLSPs: A. In respect of category (i), the procedure laid down for standalone audit should be followed. However, those units of such MLUs/MLSPS, which are selected for audit based on revenue risk and figured in the annual schedule, should only be covered and audited simultaneously. B. Similarly, in respect of category (ii) units/service providers (only those units/service providers, selected based on revenue risk and figured in annual plan), audit should be completed as far as possible simultaneously, in coordination with the nodal Audit Commissionerate, by exchanging information from desk review to MCM. C. In respect of category (iii) units/service providers, the Audit Commissioners concerned should ensure that the Audit Group, to whom the audit of Assessee/tax payer in their jurisdiction is assigned, completes the Desk Review and prepares the draft Audit Plan.A copy of the draft Audit Plan duly approved by the Additional/ Joint Commissioner (Audit) along with the Working Papers, reconciliation and extracts of the note-sheet portion of the audit file should then be sent to the co-ordinating ADG. It should be ensured that calculations done as part of the ratio analysis, trend analysis or revenue risk analysis are also sent. 9.4 On their part, the Zonal unit should obtain the consolidated balance sheet, Profit Loss Statement and other financial documents of the company from the Head Office/ Corporate Office for scrutiny. Once the audit plans for all the Assessees/Taxpayers forming part of the MLU/MLSPs group are received, the ADG, if necessary, may convene a meeting with representatives (one per Group) of each Audit Group for finalization of audit plans. This would also be an opportunity for the ADG to explain the nature of relationship between the constituent Assessees /tax payers and common issues to be verified during the audit. Similarly, the Audit Groups of the Commissionerates may have identified certain issues that would need to be verified from the records / documents maintained at other units. The final audit plan for each assessee/taxpayer would be approved by the ADG after the meeting (if convened) and returned to the Audit Group. In case the selected MLU/MLSP also have different Service Tax registrations/Central Excise registration respectively, simultaneous audit of both Central Excise/ Service Tax is to be taken up. 9.5 Role of Zonal ADG (Audit) i. Zonal ADG would ask the jurisdictional Audit Commissionerates to conduct a Desk Review in respect of each manufacturing unit as well as on the accounts of the Regd. Office, if registered under the Service Tax Law. ii. Zonal ADG would finalise the Audit plans of the Assessee/tax payer registrant-wise. iii. Zonal ADG would convene a meeting of the auditors, if needed. iv. The actual verification of the accounts at the Corporate/ Regd. Office is to be done by the respective Audit Commissionerate under whose jurisdiction, the Regd. Office is located, if the premises is registered for the purpose of S.T. NOTE : No visit should be made to the Regd /Corporate office of the Assessee/Tax payer for verification of books of accounts, if it is not registered under S.T law. 9.6 Audit Verification and Preparation of Draft Audit Report i. The Audit Groups should remain in contact with the Zonal ADG while conducting the verification so that new issues detected at the time of verification can be quickly conveyed to other Audit Groups. It should be the responsibility of the respective Additional/ Joint Commissioner of the Commissionerate that each issue of the audit plan is verified by the Audit Group and findings are recorded. ii. Whenever any assessee/tax payer is selected for Audit under the category of MLU/MLSPs, the audit of all units of such MLU/MLSPs is to be conducted in the coordinated manner as discussed above. In respect of category (iii) units/service providers alone , the Draft Audit Reports along with Verification Reports are required to be sent to the Zonal Co-ordinating ADG (Audit) for comments/ vetting. After receipt of comments of the Zonal ADG, respective Audit Commissionerates would place the objection before the MCM for decision.