CIRCULAR No. 514/10/2000-CX Dated 16th February, 2000.
Subject: Excise Audit-2000(EA-2000)-Further guidelines for implementation
I am directed to say that certain views have been expressed by various commissionerates regarding implementation of the Excise Audit-2000 (EA-2000). The initial guidelines are contained in Board"s Circular No. 491/57/99-CX.6 dated 28th of October, 1999. The views of the commissionerate are
categorise as follows: -
(i) Data management for Audit preparation;
(ii) Audit Report format;
(iii) Total period of the Audit;
(iv) Evaluation of the Audit Report through a scoring system;
(v) System of institutionalised monitoring;
(vi) Training;
(vii) Availability of computer; and
(viii) Audit of units between Rs. 1 crore and Rs. 5 crores revenue.
Assessee Profile (database)
2. The first view expressed was that data must be collected by all commissionerates in a standardised format so that only absolutely essential information relevant for the conduct of audit is collected. This standardised collection would also facilitate maintenance of a computerised database all over the country. In this connection, Standardised Format for Assessee"s Profile has been devised to serve as a standard for collection of data relevant for Excise Audit-2000 which is enclosed as
Annexure-I
2.1 In addition to this, it would be of advantage to the Department to know certain
critical ratios relating to an assessee"s factory / business from the data available
in the Balance Sheets (Annual Reports) of the assessee / Assessee"s Profile / Other
Reports before the audit is contemplated. For example, raw material cost: sale value,
discount: sale, outward freight: sale, power consumption (units): production quantity,
change in profit: assessable value, etc., The officers of the Audit Wing may be
trained to derive these ratios. These ratios, wherever possible, should be studied at
the time of "Desk Review".
2.2 The Assessee"s Profile and the ratios will serve as a useful database for the
conduct of "Desk Review", which is the first step in the Audit Programme explained in
both the Excise Audit Manual and the Standard Audit Programme. Needless to mention a
comprehensive database would help in proper preparation for conduct of Audit.
Format of Audit Report
3. The Audit Manual speaks about completion of an Audit Report (Chapter 8). No
format of the Audit Report has been provided. It is Important that the Audit Report
findings are standardised. Keeping in view the need to ensure brevity and
objectiveness, a standardised format has been prepared which is enclosed at
Annexure-
II. The Audit Report format particularly focuses on action on old audit points; the
summary of the audit objections along with reasons and important points for future
compliance. This must be prepared after finalisation of the Working Papers. The Audit
Report should also substantiate findings, drawing from material in the Working Papers.
Both these documents should be put in computer.
Timeframe of submitting Audit Report
4. Every Audit undertaken must have a reasonably defined timeframe. This would
also help to bring in the much-needed discipline in the conduct of audit. Keeping in
view the fact that EA-2000 requires more pointed audit of financial records it has
been decided that the total time limit for the conduct of audit and submission of the
audit report should not exceed 20-25 days from the commencement of the Audit in the
assessee"s unit.
Scoring System for Monitoring Cell
5. One of the keys to good audit is a system of good monitoring and evaluation of
audit reports. EA-2000 makes this task easier by prescribing that all audit work must
be clearly documented in the Working Papers. Senior officers at the level of Joint
Commissioner / Additional Commissioner must evaluate these Working Papers. After due
deliberation, a scoring system has been evolved which may be used to evaluate an audit
report which consists of the Working Papers, the Summary sheet (part of the Working
Papers) and the Audit Report itself. The Scoring system which is enclosed as
Annexure-III divides the entire process of Audit into five parts: (i) preparation of
the Audit plan; (ii) conduct of audit; (iii) revenue points raised (major objections
and their quality); (iv) realisation of revenue; and (v) issues relating to future
compliance by the company. The scoring system has been devised so as to give
greater compliance by the company. The scoring system has been devised so as to give
greater emphasis on the conduct of the audit, which is extremely important in the
initial stages of the implementation of the new Audit system. A greater
responsibility, therefore, rests on the senior officers to duly assess the reports and
bring out the strength and weaknesses of the audit reports. A quantitative system of
measurement would help in steering the audit into areas, which are the core of the new
Audit system. It is, however, clarified that the scoring system is not meant for
reprimanding any officer(s) or fixing any responsibility. It is meant for providing
in-built synergic system so as to correct the weaknesses at the initial stages.
6. In the Board"s Circular No. 491/57/99-CX.6 dated 28th of October, 1999 it was
suggested at Para 18 that an Excise Audit Monitoring Cell be constituted headed by the
Commissioner. It must be ensured that the Monitoring Cell meets once a fortnight and
also specially examines in the audit report important points raised. Assistant
Commissioner / Deputy Commissioner / Joint Commissioner / Additional Commissioner
(Audit) should meet all the Audit Parties
at least once in a month to review their
functioning and ensure the exchange of information among the audit parties.
Monitoring by DG (AE)
7. To start with, a copy of the score sheet should be forwarded to DG (AE) as soon
as it is ready. A suitable device will be worked out for seeing the Audit Reports for
Rs.5 crores and above units; selectively in due course.
Audit Protocol
8. Audit Protocol is a limited initiative within the overall EA-2000. Out of the
eight corporate with whom discussions had been held, five, namely, Indian Oil
Corporation, Maruti Udyog Ltd., TISCO, Steel Authority of India Ltd. and Hindustan
Lever have already signed Protocol. MRF has given a letter agreeing to sign the
Protocol. As stated in Chairman"s letter on Audit Protocol, Assistant Director (Cost)
must accompany the audit teams for Protocol audits. In case the Commissionerate within
the zone should be a part of the audit team.
Involvement of AD (Cost) in audit
9. Normally, for all Rs.5 crores and above units, AD (Cost) should, as far as
possible, be also involved in audit.
Training
10. The success of EA-2000 is critically dependent on the requisite training
imparted to, Auditors. Since in a number of Commissionerates the Audit teams have not
been exposed to any training on Accountancy, it is necessary, keeping in view the
emphasis being placed on scrutiny of, business records, that Commissioners ensure that
this training programme on Accountancy is organised for staff not covered so far. The
faculty may be drawn either from serving officers like AD (Cost). Such training should
have a practical orientation so that the lectures are linked to practical application
which is necessary to sustain interest.
Computer for Audit Branch
11. It is learnt that some of the Commissionerates have not been able to provide a
computer to Audit Branch. This should be done on priority basis.
12. Field formations may be suitably informed. Any difficulties noticed in this
regard may be brought to the notice of the Director General (Anti-Evasion)
immediately.
(P.K. Sinha)
Under Secretary
(CX.6)
ANNEXURE-I
ASSESSEE PROFILE FOR EA-2000
1. Name of the Assessee
2. Registration Certificate No.
3. New E.C.C. No.
4. General Details
PART-I
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Serial Description of Tariff sub- Exemption Rate of
No. Goods heading Notification duty
manufactured availed
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PART-II
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Year Personal Ledger Modvat Account Total duty
Account ------------------ payment
RG 23A RG23C
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5. Commodity-wise details:
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Commodity/ Production Clearance for Clearances forgoing duty
Year Home -------------------------------------
Consumption Exports Imports
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Qty. Value Qty. Value Qty. Value
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(1) (2) (3) (4) (5A) (5B) (5C) (5D)
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Commodity-1
A996-97
1997-98
1998-99
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Commodity-2
1996-97
1997-98
1998-99
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Commodity-3
1996-97
1997-98
1998-99
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Duty debited in Duty debited in Payment from Modvat
PLA RG23A/ account as Percentage of
RG23C Total duty paid
(TOTAL)
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(6) (7) (8)
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6. Major Input and Output in the Modvat declaration.
Declaration made under Rule 57G/ in respect of 57A inputs.
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Sl. No. Input Final Product
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7. Major item / sub heading declared as Capital Goods under Rule 57Q.
8. Major Audit Points:
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Sl. No. Present Status Commodities Duty involved Issue
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9. Major Preventive points:
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Sl. No. Present Status Commodities Duty involved Issue
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10. Marketing pattern, clearance pattern etc.
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Sl. Nature Of Sale / Transfer Yes No If yes,
No. Etc. Description of
Product(s)
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1. Sale at the factory gate
2. Sale through the depot /
distributors/consignment
agents / Marketing intermediaries.
3. Sale in retail
4. Retail Sale Price (Maximum)-
Section 4A.
5. Inter Plant transfer
6. Captive consumption
7. Clearance to U.N. and other aided
projects.
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[These details must tally with the declaration given by the assessee in the
Declaration specified under sub-rule (3A) of rule 173C of the Central Excise Rules,
1944.]
ANNEXURE-II
AUDIT REPORT F0RMAT FOR EA-2000
PART-I
1) Name of the Unit :
2) Commissioner / Division / Range in which it is located :
3) Products manufactured :
4) Tariff Item :
5) List of main Exemption Notification :
6) Date of last audit :
7) Period for which current audit undertaken :
8) Dates on which audit undertaken :
PART-II
1. Summary of major audit objections from the Working Paper:
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S1 No. List of Revenue Assessee Department"s
Objection implication, if Agreement Conclusions
any Yes / No if With reasons
no, reasons
for
disagreement
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2. Suggestions for better compliance including systemic improvements and
modifications in the legal arrangements:
Assistant Commissioner / Deputy Commissioner /
Joint Commissioner / Additional commissioner (Audit)
ANNEXURE-III
SCORING SYSTEM FOR EA-2000
1. Name of the Unit :
2. Commissionerate / Division :
3. Range in which it is located
4. Constitution of the Audit Party :
(with Names and Designation of the Officers)
5. Reference to audit Report taken up for this Scoring :
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AREAS POINTS SL. NO. IN WORKING
(Maximum) PAPERS
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(a) Quality of Audit Plans. 15 Point No. 7
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(b) Systematic conduct of 50 Points 1 to 6 and 8
Audit with a view to taking (within this evaluation
an integrated ad of Internal control
Comprehensive look at the could be assigned 20
systems especially those point)
which have a bearing on
revenue compliance.
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(c) Revenue points flowing 15 Point 9 & 10
from finalisation of Audit.
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(d) Recovery of Audit 10 Point 11
Assessments.
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(e) Suggestion for better 10 Point 12
compliance including systemic
improvements and modifications
in the legal arragnements.
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100
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