Question 1: What is Central Excise/Service Tax Audit?
Answer: Audit is a process of verify of the various records prepared and maintained by the assessee such as :
(i) the financial records and statements ( including trial balance or its equivalent) ;
(ii) the records maintained for accounting of transactions relating to receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs and capital goods; and
(iii) the records maintained for accounting of transactions relating to receipt or procurement of input services and their payment.
so as to ascertain that duties of Central Excise & Service Tax have been correctly discharged by the assessee and also that there has been no procedural irregularity in compliance of law and procedures
Question 2: Who Conducts the Audit ?
Answer: The Central Excise officers posted in Audit Commissionerate comprising a team of Superintendents and Inspectors headed by an Assistant / Deputy Commissioner and under the supervision of Joint / Additional Commissioner and Commissioner conduct the audit.
Question 3: If an assessee is registered as a Central Excise / Service Tax assessee and fall within the jurisdiction of a Commissionerate of Central Excise / Service Tax, …. . Will the officers of the said Commissionerate conduct his audit ?
Answer: No, they will not. The Central Excise officers posted in an Audit Commissionerate shall only conduct the audit of registered Central Excise and Service Tax assessee. There are total 45 Central Excise and Service Tax Audit Commissionerate set up across the country with effect from 15.10.2014 to handle this specialized work of audit. Central Excise (Audit) Commissionerate, Jaipur is one such Commissionerate which is given the mandate to conduct central excise, Service Tax and customs audit of assessee / taxpayers in the state of Rajasthan.
Question 4:What is the authority under which the department conducts audit?
Answer: Sub-rule (1) of Rule 22 of the Central Excise Rules, 2002 and Sub-rule (1) of Rule 5A of the Service Tax Rules, 1994 empowers the Central Excise & Service Tax officers to have an access to the premises of the registered assessee for the purpose of carrying out scrutiny, verification and necessary checks/ audit.
Question 5: Is an assessee duty bound to provide the financial records and other such records to the auditors ? If so, under which authority ?
Answer: Yes. Sub-rule (2) / sub –rule (3) of Rule 22 of the Central Excise Rules, 2002 and sub-rule (2) of Rule 5A of the Service Tax Rules, 1994 casts a responsibility upon the assessee to provide the various records ( as listed in Answer no. 1 above), in duplicate, to the auditors .
Question 6: When an assessee files his returns periodically to the department and pay Central Excise duty / Service Tax in time, why should he be subjected to audit ?
Answer: The Central Excise duty / Service Tax paid by the assessee and the returns so filed with the Department are based on self assessment. It is the responsibility of the officers of the Department to verify the correctness of the payment and compliance of laws and procedures as prescribed by statutory provisions. This verification is carried out through the process of periodical audits of the records / returns and documents of the assessee / taxpayer. This process also helps the assessee to improve their level of tax compliance in time.
Question 7: What is the period covered by the audit team?
Answer: The audit covers the retrospective period upto the previous audit by the departmental audit or the last 5 years if not audited during the said period. It should extend upto the last completed financial year preceding the date of audit.
Question 8: There is large number of Central Excise and Service Tax assessee registered in the jurisdiction of an Audit Commissionerate but a few are selected for audit ? Is there any specific criterion for the selection or is it some random selection?
Answer: It is not possible to audit all the assessee registered in a jurisdiction due to limited manpower and man days in a year and therefore the Department follows a specific criteria based on evaluation of various revenue risk factors, as fixed by the Board from time to time or considering certain local factors, for drawing an annual schedule for audit.
Note: Annual Schedule from July 2016 to June 2017 of Central Excise and Audit Commissionerate, Jaipur is also placed on this website. To see Annual Schedule, please see ‘Audit Gallery’’
Question 9: Does audit cover 100% EOUs, dealers and input service distributers as well ?
Question 10: Do the auditors carry any documents showing their identity while visiting an assessee for audit ?
Answer: Yes, the auditors of this Audit Commissionerate carry their identity cards duly issued by the Additional Commissioner (P&V) of the Commissionerate. You may request them to produce the same.
Question 11: What is the duration of visit of the audit team?
Answer: It depends upon the quantum of the records to be scrutinized and period covered for audit and also co-operation of the assessee in providing relevant records. In any case, it may spread from two days to ten days.
Question 12: Will it be a surprise audit?
Answer: No. A minimum of 15 days prior notice is served to the assessee regarding the proposed audit.
Question 13: If an assessee is registered for both Central Excise and Service Tax under one Commissionerate, whether he shall be subjected to two separate audits?
Answer: A coordinated audit for Central Excise and Service Tax would be conducted by the same auditors during their visit, in case the assessee is registered under Central Excise as well as under Service Tax.
Question 14:If factory is registered in one Commissionerate and its Service Tax registration is in another Commissionerate, where registered office is located, what is the criterion for selection of audit?
Answer: As each audit circle is assigned a specific jurisdiction/ Commissionerate, separate team of auditors may conduct the audit as per their given schedule.
Question 15:If an assessee is having multi locational manufacturing units, who conducts audit?
Answer: Audit of Multi locational units is taken up by the officers of concerned Audit Commissionerate however it is coordinated by the Zonal unit of Directorate General of Audit.
Question 16: How much time is given for production of records?
Answer: As an intimation of 15 days is given in advance, all records should be furnished to the audit team within such time. Any request seeking more time to submit records should be given in writing. Non responsive approach to such letters may be avoided.
Question 17: If an assessee maintains his records/accounts on a system using accounting packages like SAP/Tally/Focus etc., is there a separate procedure for conducting audit?
Answer: In such cases, the auditors conduct audit through computer aided techniques called Computer Assisted Audit Programme (CAAP) wherein the assessee is requested to provide information regarding the hardware and peripherals and the operating and accounting software used by them and call for the information on a one time writeable compact disc. The information so obtained is converted to a format readable by departmental computers. It saves time, both for the assessee as well as for the CAAP auditor and reduces the amount of paper normally needed, produced or photo-copied during an audit. It is a more efficient technique for reviewing taxpayer information.
For more details on CAAP, please see the main menu titled ‘AUDIT’ and click on ‘A manual on Computer Aided Audit Programme’.
Question 18: Can an assessee ask for postponement of audit due to prior business engagements?
Answer: Since the audit programme is prepared months in advance, postponements are not generally encouraged. However in some genuine cases, on sufficient cause being shown, the competent authority can consider the request for postponement.
Question 19: Can audit be conducted on Sunday and other holidays?
Answer: Normally not. However it can be if it is mutually agreed upon.
Question 20: What are the working hours of audit team ?
Answer: The office hours of the auditors are 09.30 a.m. to 06.00 p.m. However it can be extended as per mutual convenience.
Question 21: Is an assessee required to provide pick up and drop facility to the auditors ?
Answer: No. However in case the assessee is located in an area where public transport facilities are not readily available, the auditors may request for this facility from the nearest railway station / bus depot. You may decide at your end.
Question 22: Can the assessee furnish the records to the Department for audit in the Circle Office itself?
Answer: No. The audit officers conduct the audit at the registered premises of the assessee.
Question 23: Can the audit be conducted at the residence of the assessee or at his consultant’s office i.e. at a place other than registered premises?
Answer: The audit officers are required to conduct the audit at the registered premises / office of the assessee only.
Question 24: Does the audit team follow a certain laid down process of audit ?
Answer: Yes. The Central Excise and Service Tax Audit Manual, 2015 lays down the Audit process which is followed by the auditors. Upon selection of an assessee for audit , the concerned auditors may call for the records and returns for the audit period from the assessee through a letter / email , verify the records and returns so received ( desk review) and prepare an audit plan and obtain approval of senior officers, visit the assessee for actual conduct of audit , convey objections to the assessee , if any, in writing and obtain the comments of the assessee and submit their draft audit report to the Commissioner for finalization after that the final audit report would be issued to the assessee .
For details of the Audit Manual, please see the main menu titled ‘ÁUDIT’ and click on The Central Excise and Service Tax Audit Manual, 2015..
Question 25: Can there be a visit of audit team prior to actual conduct of audit?
Answer: Yes but only in respect of large Central Excise assessee (paying more than Rs 3 crore duty through PLA and CENVAT) that there shall be a prior visit to understand their manufacturing process and/or business process. The date for this shall also be decided on the basis of mutual convenience. They shall not be subjected to preparatory visits in any subsequent audits once this is carried out in a year. The Service Tax assessee and Central Excise assessee, other than the large ones as mentioned above, shall not be visited before the date of actual audit.
Question 26: If an assessee / taxpayer are audited only a few months back and have again received intimation from the audit circle for conduct of audit. Can they say no to this early audit?
Answer: Yes. Generally the audit of an assessee is not conducted twice in a year. This should not normally happen. However if it is so, the assessee may inform the audit group / Assistant Commissioner of the Circle in respect of factual position and audit shall then be postponed.
Question 27: As seen from the letter issued by the auditors to an assessee, whole lot of voluminous information has been sought. Can he give some now and some later at the time of audit ?
Answer: The assessee is required to provide Annual Reports, Trial Balance, Cost Audit Report and Income Tax Audit Report pertaining to the audit period as well as information of production, clearance, value, duty paid in cash or through CENVAT credit and details of CENVAT credit taken within 15 days of receipt of such letter by the auditors. These documents are in any case readily available with the assessee and are required for desk review prior to actual audit. Providing such records in time will reduce the time of actual audit in the premises of the assessee.
Question 28: If an assessee has been audited by officers of the AG, Rajasthan, is it required to be audited by the Departmental officers?
Answer: The assessee should inform the auditors immediately on receipt of their letter regarding proposed audit in case he has been audited by the AG, Rajasthan during the period of audit. The Audit Commissionerate shall not conduct audit simultaneously.
Question 29: Can the auditors issue summons, record statements, search premises or arrest the assessee in case they detect short / non-payment of Central Excise duty / Service Tax during the course of audit ?
Answer: In cases where the assessee / taxpayer is not volunteering to submit the records / documents despite written requests sent to them , the auditors may issue summons to the assessee / authorized person for the purpose of obtaining the said records / documents. However if the case require detailed investigation etc, they may refer that matter to the jurisdictional Central Excise / Service Tax authorities.
Question 30: Can I get guidance from the auditors regarding record keeping and application of law?
Answer: Yes, Guidance regarding record keeping and application of law may be obtained from the auditors.
Question 31: What is the meaning of term ‘walkthrough’ often referred to by the auditors ?
Answer: It is a process by which the auditor selects any transaction by sampling method and traces its movement from the beginning through various sub systems till the end. It is a useful method to evaluate the internal control system of an assessee during the course of audit..
Question 32: Can the auditors physically verify the capital goods / inputs / input services?
Answer: Yes. The auditors can verify the capital goods / inputs / input services if benefit likes CENVAT credit or other Central Excise / Customs duty exemption has been availed.
Question 33: If a manufacturing concern get their intermediate / final products manufactured on job-work or a Service Tax assessee gets its work done through sub contractors , can the audit team insist on visiting the job-worker’s or the sub contractors’ premises?
Answer: No. The jurisdiction of the audit team is confined to the business premises of the manufacturing concern/ taxpayer so allotted for audit. However, they may ask for any records in relation to the job-work.
Question 34: If the assessee does not want to disclose the names of their buyers before the auditors, can they refuse to produce the invoices, or instead provide them with photocopies of invoices where the name of the buyer has been hidden or rubbed off?
Answer: The assessee is required to produce all the records in their original form before the audit team. However we do understand the genuine concern of the assessee in this regard but please be rest assured as the Central Excise and Service Tax Audit Manual casts an obligation on the auditors to not disclose information to anyone as learnt by them in their official capacity during the course of audit.
Question 35: Will the assessee get to know the objections raised during audit?
Answer: Yes. The auditors are duty bound to discuss each and every objection with the assessee and issue a spot memo in writing.
Question 36: Can the assessee get guidance from the auditors regarding record keeping and application of law?
Answer: Yes. The officers do not conduct audit with a sole purpose of raising objections and recoveries of duties / tax. It is very much part of their duties under the Manual to adequately guide the assessee to encourage tax compliance with the procedures.
Question 37: What is the role of the assessee after the audit has been conducted?
Answer: No. The assessee should furnish the reply to the audit memo given by the audit team or to the letters issued later on for further query in a timely manner. There could be two situations: The assessee may be in agreement with the views of the audit team, then in such a situation, the duty / tax dues together with interest and penalty should immediately be deposited to reduce litigation. If the assessee is not in agreement, he may file a comprehensive reply in time so that the same is presented by the auditors before the Commissioner before a final view is taken on the objection.
Question 38: Is the spot memo containing the objections is a final report of the department ?
Answer: No, It is a preliminary report conveyed to the assessee for getting his reply on the issue raised therein. All the various objections raised by the auditors are presented by them before the committee comprising of Commissioner and other senior officers of the Commissionerate. The meeting is generally held in the 2nd week of the month following the month of audit where the objections are discussed in details before finalization of the audit report.
Question 39:Can the assessee get a copy of Final audit report?
Answer: Yes. The same is generally issued by post within 45 days from the date of monthly meeting.
The assessee may also download the Final / Internal audit report through this website under ‘Audit Gallery’ after following the steps given thereto. Procedure to Login is given in “How to Login”.
Question 40: Can the auditors take copies / extract of the private records of the assessee?
Answer: Yes. The audit officers can take copies / extract of the private records of the assessee which pertain to the objections intended to be raised by them and informed to him in the spot memo.
Question 41: Will the auditors sign the records of the assessee in token of confirmation of having audited their accounts / records?
Answer: No. The auditors normally do not sign the records in token of confirmation of having audited. However said confirmation may be inferred through the Final Audit Report issued by the Assistant / Deputy Commissioner of the circle.
Question 42: If no objection or irregularity is noticed, will the audit team give a certificate before leaving the premises?
Answer: No such certificate shall be given before leaving the premises. However, after the monthly meeting by the Commissioner (Audit) and approval of the nil report, the Assistant / Deputy Commissioner of the circle may issue a Final Audit Report stating a ‘NIL’ report which may reach the assessee within 45 days of the meeting.
Question 43: Does the assessee get an opportunity to contest the audit objection after receipt of Final Audit Report?
Answer: Yes, we would appreciate if the assessee submits a detailed reply to the concerned Assistant Commissioner of the circle within 15 days of receipt of final audit report. Final decision shall be taken by the Commissioner taking into consideration the merits of the reply.
Question 44: What is the next course of action if the Department does not agree with the reply?
Answer: A Show Cause notice is issued by the competent authority of the Audit Commissionerate to the assessee who shall be answerable to the respective competent authority in jurisdictional executive Commissionerate. The process of adjudication shall be carried out by the respective competent authority in jurisdictional executive Commissionerate. Thus the assessee is advised to file written replies to the notice to the respective adjudicating authority only.
Question 45: If the assessee is in agreement with the objection /Para raised by the audit, what should he do for conclusion of the proceedings ?
Answer: If the assessee is in agreement with the objection, he may write to the competent authority to waive the requirement of show cause notice and deposit the due Central Excise duty / Service Tax together with interest and applicable penalty .Thereafter, the competent authority shall issue a letter indicating that the matter has been concluded and the objection / Para stand settled once for an all.
Question 46: We were audited only a few months back and we have again received intimation from the audit circle for conducting our audit. Can we say no to this early audit?
Answer: Yes. Generally the audit of an assessee is not conducted twice in a year. However if it is so, the assessee may inform the audit group / Assistant Commissioner of the Circle in respect of factual position and audit shall then be postponed.
Question 47: Whether interest can be waived and if so, by whom?
Answer: No. Interest cannot be waived by any authority under the Central Excise and Service Tax provisions.
Question 48: Whether penalty can be waived ?
Answer: There is no provision for waiver of penalty under the Central Excise or Service Tax statutory provisions. However if on an objection being raised by the audit , the assessee opt to pay the duty / tax which is not paid for any reason, other than the reason of fraud or collusion or wilful mis declaration or suppression of facts or contravention of provisions of law with intent to evade payment of duty / tax, no penalty is payable, which otherwise was equal to an amount but not exceeding 10% of the duty / tax not paid .
Further in respect of cases where non payment of duty / taxes was on account of reasons as mentioned in italics above, penalty @ 15% shall be payable, which otherwise was equal to the amount of duty / tax not paid, if duty/ tax is deposited along with interest and 15% penalty at the time of audit or within 30 days of their letter to the department requesting for waiver of show cause notice or within 30 days of issue of show cause notice.
Question 49: In case the assessee is aggrieved by the conduct or behaviour of the auditors and wish to meet the senior officers to explain the objection raised by them or against their conduct, can he do so ?
Answer: Normally there should not be any such unpleasant situations as the auditors have been advised to maintain proper decorum during the course of audit. However if any such situation arises, the assessee can meet the senior officers on any Wednesday during the office hours without any appointment or on any working day. He may lodge complaints to the various grievances redressal platforms.
Question 50: Is there any facilitation / help centre set up to guide the assessee or to provide information relating to audit ?
Answer: Yes, a Taxpayers Service Centre is set up in the office premises at New Central Revenue Building, C-Scheme, Statue Circle, Jaipur for this purpose. For details, please click on Tax Payers Service Centre in the main menu.
If your query is not found a mention above or is not answered to your satisfaction, you may contact the Taxpayer service centre at the telephone no / email id given.