Good Practice Guide

on
Central Excise
Prepared
by
Central Excise Receipt Audit
Office of the Director General of Audit
Central Revenues
New Delhi

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INTRODUCTION
1.1 Audit mandate
1.1.1 Constitution of India (1950)
"Article 149, Duties and Powers of the Comptroller and Auditor General.
- The Comptroller and Auditor General shall perform such duties and exercise
such powers in relation to the accounts of the Union and of the States and of any
other authority or body as may be prescribed by or under any law made by
parliament and, until provision in that behalf is so made, shall perform such
duties and exercise such powers in relation to the accounts of the Union and of
the states as were conferred on or exercisable by the Auditor General of India
immediately before the commencement of this Constitution in relation to the
accounts of the Dominion of India and of the Provinces respectively."
1.1.2 C&AG (DPC) Act, 1971
Prior to CAG's (DPC) Act, 1971, the audit of receipt was done on consent basis.
Section 16 of the Comptroller and Auditor General (Duties, Powers and
Conditions of Service) Act, 1971 provides:
"It shall be the duty of the Comptroller and Auditor General to audit all
receipts which are payable into the Consolidated Fund of India and of each State
and of each Union Territory having a Legislative assembly and to satisfy himself
that the rules and procedures in that behalf are designed to secure an effective
check on the assessment, collection and proper allocation of revenue and are
being duly observed and to make for this purpose such examination of the
accounts as he thinks fit and report thereon."
With the passing of this Act, it has become the statutory responsibility of
the Comptroller and Auditor General of lndia to audit receipts of the Union and
the States.
The Office of the Comptroller and Auditor General of India, the country's
Supreme Audit Institution (SAI), is also bound by the LIMA declaration of the
INTOSAI (International Organisation of the Supreme Audit Institutions), the
relevant extracts of which are reproduced below:

a) Supreme audit Institutions shall be empowered to audit the collection of taxe
to the maximum possible extent, and in doing so, to examine the individual
assessment file.

b) Tax audits are primarily audits for legality and regularity, however, when
auditing the application of tax laws, Supreme Audit Institutions shall also
examine the efficiency and organisation of tax collection and the achievement
of revenue targets and if appropriate, shall propose improvements to the
legitimate body.
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1.1.3 In relation to Government receipts the C&AG of Indias Regulation on
Audit and Accounts also defines the following:-
1.1.3.1 Examination of system and procedure and their efficacy
Audit of Central Excise and Service Tax receipts includes an examination of
the system and procedure and their efficacy in respect of
identification of potential tax assessees, ensuring compliance with laws as
well as detection and prevention of duty evasion.
pursuit of claims with due diligence and that these are not abandoned or
reduced except with adequate justification and proper authority,
prompt investigation of losses of revenue through fraud, default or mistake
including, if required, through the review of other similar cases,
exercise of discretionary powers in an appropriate manner including levy of
penalties and initiation of prosecution,
appropriate action to safeguard the interests of the Government on the orders
passed by departmental appellate authorities.
any scheme as may be introduced by the Government from time to time.
any measures introduced strengthen or improve revenue administration.
amounts that may have fallen into arrears, maintenance of records of arrears
and action taken for the recovery of the amounts in arrears,
other ancillary and non-assessment functions including expenditure incurred
by the department,
achievement of targets, accounting and reporting of receipts and their cross-
verification and reconciliation with the accounts records,
amount of refunds, rebates, drawbacks, remissions and abatements to see
that these are correctly assessed and accounted for,
integrity of data, information and documents which form the basis of a
policy,
any other matter, as may be determined by the Comptroller and Auditor
General,
1.1.3.2 Access to assessment files and records and computerized database
Audit Office shall have access to individual assessment files as may be
necessary subject to provisions of applicable laws and rules. The auditee
Department shall provide access to the assessment files/records and any
cumputerised systems including the databases maintained by it in hard copy
or/and electronic form.
1.1.3.3 Follow up action on systemic faults or high risks pointed out by audit
When any systemic faults or high risks is pointed out by audit, the auditee
Department has to take appropriation action to address these faults and mitigate
the risks so pointed out.
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1.1.3.4 Intimation of follow up action taken by the auditee Department
The Department shall furnish within six months of the close of each
financial year, an annual statement to the audit office containing each details of
follow up action taken on audit observations, including recoveries, in respect of
accepted paragraphs including in the audit reports laid before the Parliament or
Legislature till the end of that financial year.
1.2 Audit Objectives
a) The objective of audit should not be fault finding mission, it should be
participative and a fact finding mission with the objective of guiding the
assessee, while watching against any leakage of revenue. The auditor should
maintain a good professional relationship with the assessee
b) To carry out the duties assigned with utmost sincerity, integrity and diligence.
c) To aim at detection of non compliance, procedural irregularities and leakage
of revenue due to deliberate action or ignorance.
d) To guide the assessees in correcting the procedures, if any, purely technical
infractions, without any revenue implication are noticed.
e) To keep the audit process transparent, and findings are discussed with the
assessees, an opportunity is given to the assessees to give their view-point
before an objection is finalized and recovery measures are initiated.
f) To consider the view point of the assessees regarding all points of dispute
before taking any definitive stand.
1.3 Scope of audit
Audit of receipts entails the following:
a) Examination of the rules and procedures for survey and identification of
potential assessees and persons from whom receipts may become due and
failures in individual cases.
b) Examination of the rules and procedures for generation of returns from
assessees and other data necessary for doing assessment work in order to
raise demands and failures in individual cases.
c) Examination of the laws, rules, and procedures and individual cases, with a
view to ensuring that amounts legally due are assessed and demanded and
they are paid or credited to Government.
d) Examination of rules and procedures for receiving of payments without delay
and for prompt recovery of amounts due and failures in individual cases.
e) Examination of accounts and individual cases relating to receipt of payments
and their incorporation in accounts, which get certified in audit and reported
upon.
f) Examination of the rules and procedures for correct accounting and allocation
of amounts credited to the Consolidated funds and failures in individual cases.
g) Examination of rules and procedures for keeping subsidiary accounts of
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receipts, demands, collections, recoveries, seized goods and stores and
failures in individual cases.
h) Examination of individual errors, mistakes, irregularities, frauds, forgeries,
acts of negligence and omission, double refunds and delays in recovery.
i) Irregular or fraudulent accountal or prolonged delays in accountal.
j) Analysis of individual failures pointing at defect in rules and procedures and
management failures.
k) Discussions with executive authorities at appropriate levels and sending
reports to auditees at various levels on the findings of audit including analysis
of findings and conclusions of audit.
1.4 Audit jurisdiction
The following offices comes under the audit jurisdiction of CERA, Delhi
a) Offices, Divisions, Ranges and units which comes under the jurisdiction of
Commissionerate of Central Excise, Delhi-I (Areas comprising of part of
National Capital Territory of Delhi bound by the Delhi Haryana border on the
North and West upto West J uan Drain or Mungaspur Drain intersection and
along Mungaspur drain and Najafgarh Drain till Trinagar or Zakhira;
Najafgarh Road from Zakhira upto Raja Garden Chowk, Ring Road or
Mahatma Gandhi Road via Dhaula Kaun,, Lajpat Nagar upto Maharani Bagh
and thereafter Yamuna River upto Delhi Haryana border)
b) Offices, Divisions, Ranges and units which comes under the jurisdiction of
Commissionerate of Central Excise, Delhi-II (Areas comprising of the part of
National Capital Territory of Delhi (excluding the areas included in Delhi-I)
and including Trans Yamuna Area (East Delhi) of National Capital Territory
of Delhi and areas bound by West J uan Drain or Mungaspur Drain on Delhi
Haryana Border upto Zakhira, Najafgarh Road upto Raja Garden Chow, Ring
Road or Mahatma Gandhi Road via Dhaula Kaun, Lajpat Nagar (Southern
Part), upto Maharani Bagh and Delhi Haryana Border on the south and south
west of Delhi.
c) Offices, Divisions, Ranges and units which comes under the jurisdiction of
Commissionerate of Service Tax, Delhi (All the areas as mentioned in a) & b)
above)
1.5 Methodology of Audit
Audit has to see whether the rules and regulations secure an effective check on
the assessment, collection and ultimate credit of Government dues to the Government
accounts. For this purpose the connected records and documents have to be examined in
audit. Receipt Audit of Central excise duties is, therefore, conducted with reference to
the basic records maintained by the excise department at
Range/Division/Commissionerate levels and private record maintained by the assessee
since Central Excise duty is collected under self assessment system. The pattern of audit
is cyclical and closely follows the assessment cycle adopted by the department.
Since audit is done through test check of records, selected at random, Auditors
have to apply various prescribed checks to see whether the tax due from the assessee in
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accordance with the provisions of law has been correctly worked out, assessed and paid
to the Government account.
Accordingly, the task is grouped into three categories:
1. Audit planning;
2. Audit execution; and
3. Audit reporting

2. AUDIT PLANNING
2.1 Auditing Standards
2.1.1 The Auditor should plan the audit work to ensure high quality of audit in a timely,
economical, efficient and effective way.
(i) This standard places responsibility on the Audit Organisation and the Auditor to plan
the work both at the macro level for optimum utilisation of audit resources and for
specific audit assignments for their orderly conduct in an economical, efficient and
effective manner.
(ii) The Audit Organisation and the Auditor should prepare, plan and prioritise inventory
of audit assignments with reference to outlays, contemporaneous relevance and
administrative and socio-economic importance as well as quality and quantity of
available audit resources and skills.
(iii) The Audit Organisation and the Auditor may realign the plan in the course of audit
in the light of developments and disclosure of facts when such revision becomes
necessary.
2.1.2 Audit should be properly guided, directed and supervised
(i) This standard places responsibility on the Audit Organisation for ensuring that the
objectives of an assigned audit task are clearly set out, audit staff receive appropriate
direction, guidance and supervision so that the audit task is properly performed and the
audit objectives are achieved in an economical, efficient and effective manner. Audit
staff should clearly understand their assigned tasks before starting the work.
(ii) Supervisory work of audit and the audit reports should be timely and ensure that;
a) conformity with auditing standards is obtained,
b) the audit programmes are followed as approved, unless deviation is justified and
authorised,
c) audit is conducted with due professional care,
d) the working papers and evidence adequately support the audit conclusions and
provide sufficient date to prepare a meaningful report
e) the audit objectives as planned and defined are substantially met.


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2.1.3 Sufficient understanding of the internal control system should be obtained to
express an opinion on the reliability, fidelity and integrity of the systems and procedures
of the entity and to plan the audit and to determine the nature, timing and extent of audit
tests to be performed
(i) The executive are responsible for ensuring that systems and procedures are in place
for establishing and maintaining an effective internal control system including internal
audit to ensure that appropriate goals and objectives are met, resources are optimised,
laws and regulations are followed and reliable data generated and maintained.
(ii) A study and evaluation of internal control system should be carried out according to
the type of audit undertaken. In the case of financial audit, the study and evaluation are
undertaken mainly on the internal controls that assist in the accuracy and completeness
of the accounting records and the compliance with laws and regulations. In the case of a
performance audit, the internal control system that assist in economic, efficient and
effective management of resources and in producing timely and reliable financial and
management information, is studied.
(iii) In designing the audit steps and procedures to test or assess the compliance, the
Auditor should evaluate the audited entity's internal control and assess the risk that the
control system might not prevent or detect non-compliance. The Auditor's examination
of internal control including internal Audit should go beyond an assessment of their
theoretical soundness to actual operationalisation as well as the follow up remedial
action taken on reports of internal audit.
(iv) Where the accounting and other information systems are computerised, the Auditor
should determine whether the internal controls are designed and function properly to
ensure the integrity, reliability and completeness of the data and its processing.
2.2 Steps towards audit planning
Subject to specific instructions on the subject issued by Headquarters from time
to time following parameters may be taken into consideration for selection of
manufacturing unit for audit:
2.2.1 Assessee profiles - (Database) - The first step towards audit planning is creation
of an electronic database of all the assessees. The Auditor should get the
Commissionerate/Division/Range wise assessee profiles indicating name of the goods,
total turnover, duty realised, modvat/cenvat credit taken. Even if the information is
incomplete, a record should be created with whatever information has been obtained in
due course completed. The assessee's profile should be updated every year and made
available to the next audit party visiting the unit for audit. CERA should also obtain lists
of new assessees from the department annually.
2.2.2 Mandatory work load - Details of number of excisable units grouped with annual
revenue yield through PLA & Cenvat credit adjustments and man days required for
conducting audit may be calculated & total work load in terms of mandays, ascertained.
2.2.3 Past yield of audit output - This gives an idea of problems encountered during
the last audit. The auditor may review the same issues noticed in earlier audits by
selecting the identical unit for detailed or summary audit. Generally, units from where
'nil' reports had emerged earlier, coupled with their present turnover, gives us an idea as
to whether to provide fresh audit or not.
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2.2.4 Land mark judgements - Taking cue from the land mark judgement delivered by
the Supreme Court or the Tribunals reported in Excise Law Times (EL T) Excise and
Customs Reporter (ECR) and other publications, the units engaged in manufacture of
relevant excisable products can be taken up for audit.
2.2.5 Headquarters circulars - Specific instructions are issued from headquarter's
office to the field offices for undertaking audit of units engaged in manufacture of
certain particular excisable goods or availing certain concessions or modvat credits. The
selection of all and any of such specific units would accordingly be made for detailed
audit as directed by headquarter's office.
2.2.6 Horizontal review - Every year one or two topics or specific commodities are
selected for undertaking horizontal review on all India basis. Guidelines for undertaking
such review(s) are issued from the Headquarter's office and units are selected for sample
audit in accordance with the instructions.
2.2.7 Media Reports - Based on media reports 'on particular industry/commodity/or
topic concerning revenue leakage etc., selection of sample units may be made to
evaluate the correctness of the media reports. In case some substance is found, similar
units could be identified and selected for detailed/summary audit based on revenue stake
involved. Generally, media, reports, unless on sensitive issues, are considered only
marginally.
2.2.8 Commodities/units sensitive to manipulation - Based on the information
collected through different sources such as various judgements given by the Supreme
Court, Tribunal or Commissioner (Appeals) the units and committees sensitive to
manipulation may be selected for audit. .
2.2.9 Records not made available - Special attention to be paid on records not
produced to audit during last and earlier audits. Efforts should be made to scrutinize this
as per extant orders~
2.3 Periodicity of audit
The Comptroller and Auditor General of India has been emphasising the need for
formulating Audit Plans so as to channelise our efforts more productively. The duration
and periodicity of local audit of Central Excise Receipts and refunds are prescribed by
the Headquarter's office from time to time. It may be noted that these norms are fixed for
purposes of calculation of man days required for audit of the units depending on their
annual yield in terms of total duty collection as well as of the offices of the
Commissioner/Divisions/Range offices based on the quantum of work involved.
These units are categorised as Annual, biennial or triennial. The actual allotment
of number of days can, however, be made, increased or reduced by the Accountant
General/Pr. Director taking into consideration the actual quantum of work involved. The
periodicity of audit is determined on Annual Revenue yield in terms of total Central
Excise duty collection from the unit (through PLA & adjustment through Cenvat
account). However, some units/offices are given specific number of days viz. (i) units
relating to Mineral Oil, textiles, cigarettes, tyres , Sugar factories, Cement factories,
Snuff/Chewing tabacco, Beedi etc. and (ii) Range offices, Divisional offices,
Commissioners offices (technical audit) including audit of Chief Accounting Offices.
These norms are subjected to change from time to time in view of the change in
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laws/procedures and chargeability of duty.
2.4 Approval of Audit plan
The annual audit plan indicating the names of the units identified for annual audit
should be chalked out taking into consideration the total mandays available throughout a
year. The selection and allotment of number of days for audit of manufacturing units and
of the offices of Commissioners/Divisions/Ranges or Chief Accounting Offices should
be done/finalised modified wherever necessary only with the approval of Director
General of Audit, Central Revenues (DGACR).
2.5 Audit scheduling (programme)
Audit programmes may be finalized based on the following considerations.
(i) The audit programme should confine to the approved annual plan and should be
made on regular (Monthly/Quarterly) basis. It should be approved by the DGACR
subject to availability of party days at his disposal, allow extension in audit time in
justified cases only. A monthly/quarterly report on deviation in the monthly/quarterly
programmes should be submitted to the DGACR for information.
(ii) Intimation of audit programme should be sent to the respective Commissioner
Deputy Commissioner of Central Excise/ Assistant Commissioner of Central Excise in-
charge of the division in addition to the intimation to the Range Officer and to the
concerned assessee (factory) well in advance (at least 2 weeks before taking up of audit).
In the intimation letter every auditee/assessee should be informed that in case of any
problem/difficulties with the CERA party they may contact group officer in charge of
CERA at his office address personally or through telephone number, which may be
specified in the letter.
(iii) Selection of sample period for test audit cases (not less than one month in a year -
at least one week from each quarter) to be made by Group Officers, which should be
changed every year or quarter at the discretion of Group Officer.
(iv) Control mechanism for close supervision of CERA parties. No deviation from
programme allotted except in justified (in writing) cases should be allowed.
(v) The parties should also be personally supervised by the Group Officer In
accordance with the instruction issued by the Headquarters from time to time.
3. AUDIT EXECUTION
3.1 Audit of Receipts - Auditing Standards
3.1.1 In the audit of Government revenue receipts such as taxes, duties and other
levies, the Auditor should satisfy himself that the rules and procedures in that behalf are
designed to secure an effective check on the assessment, collection and proper
accounting of revenue and are being duly observed and for this purpose carry out such
examination of the accounts as he thinks fit.
(i) In verifying compliance with the applicable tax laws, audit of receipts is
regulated mainly with reference to the statutory provisions as judicially interpreted.
(ii) Interpretation of law is a judicial function; the Auditor does not review a judicial
decision. Audit may, however, point out cases where there is an apparent lacuna or
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loophole in law or where certain provisions in the law do not apparently bring out the
true legislative intent and make suggestions for their amendments.
(iii) The Auditor should see that the internal procedure adequately secures correct and
regular accounting of demands, collections and refunds, that no amounts due to
Government are left outstanding on its books without sufficient reason and that the
claims are pursued with due diligence and are not abandoned or reduced except with
adequate justification and with proper authority.
(iv) The net proceeds of specified taxes or duties i.e. proceeds reduced by the cost of
collection are certified by the CAG for the purposes of allocation between the Central
(Union) Government and the State Governments and his certificate is final.
3.2 Formation of CERA party
Once the units are selected for audit, they should be allocated among available
audit personnel. A CERA party comprising of Senior Audit Officer/Audit Officer, Asstt.
Audit Officer/Section Officer, Senior Auditor/Auditor (Total number of party members
not to exceed four persons) should be drawn up so as to balance, as far as possible, the
available talent. For the allocation of audit work, a profile of each Senior Audit
Officer/Audit Officer, Asststant Audit Officer/Section Officer should be maintained by
the programme cell in CERA headquarters. Whenever an expert Sr. Audit Officer/Audit
Officer/ Asstt. Audit Officer is available for audit work, he/she should be deputed as far
as possible for audit of units in which he has expertise.
3.3 Deployment of manpower
For purposes of deployment of manpower in CERA Branch, the following
factors should be kept in view.
(i) Previous experience - This factor may not be workable when fresh posting is
made. Persons with good academic record and who had passed Revenue Audit should be
given priority over others. The new/inexperienced persons may be sent to the field only
with the experienced persons with a view to familarise them with the work.
(ii) Training - Priority and relative weightage should be given to this area. Persons
trained in study of commercial records including Trading and Profit and Loss Account
and Balance Sheet and also trained in Revenue Audit should only be assigned field audit.
Arrangements may be made for imparting in-house training. Besides, group discussions
from time to time may be arranged inviting faculties from the department and other
offices during Quarterly meetings. The need for constant upgradation of information in
the field of revenue audit cannot be over emphasized.
(iii) Previous performance -If during any time any official is considered to be not
performing in the respective field, he should either be tried in other wings or given
intensive training.
(iv) Technical literature - The technical wing at the field office headquarters must
circulate every month to each audit party, all case laws, circulars, notifications and any
other material (for e.g. newspaper, reports) which would be of use in conduct of audit.
The use of the technical literature must be given the high priority and the Group Officer
must ensure that there is no lapse on this account.
(v) Role of Sr. Audit Officer/Audit Officer - The Senior Audit Officer/Audit Officer
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or Asstt. Audit Officer in charge of the party shall have the power to allow any
additional duties or checks to himself or Asstt Audit Officer or Section Officer or Senior
Auditor. The devolution is designed to ensure that individual effort is put in; also that it
will facilitate the recognition of good work done by individuals. The Devolution of
duties to members of CERA is contained in (Annexure-1).
3.4 Checking of records
The CERA should requisition records such as Financial Records, Store Records,
Production Record, Clearance of goods, Report/Return/Statements and Privilege
Documents for systematic audit of Central Excise units (Annexure-2).

3.5 Preparing for audit
3.5.1 Advance information from the assessee
A format of assessee's profile (Annexure-3) may also be sent to the assessee unit
along with the intimation letter with the request that the information should be filled up
by the assessee and made available to the audit party on its visit to the factory. This will
facilitate the audit team to have an idea about the unit and transaction before taking up
the unit for audit. The assesse's profile will help the field office to create a Data Bank.
This will also help the audit team to check the Questionnaire as per Chapter 5 of this
book.
3.5.2 Chalking out action plan:
This work should be done by the CERA party in the office. The idea is to gather
as much relevant information about the assessee and its operations as far as possible
before visiting the assessee's unit. For this purpose, specific number of days in the
monthly/quarterly programme may be allotted. The items covered under the preliminary
work include the following:
(i) Going through the assessee's profile;
(ii) Study of manufacturing process;
(iii) Risk factors considered for selecting the units for audit;
(iv) Analysis of results of last audits and detailed analysis of working papers of last
audit; revenue realised through PLA/CENVAT, growth rate -;
(v) Anti evasion cases against the assessee and details of show cause notices issued
by the department & other pending cases;
(vi) Study of income tax, sales tax returns ;
(vii) Going through the paras in CAG's reports and digest of important and
interesting cases;
(viii) Scrutiny of Balance Sheets, Annual Reports with key notes;
(ix) Change in law/tariff/notification relating to commodity being audited;
(x) Marketing pattern adopted by the assessee;
(xi) Latest judgements delivered by Supreme Court, High Courts and Tribunals on
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relevant products; and
(xii) Media Reports concerning the commodity/industry being audited.
(xiii) Collection of information from Headquarter/Registered Office of the company
located elsewhere
(xiv) Records not produced to audit during last and earlier audits.
Based on the. above information/analysis of reports a tentative action plan
covering areas/items of work for purpose of audit should be prepared in respect of each
unit selected for audit. A suitable provision for time should also be made therein for
discussion on preliminary memos./draft audit report with the concerned Superintendent of
Central Excise or the Asstt./Dy. Commissioner of Central Excise
3.5.3 Role of Group Officer
The group office should invariably meet every party before they depart and
discuss their audit plans.
3.5.4 Authority to CERA party
All members of the CERA party must carry with them their identity cards issued
by the office and also the authority letter for conducting audit of the specific unit
(factory) or the Range/Division/Commissionerate Office on the specific dates.
3.6 The audit procedure (Preliminary study)
3.6.1 At Range office
Before going to the assessee's unit for conducting audit, the following relevant
information may be collected from the Range Offices:
(i) Details about registration of the unit, goods manufactured.
(ii) Details of monthly (RT-12) Returns received and verified by the Range Office in
respect of the concerned assessee (s) programmed for audit.
(iii) Details of irregularities noticed. Show cause notices issued to the assessee (s) and
position of pending cases.
(iv) Any other information relevant to audit, available in the Range Office.
For this work CERA parties may be allotted reasonable time.
3.6.2 At assessee's unit (factory)
(i) Gather information about and document the business system in use at the
assessee unit interview key personnel in the organisation and discuss about
business operations, products manufactured, handled and any other change since
last audit.
(ii) Review about the organisation - Obtain information about the organisation,
related units and business and any other changes in the organisation since last
audit. An organisation chart if available, may help identifying inter relationships
and key personnel, movement of products between branches.
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(iii) Get hold of minutes of Board meetings, copies of Profit & Loss Accounts and
Balance Sheets of latest year.
(iv) Examine inventory reports - like physical verification of stock obsolescence
report, slow moving items etc.
(v) Collect copies of other returns & statement -like Sales tax, Income tax and bank
statements submitted for loans etc; lease documents of machinery procured from
Finance Companies.
(vi) Collect Annual reports. general ledgers, register of sundry debtors, sundry
creditors, invoices, vouchers, copies of agreements and contracts etc. for study
from Central Excise point of view.
(vii) Ascertain system of accounting of Central Excise and Cenvat credit.
(viii) Ascertain sales pattern
(ix) Marketing pattern adopted
(x) Pricing practices
(xi) Discount practices
(xii) Other revenue earned
(xiii) Trading activities - system employed
(xiv) Modvat/Cenvat implications
(xv) List of goods used for captive consumption
(xvi) Exports files.
(xvii) Purchases/imports files.
(xviii) ISO 9000-900 I, 9002 certification
(xix) Industry ratio (input/output ratio).
(xx) Industry reports in CMIE, other economic journals and newspapers.
3.6.3 Tour of plant
A physical tour of the plant provides confirmation of much of the
information gathered earlier and points to operations not discussed and provide
clue to important aspect of the unit.
Following points should be seen while on tour to the plant:
(i) Observe actual operations to assess areas vulnerable to non compliance.
(ii) Goods manufactured - purchased for resale.
(iii) Flow chart of manufactured goods.
(iv) Partly manufactured goods - processing involved - goods sent to job workers -
documents used.
(v) Goods brought for repairs - components used.
(vi) Capital goods - used, acquired recently and used for exempted goods.
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(vii) Control mechanism used over movement of capital. 'goods/semi finished
goods/finished goods.
(viii) Generation, accountal of scrap.
(ix) Final product stage - packing used.
(x) Checking, tests, final tests before clearance -System to identify and deal with
rejected goods. .
(ix) Documents used for despatch through - train, trucks, other means viz. challans,
despatch note.
3.6.4 Evaluation of internal control system
An evaluation of internal controls help in formulating a detailed programme of
verification. Deficiencies in internal controls would determine the speed and depth of
Auditor's verification programme. For this purpose following factors should be studied:
(i) Characteristics of the assessee's business and its activities.
(ii) System of maintenance "of private records - sales accounting, purchase
accounting, Cenvat availment etc. Since no mandatory records are required to be
maintained, private records showing accountal of Central Excise duties, availment
of Cenvat etc. has to be checked up and relied upon.
(iii) Distribution of authorities and responsibilities: .
(iv) System of Internal checks - for receipts and issue of raw material, movement of
semi finished goods, final products till despatch and payment of duty thereon
(v) System of internal audit.
(vi) Sample checks of - Purchase system, sales system and movement of raw material
and semi finished goods and related material within and outside the factory.
(vii) System of accountal of job work undertaken.
(viii) System of semi finished goods sent to 'job worker's:
3.6.5 Trend analysis
(i) Compare year to year changes in receipt of inputs, sales, assessable value, duty
paid through PLA and adjustment through Cenvat for a period of 3 years.
(ii) Ensure that prima facie there is not leakage of revenue on account of
undervaluation, suppression or clandestine clearance.
(iii) Compare changes in rates of gross profit during the period of 3 years. It could
show an over all picture about the organisation's health and profitability.
Whenever their gross profit has either been declined or remained constant 'despite
decrease in production or sales, then a detailed study can be undertaken to see if
there is any undervaluation.
(iv) If the Cenvat credit availed on input has gone up compared to previous
month's/year, the reasons for such an increase has to be studied. This could be as
a result of increase in rate of excise duty on inputs, increase in quantum or value
of inputs.
14
(v) Since increase in quantum or value can be verified whether there is corresponding
increase in quantity or value of output the abnormal variance could be indicative
of clandestine clearance.
(vi) In case, the Cenvat credit availed is less due to reduction in duty rate on input but
duty paid through PLA remain constant even quantum of input received remains
same or is more, such a variance could also be indicative of clandestine
clearance.
3.6.6 Risk analysis
Taking into consideration, the preliminary work at headquarters, range office,
factory as well as further analysis made as mentioned in the earlier paragraphs, prepare
details of risk loss involved in the audit execution:

S.No. System analysed Remarks
1. General Accounting system *Good/*Acceptable/*Poor
2. Sales Accounting system *Good/*Acceptable/*Poor
3. Purchase Accounting system *Good/*Acceptable/*Poor
4. Cenvat credit accounting *Good/*Acceptable/*Poor
5.
System employed for Movement of raw
material, semi finished & finished goods
within and out side the factory
*Good/*Acceptable/*Poor
.Cases of poor performance would require detailed and careful scrutiny.
3.6.7 Developing the action plan
At this stage, the audit party should apply their mind, and decide whether the
procedures evolved in the assessee's unit are capable of ensuring compliance to the
provisions of the act and the rules or not. If the internal control is reliable, only a test
check of records may suffice otherwise audit party may like to select that area for detailed
audit. Based on the findings, the audit action plan already prepared and approved by the
Group Officer may be suitably modified by the Sr. Audit Officer/Audit Officer and
approved by the Group Officer if supervising the party during the period or sent to him
for his ex-post facto approval. The detailed action plan should be developed in narrative
or list format. It should be based on information already collected besides analysis made
of internal control mechanism deployed, reasonable test, the risk involved and trends
analysis in respect of duty paid through PLA/Cenvat credit etc.
The action plan must be specific and outline specific areas and percentage of
records to be reviewed within the specific allotted time. Where risk is minimal, these
areas will be subjected to limited scrutiny.

15
3.7 Point to be seen in audit
The following points should be taken into consideration while examining the
records:
3.7.1 Registration
It should be seen that registration certificate is issued by the competent
authority for the premises where manufacturing is undergoing;
Is available with the assessee;
Indicates goods being produced with correct classification;
There is no change in the constitution of the firm or change, if any, has
been duly informed to the Range Officer within one month;
Is there any item having produced but omitted to be entered in the
register;
3.7.2 Personal Ledger Account (PLA)
Register in proper form is authenticated by the authorised person.
T.R. 6 Challans for the duty payment in Bank during the period of audit
are available.
Get a revenue statement prepared and analysed.
Select a month at random and verify credit taken in PLA.
Reconcile one months invoices with debit entry in PLA.
If short debit/wrong debit found-increase the number of invoices to be
verified.
All payment in installments are made on due dates and interest has been
paid correctly on delayed payment, if any. Check if the department has
taken cognizance of any trend in delayed payments.
Cheques are deposited with the department only in case of strike by the
Bank Staff or declaration of holidays due to unforeseen contingencies.
Payments through cheques are reconciled with Bank statement.
3.7.3 Cenvat credit on inputs
Go through in details the changes made in the Cenvat rules from time to
time.
Verify credits in Cenvat credit account maintained by the assessee both in
respect of quantity and amount of credit on inputs with reference to duty
paying documents. If excess credit are found increase the period of
verification.
Reconcile one month invoices with debit entries in Cenvat account.
If short debit/wrong debit are noticed, increase the period of verification.
Check credit taken was admissible under the rules; Goods are meant for
use as input in the manufacture of excisable products.
16
Duty paying documents are genuine.
Accuracy of credit is verified.
Goods on which credit is taken are actually received and used for
manufacture or are still available in stock and facts are verifiable from
private records.
Credits are taken within one year from the date of issue of invoices.
There is no large scale accumulation.
Credits on rejected goods before use in production are reversed.
Credit on goods returned as such are reversed.
Proper records of common inputs used for exempted and dutiable goods
are maintained. .'
No credit is taken on inputs used in exempted final products.
Certificates in lieu of duty paying documents are genuine.
Intra company transfer of inputs are not effected .to pass, on the un-
availed credit to sister units.
Clearance and receipt of inputs/semi finished goods to job workers for
further processing is properly accounted for.
Verify monthly returns on inputs received, cleared for production or as
such and amount of credit taken/utilised from the relevant duty paying
records and entries in commercial records.
Carry forward of unutilised credit is correctly taken.
For further details of audit checks refer to "Good Practices Guide on
Cenvat"
Proper procedure has been followed for inputs sent directly from the
supplier to the job worker.
Proper records of inputs used in goods manufactured in the factory are
maintained
3.7.4 Credit of duty paid on capital goods
Select one month period (comprising of 4 weeks; in one quarter) for test
check.
Go through the changes made in the Cenvat rules. All procedural
requirements have been dispensed with.
Check that credit is taken against prescribed duty paying documents.
Credit taken is accurate on capital goods actually received and installed.
Capital goods are not exclusively employed for production of non
excisable goods, since cenvat credit will not be available in such case.
Assessee has not claimed depreciation on that part of the value which
represented the amount of duty on such capital goods.
17
Credit is taken within the specified time limit and 50 per cent in first year
of purchase and 50 per cent during next year and such capital goods are in
possession of the assessee during second year when the balance 50 per
cent credit is taken.
Credit is reversed on capital goods rejected/returned.
Clearance of capital goods as such is on payment of duty equal to credit
taken in Cenvat Account.
Purchases of high value capital goods may be checked in details.
Certificate in lieu of duty paid on all goods issued by department officers
is correct.
All wastes and scraps are duty accounted for.
Capital goods sent for exhibition are received back.
Details of capital goods may be verified from private records.
For further detailed audit checks, refer to "Good Practices Guide on
Cenvat".
3.7.5 Classification
Check the details of "goods" (both excisable and non excisable)
manufactured by the assessee
Whether all excisable goods are correctly classified.
Check the details of intermediary products, joint products, by-products,
wastes and scraps are correctly classified.
Check identifiable products are not cleared as wastes.
Review the manufacturing process. Check if any, product is left out from
being subjected to duty.
Classification of parts when cleared as such or as components along with
the main product is correctly made.
3.7.6 Production
Study the' manufacturing process.
Study the cost audit reports wherever applicable.
Prepare a detailed note with flow chart on the manufacturing process
indicating the major raw materials/inputs used.
Ascertain the normal input/output ratio and verify that it agrees with the
production figures and consumption of raw material during 3 years.
Analyse the variations and give your comments.
Power consumption by category wise production. Verify Annual reports.
Whether production is related to workers employed, use of electric power
or consumption of basic raw material, correlate the details with actual
production. If there is captive generation of power and diversion for non
productive use, check if cenvat credit is proportionately debited.
18
Ascertain the details of licenced, installed capacity and actual
production and comment on increase/decrease and its impact on duty
collection and reasons for low capacity utilisation.
Reconcile production with figures of production shown in (RG I) stock
register for excisable products.
Study the system in use for recording the daily production and documents
used.
Study the extent to which waste and scrap is generated and recorded,
especially in industries where lot of scrap is generated e.g. engineering
plastics, rubber.
Cross check the production growth rate. Whether it is commensurate with
the growth noticed in the industry as a whole.
Compare actual production with production linked bonus if paid to the
workers. Cross check the actual production with other factors such as
packing material/containers consumed, waste and scrap generated, charges
paid to labour contractors etc.
Production, clearance and raw material consumption during the last
quarter of the year may be checked in details to see that it is fully
accounted for.
Check the store records in respect of some of the major inputs/raw
materials components and correlate their consumption with final
products.
Compare the production figures shown in excise records with those
shown in Annexures to the Balance Sheet and comment.
3.7.7 Clearance
Compare the clearance figures reported to the department through
monthly returns (RT-12/AREI) report with internal MIS returns/sales
figures as furnished in the annual report/cost audit report/income tax/sales
tax/ banks statements and reconcile the figures.
Study how spares and accessories are supplied and their value included in
the total value charged to duty.
Monthly returns are submitted by due dates.
Study the pricing pattern followed by the company in respect of clearance
to related persons/depots/consignment agents.
Clearances under bond have been effected as per procedure laid down in
the rules and under proper form (AR 4, AR 4A, ER I or ER 2). Whether
bond amount and the bank guarantee furnished are sufficient., Clearance
at NIL rate or concessional rates of duty are correctly made and proper
procedure followed, Clearance of wastes are subjected to duty and wastes
retained by job workers is also charged to duty check few sample cases,
Stock transfer to Depots/branch may be cross checked with depot/branch
records.
19
Check whether provisional assessments are made as per provisions of the
rules and bond/bank guarantee of adequate amount furnished by the
assessee and orders issued by the proper officer (Assistant Commissioner
of Central Excise/ Deputy Commissioner of Central Excise).
3.7.8 Valuation
Go through in detail the provisions of Section 4 of the Central Excise
Act, 1944 and the Central Excise (Valuation) Rules, 1975 as superseded
by Central Excise (Determination of Price of Excisable Goods) Rules,
2000 (effective from 1 J uly 2000).
All cases should be checked on merit with reference to law prevailing at
the time of clearance.
Check the pattern of sale adopted by the assessee, factory gate sale, depot
sale or door delivery.
Procure and check copies of agreements with major buyers, especially
long range contracts.
Additional payments received on account of escalation clause in the
agreement are duly subjected to duty and duty is paid to the Government
account.
Verify some debit notes with the factory gate invoices relating to goods.
Compare the stock transfer rates affected.
Check freight paid in goods cleared is charged to duty as per law. ~
Check whether retail prices are required to be declared on the packages
under the Weight and Measurement Act and duty is charged on basis of
MRP price after deduction of correct abatement. Check calculation backward
from MRP and arrive at the Assessable value.
Check price charged on goods cleared through depot/related persons are correct.
Verify how sales returns are accounted for.
Check how duty is charged on goods assembled at site and if charged to duty as
'goods', whether installation and erection charges are included in the assessable
value,
Discount allowed are actuals and there is no flow back of additional
consideration to the assessee on this account,
Cross check the details of sales of excisable goods with the sales book
figures appearing in final accounts and I.T. returns.
Cross check the sales figures with the figures shown in sales tax returns.
Assessable value of goods manufactured on job work basis is correctly
determined according to the Supreme Court judgement in Ujagar Prints
case viz. assessable value comprising of landed cost +J ob Charges +
Profit of the job worker is charged to duty correctly. Amortized cost of
moulds used for manufacture are also added to the assessable value.
Review the manufacturing process and products, prepare a detailed note
20
thereon, indicating the main products, wastes and scraps arising during the
manufacturing process, giving the input output ratio of some of the raw
materials consumed.
Goods manufactured at site -every case should be checked to see if it
qualifies as "goods" in the light of Supreme Court judgements, and if they
meet this criteria and the duty has been discharged.
Also indicate the valuation percentage in the past 3 years and consumption
or power/fuel for each main product.
3.7.9 General
Obtain the details of commercial and other concerned records being
maintained by the assessee. A tentative list of basic and allied records
maintained by the assessee and to be checked in audit.
Special efforts should be made and emphasis given to the in depth study
of commercial records maintained by the assessee for recording Central
Excise duty collection. Call for Minutes of the Board's meetings of the
company, to have a bird's eye view on all the activities of the company for
the period of audit.
Verify inventory reports like physical verification of stock obsolete report,
non moving items list etc.
Study the insurance claim file from Central Excise point of view, if any;
claim in respect of excisable products, modvatable inputs lost in fire,
transit before payment of duty liability on final products.
Check exemption meant for SSI units, is correctly availed of by the
manufacturer. Compare the figures with earlier year figures and analyse
the trend from Central Excise point of view.
Check details of cases initiated against the assessee for violation of
various other Acts/Rules and its impact on Central Excise duty collection.
Study the tender file, agreement file in respect of the goods cleared from
the factory to bulk buyer/industrial user. analyse its effect on duty
collection.
Study the special audit report by internal audit. special investigation
report issued by the department in connection with the assessee.
Any information due to loss suffered on account of tariff rise or natural
calamities and accounting adjustments.
Any other information which may be relevant for purpose of levy of
service tax should be looked for and recorded for future use and action.
3.8 Detail audit checks
An exercise of detailed audit checks should be undertaken in case of audit of
every unit. All the columns in the check list should be answered based on documents
checked and inconsistency noticed, if any, suitably commented upon and also linked
with the Audit memo issued. The check list should invariably be signed by the
21
concerned member of the CERA party to whom the work is allotted. The check list
should be attached with the draft local audit report submitted to the CERA Headquarter
for record.
3.9 Preparation of working papers
One of the keys to good audit is a system of good monitoring and evaluation of
audit reports. It is, therefore, necessary that all audit work must be clearly documented in
the working papers. The complete and updated working paper file must be made
available to the next audit party visiting the unit so as to enable them to acquire update
knowledge of assessee's working system and the areas where they have to concentrate
during audit.
The working papers should be prepared in two parts:
3.9.1 About current audit
(i) Complete and updated assessee's profile
(ii) Details of analysis made of risk factors based on which quantum of audit
work had been determined.
(iii) System followed by the assessee in respect of accountal of purchase,
sales return of goods, movement of goods for job work and exports, issue
of debit/credit notes and the defects noticed.
(iv) Details and extent to which different documents were checked in audit (as
per duty list) and relied upon.
(v) Audit assurance about the records checked.
(vi) List of records/information not produced to Audit for check during next
audit.

3.9.2 For future compliance by next audit party
(i) Details of documents/information not made available by the
assessee/range/division. A clear note for next audit party should be left
giving details of documents to be checked and the extent to which the
same has to be used for examination/verification.
(ii) Details of other specific information, which need to be cross verified by
the next audit parties from specific record not made available by the
assessee.
(iii) Any other important instruction to the next audit party as is deemed fit.
The working papers should be signed by the AAO and Sr. AO/ AO and reviewed
by the Group Officer.

22
4. AUDIT REPORTING
4.1 Reporting Standards
Reporting standards prescribe the framework for reporting the results of audit
concisely, with accurately, objectivity and clarity and in a constructive manner and for
appropriate, conclusive and preventive follow up.
4.2 Audit findings - Communication of/Follow-up:
4.2.1 Issue of preliminary objection memo
Though all records are audited in the factories or ware houses, the Central
Excise department being the auditee organisation, all objections in the form of
preliminary memos should be issued to the jurisdictional superintendent of
Central Excise and acknowledgements obtained, reply received with in a day or
before close of audit at the latest, except in the case of concurrent audit of Chief
Accounts Officer. The preliminary memos should bear the running serial
numbers and kept in record
4.2.2 Drafting of local audit report
All objections which could not be settled on the spot during the course
audit was in progress should be drafted in the local audit inspection report
(LAR). The local audit report should be drafted in three parts.
Part I - Introductory - Should contain details of outstanding objection
from previous reports, schedule of persistent irregularities, records not
made available with reasons, if any, and should contain the latest position
in respect of all previous audit reports pertaining to the jurisdictional
range to the factory covered in audit. All concerned files of pending
reports should be handed over to the CERA party for verification of
present position of each of the outstanding objections.
Part II A - Should contain all major irregularities, important
objections noticed in current audit with money value not less than Rs. 10
lakh in each case and which are likely to find a place in the Audit Report
of Comptroller and Auditor General of India
Part II B - Should contain objections which are not required to be pursued
through Part II A of the Local Audit Report or at higher levels and those
with money value less than Rs. 10 lakh in each case.
Part III - Should incorporate all objections which are minor in nature and
are not included in Part II A or Part II B. A copy (in duplicate) of part III
objections should be delivered/issued to the internal audit branch of the
concerned Commissionerate for further follow up at their end.
Draft inspection report should be prepared by Assistant Audit Officer and
reviewed by the Sr. Audit Officer/Audit Officer in-charge of the party.
Before submitting the draft report to local Headquarters, the reported
cases should be discussed with the concerned Assistant Commissioner of
23
Central Excise or Range Officer and his agreement/disagreement
recorded with suitable rebuttals where ever required. A title sheet of the
draft local audit report should also be filled in, in the format given in
Annexure 4 and attached with the report.
4.2.3 Discussion with concerned Assistant Commissioner/Deputy
Commissioner or the Superintendent of Central Excise
The CERA. party may find irregularities involving short levy which are
either not admitted but action has been initiated for recovery of short levy
cases; where no replies are given by the Range offices; or cases where CERA
party gets doubt about the claims made by the assessee and raises the issue
subject to verification. In such cases party should meet the jurisdictional
Assistant Commissioner/Deputy Commissioner and have a detailed discussion
for settlement and feed back taken.
The fact of discussion with the Assistant/Deputy Commissioner of
Central Excise should be mentioned in the draft audit report.
4.2.4 Issue of inspection report
It should be ensured that all draft inspection reports are received at local
headquarters within 5 days of completion of audit. The report should be vetted
by Assistant Audit Officer/Audit Officer or Sr. Audit Officer at local
headquarters and approved by the Group Officer. The report should be
presented in logical manner and should be cross indexed so that it would be
easy to follow by the department officials.
The vetting of the report should inter alia include the following minimum
checks:
a) incorporation of the correct preamble;
b) the arithmetic accuracy of calculations;
c) cross reference to the documents relied up with page numbers; and
d) similar objection in respect of the unit was not raised in earlier report.
The complete and neatly typed report should be issued to the concerned
Range officer with a copy to Asstt. Commissioner of Central Excise/Dy.
Commissioner of Central Excise and Dy./Asstt. Commissioner of Central
Excise (Audit) within one month from the date of completion of audit.
Copies of potential cases with high money value appearing in the report
should also be sent to the Commissioner of Central Excise demi officially, with
a copy to Deputy Commissioner of Central Excise (Audit)/Assistant
Commissioner of Central Excise (Audit) for their information.
In order to keep watch over the receipt and issue of audit inspection report
in time. A control register should be maintained as per format given in
Annexure 5. A monthly performance report of each officer/Audit party
indicating therein contribution of potential cases in the units audited by them
shall be submitted to DGACR every month.
24
4.2.5 Objection book
The objections taken in concurrent or local audit should be pursued by
prompt reminders till finality. All objections should be entered in an objection
book and their settlement watched. The objection book should be closed every
month under the signature of the Sr. Audit Officer and reviewed by the Group
Officer as per format given in Annexure 6.
A statement of objection outstanding upto 31 March . . . . . . . . . . and
pending settlement on 30 September. . . .. .. and a statement of objection where
even first reply was not received within 6 months of issue of objections should
be prepared and sent to the Commissioner of Central Excise demi-officially by
20th October each year for expeditious settlement of objections. The format of
the statement is given in Annexure 7. A copy of the statement should also be
sent to headquarters office by 20th October every year.
4.2.6 Potential Draft Para Register
A register of potential draft paragraphs should be maintained in the
CERA branch of each DGACR. Office as per format given in the Annexure 8.
Only those cases which developed into statement of facts or dropped on
approval from DGACR could only be cleared from the PDP register. This
register should be submitted on the 10th of every month to the Group Officer
for his review.
4.2.7 Statement of facts
A statement of facts may be forwarded to the Commissioner of Central
Excise for confirmation of facts/comments within 6 weeks. After obtaining
confirmation of the statement of facts, draft paragraphs should be processed on
the basis of statement of facts and department's comments. In case where it is
noticed that the reply from the Commissioner has been unduly delayed and the
objection is considered by DGACR to be important enough, involving the
important legal point or substantial tax effect to merit mention in the Audit
Report, draft paragraphs should be processed without waiting for such replies.
In case on basis of department's reply, the para is not found fit to be developed
into a draft audit para, the case may be removed from the statement of facts
register only after approval from the DGACR. A register of statement of fact in
should also be maintained to keep watch over the processing of draft
paragraphs as per format given in Annexure 9.
4.2.8 Draft Paragraphs
The monetary limit for sending draft audit paragraphs on Central Excise
receipts and refunds to the headquarters office has been raised to Rs.l0 lakh
with effect from the Audit Report 1998-99. Smaller objections on the same
issue may be clubbed to arrive at this level. Further, draft paragraphs on
objections with smaller duty effect involving principles of law or any
interesting feature may also be sent to headquarters.
Draft paragraphs should be prepared in the manner and in the light of
instruction contained in Annexure 10 and a register of Draft paragraphs
maintained in the format given in Annexure 11.
25
4.2.9 Monthly/Quarterly meetings with departmental officers
Instructions for holding of the monthly and quarterly meetings were
issued by the Ministry of Finance to all the Collectors (Commissioners) of
Central Excise vide Ministry's letter F.No.240/16/86-CX.7 dated 25 May 1986
and by headquarters office to all the Accountants General/Directors of Audit
dealing with CERA vide circular No.21187 CE dated 31 J uly 1987. According
to the instructions monthly meeting on a fixed date between Deputy
Commissioner (Audit)/Assistant Commissioner (Audit) and the Deputy
Director (CERA) to discuss the outstanding objections, important audit
objections involving substantial amount of revenue and also the disputed points
where there was difference of opinion between Audit and the department,
should be convened and minutes of meetings submitted to Commissioner and
the DGACR for perusal.
Similarly there should be quarterly meeting between the Commissioner
and the DGACR at personal level on a fixed date to discuss the outstanding
audit objections, which could not be settled at the lower levels, the important
audit objections noticed in audit during the previous quarters and also the cases
where department's reply to the paras were awaited.
vii
Annexure-1
{Reference para 3.3 (v)}

DEVOLUTION OF DUTIES

SENIOR AUDITOR/AUDITOR
1. Collection of figures from the PLA and Cenvat registers for the purpose of month
marking.
2. Compilation of production and clearance figures with details of duty discharged
in PLA and Cenvat records for tallying duty payable with duty paid. For the entire
period covered in audit.
3. Check of TR6 challans with PLA and collection of remittance details for marked
months.
4. Check of Bond register. Checking of entries and verification of figures in bond
register.
5. Preparation of Audit Memo and keeping of records.
6. Assisting the SAO/ AO, AAO-I and AAO-II.
7. Any other item of work assigned by the SAO/AO, AAO-I and AAO-II.

CERTIFICATE OF CHECK
Certified that all the checks prescribed in Revenue Audit Manual Part II relevant
to the present circumstances have been exercised to the extent indicated in CAG's
confidential letter No. 157/Rec.A.I/16-84/CE VIII dated 20.02.1984 (Circular No.1l/84).
Checks as enumerated in the guide to the Audit of Transactions of Central Excise
Revenues have been exercised.


SENIOR AUDITOR/AUDITOR


ASSISTANT AUDIT OFFICER
1. Factory visit,
2. Checking of Central Excise Registration Certificate.
3. Checking of transaction value which includes critical analysis of:
(i) Marketing pattern.
viii
(ii) Discount structure and scheme of commission payment.
(iii) Inter unit/sister concern transfers and check of cost construction statements.
(iv) Sales through depots, if any, and its transactional value.
(v) Sales through related person, if any.
(vi) Check of sales invoices/depot invoices with reference to purchase
orders/contracts/agreements for sale.
(vii) Scrutiny of cost accounts records and cost audit report, if any.
4. Checking of Raw material account which would involve:
(i) Correlation of materials/goods receipt note along with private stock account.
(ii) Study of material rejection notes and their final disposals.
(iii) Check of material issue notes.
(iv) Checking of purchase invoices/bill of entries in correlation of figures in
purchase account.
5. Checking of production, clearances and sales records which would involve:
(i) Correlation of production and sales figures of Production Records/Sales
records, monthly returns etc.
(ii) Correlation of production (from RGI/Daily Stock Account) and sales figures
with Balance Sheet.
(iii) Analysis of sales accounting.
(iv) Checking of sales return with delivery challans and correlation with credit
notes and its effect on Cenvat.
(v) Reconciliation of production figures with job cards and work orders,
production records with commercial records, raw material account etc.
6. Scrutiny of MRP declarations and assessment thereof
7. Checking of clearances under Bond i.e. ARE I (previous AR 4). rebate etc. and
rebate claims sanctioned by department. Sufficiency of Bonds and Bank
Guarantees and their validity.
8. Checking of records relating to duty free clearances of goods other then export
clearances to 100 per cent Export Oriented Unit, free trade zones etc., clearances
at concessional rate of duty in terms of Removal of goods at Concessional Rate
of Duty for Manufacture of Excisable Goods Rules, 2001, clearance of non-
excisable goods, if any.
9. Checking of job work transactions.
10. Register of goods received for repairs (erstwhile Form IV Register and D3
declarations) and reconditioning.
11. Clearance of samples.
ix
12. Checking of assessments i.e. tallying duty payable with duty paid.
13. Checking of fortnightly payment of duty.
14. Checking of Range Records - 335J and 335D Registers.
15. Scrutiny of records relating to storage/transit loss and scrap accounts.
16. Whether any service attracting service tax provisions was undertaken and if so
records thereof.
17. Check of warehousing records.
18. Interaction with assessee regarding goods manufactured, their classification,
purchase pattern, marketing and sales pattern etc.
19. Check of classification which would cover the following aspects:
(i) Study of manufacturing process, flow charts, phamplets, marketing
literature, packing slips etc. in order to determine when and where
excisable products emerge.
(ii) Checking of emergence of by-products and intermediate products
(iii) Examination of classification of each excisable product and its rate of
duty.
(iv) Checking of exemption/effective rate of duty of the product with
reference to Notifications
(v) Chemical Examiners Report, if any
20. Correspondence with Central Excise Department and other general
correspondence.
21. Check of CENVAT invoices/Bill of Entry with reference to Cenvat Register.
22. Scrutiny of show cause notices issued and adjudication order thereof
23. Critical analysis of trial balance, manufacturing, trading and profit and loss
account and Balance Sheet and also other commercial accounts available along with
Chairman's speech at AGM
24. Reports of Management Information System like physical verification of stock,
list of fast/slow moving items and written off stores etc.
25. Scrutiny of fixed assets Register to check inter-alia:
(i) Whether there was any capitalisation of Plant and Machinery etc. on
which Cenvat credit was availed
(ii) Depreciation claimed under Section 32 of the Income Tax Act and its
effect on Cenvat credit availed on capital goods
(iii) Sale of Cenvat availed capital goods.
26. Study of input/output ratio wherever feasible and declared by the assessee and
x
correlation of consumption of raw materials with production accounted for in the
production records (erstwhile RGI)).
27. Scrutiny of special records maintained in factories producing sugar, mineral oil,
matches etc., checking of storage and transit loss, if any.
28. Scrutiny of Debit Notes and Credit Notes.
29. Checking of Remission of duty.
30. Correlation of Monthly Returns ERI (Erstwhile RT 12/RT 13) with various other
returns/statements filed with other statutory/non-statutory authorities such as Sales Tax.
Income Tax, DGTD, Textile Commissioner, Export Promotion Council etc.
31. Effect of modernization/up-gradation/diversification, if any undertaken during the
period covered by audit.
32. Study of Provisional Assessment cases and finalisation thereof.
33. Verification of objections raised in Internal audit /Special audit under EA-2000.
34. Assisting Sr. Audit Officer/Audit Officer in finalisation and drafting of Local
Audit Report.
35. Ensuring the timely despatch of Local Audit Report.
36. Assisting, guiding and helping other party member in their execution of work.
37. Preparation of assessee's profile.
38. Verification of previous Local Audit Report and updating the figures in SFV/DP.
39. To discharge duties assigned to Sr. Audit Officer/Audit Officer in case AAO-I is
in-charge of the party.
40. Any other item of work assigned by the Receipt Audit Officer/CERA
Headquarters.
41. Any other item of work that may be entrusted by SAO/AO.

CERTIFICATE OF CHECK
Certified that all the checks prescribed in Revenue Audit Manual Part II relevant
to the present circumstances have been exercised to the extent indicated in CAG's
confidential letter No. 157/Rec.A.I/16-84/CE VIII dated 20.02.1984
(CircularNo.11184).
Checks as enumerated in the guide to the Audit of Transactions of Central Excise
Revenues have been exercised.


ASSISTANT AUDIT OFFICER/SECTION OFFICER


xi
SENIOR AUDIT OFFICER/ AUDIT OFFICER
1. Factory Visit.
2. Discussion with factory officials in respect of manufacturing process, marketing
pattern, discount structure and preparing/obtaining of write-ups thereof.
3. Preparation of action plan. Allocation of the work among party members
depending upon the work load, if necessary he may take up any item of work at
his discretion.
4. Planning for the audit execution.
5. Technical guidance, coordinating with party members and providing leadershipt
in the conduct of audit.
6. Scrutiny of work done by the party members and progress thereof.
7. Conducting of risk analysis and identification of areas where the attention of audit
is to be focused.
8. Interpretation of statute/rules and regulations on higher and review angle.
9. Cross checking of excise data with the commercial accounts.
10. Scrutiny of refund files.
11. Discussion on the points noticed and converting them to tenable objections.
12. Verification of paras in the previous Local Audit Reports and updating of facts in
each para.
13. Review of local inspection report drafted by the Assistant Audit Officer. In case
there is no Assistant Audit Officer available the drafting of report, as well as
discussion thereon with departmental officers.
14. Any other work assigned by CERA Headquarters and Group Officer.

CERTIFICATION OF CHECK
Certified that all the checks prescribed in Revenue Audit Manual relevant to the
present circumstances have been exercised to the extend indicated.


SENIOR AUDIT OFFICER/AUDIT OFFICER


xii
Annexure 2
(Refer paragraph 3.4)
List of records
1. Financial Records 1 Purchase Book
2 Sales Book
3 Cash Book
4 Day Book
5 Petty Cash Book
6 Bills Payable Book
7 Bills Receivable Book
8 J ournal and Vouchers
9 Purchase Return Book
10 Sales Return Book
11 Cost Audit Report
12 Management Audit Report
13 Debit Notes
14 Credit Notes
15 . Fixed assets register
16 Register of loans
17 Debtors Ledger
18 Creditors Ledger
19 General Ledger
20 Register for advances to suppliers
21 Register of Security, Bonds

2. Store Records
1 Purchase order
2 Receiving Report of material
3 Bill of material
4 Material rejection slips/Debit note
5 Material return note
6 Bin card
7 Stores Ledger
8 Material transfer note
9 Register of non moving store/stock
10 Obsolete stock cards
11 Requisitions for supply of material
12 Material issue slips
13 Lab. Test reports

3. Production Record
1. Raw material account
2. Production slips
3. Production floor charts
4. Daily production statements
5. Shifts records
6. Breakdown man hour lost records
7. Goods sent to J ob workers
8. Semi finished goods received for job work
. Goods received for repair, reconditioning Daily
wastage record
xiii
10.Batch Number allotment register

4. Clearance of goods
1 Gate register
2 Gate pass/Delivery challan
3 Weighment slip
4 Despatch advice
5 Machine log book
6 Log book of captive generator plant
7 Physical stock verification statement
8 Scrap register
9 Tender files
10 Comparative quotation charts
11 Delivery note
12 Marketing files
13 Production performance chart
14 Sales performance chart
15 Sale order register
16 Invoice register/Sale Register
17 Price lists (final products and spare parts)
18 Technical literature/brochures
19 Sales returns/credit notes/goods returned
for repairing
20 Work order note
21 Modvatted material used in reapir.
5. Report/Return/Statements

1 Letter of credit/LC Register
2 Bank statement and reconciliation
statement
3 Sales tax Return
4 Income tax return
5 Energy Audit Report
6 Tax Audit Report
7 Internal Audit Report
8 Special Audit Report
9 Special Investigation Report
10 LS.O. Audit Report
11 Prospectus of the company with M.O.A,
AO.A
12 Annual Reports
13 Cash Vouchers
14 RBI's approval for payment of Royalty
15 Cost Audit reports

6. Privilege Documents

1 Minutes of Board's meeting
2 Dealer's agreement
3 Consignment agents agreement
4 Inspection notes
5 Inter office memos
6 Process charts
7 Pollution control agreement
8 Hire purchase agreement
9 Leasing agreement
10 Project reports
11 Ground Plan of Plant
12 Report to ISI, NSSO

xiv

i
Annexure-1
(Reference para 3.5.1)


Assessee's Profile

Name and address of
(i) Commissioner of Central Excise
(ii) Division
(iii) Range
(withTelephone/Fax/E-Mail address)

2. (i) Name and address of the assessee -------------------------------------------------------------------------------
including address of the Registered
Office/Head Office

(ii) Telephone/Fax/E-Mail address
(iii) Status
(a) Proprietary/Partnership/P. Ltd. -----------------------------------------------------------------
Co./Public Ltd. Co.
(b) Public Sector/Private Sector
(c) Holding Co. or Subsidiary Co. -----------------------------------------------------------------
(d) SSI/Non-SSI
(e) Manufacturer/Registered Dealer
(f) Service provider


(iv) Excise Registration No.
(v) Income Tax PAN
(vi) Sales Tax Registration Number
1 Date of Preparation______________
2 Year (Period) of audit coverage______
3 Dates of audit____________________
ii
3. Name and address of the Proprietor/
Partners, Managing Directors,
Attorney, if any, with PAN,
Telephone numbers

4. Name and address(es) of the Bank
(through which normal transactions
are made)

5. Name and address of contact person
(dealing with Central Excise matters)
with telephone number

6. Attach Organisation Chart (Details
of Head Office, Factory, Depots,
C&F agents, Branches etc.)

7. Attach a flow chart of
Manufacturing process,
production and clearance

8. Major commodities manufactured with S.No. Commodi ty CSH Rate of duty
classifications CSH & rate of
duty leviable against each

9. Exemption from duty availed of on S. No. Commodity CSH Notfn. No.
commodities with notification No.

10. Details of Production, DTA clearance,
export clearance and duty paid on clearance
during 3 years through PLA/Cenvat

Year Commodity Qty. (DTA) clearance Exports
(CSH) Manufa-
ctured Under Bond Under Claim of rebate


Qty. Value Duty Qty. Value Duty Qty. Value Duty

PLA Cen-
vat
PLA Cen-
vat




iii

11. (i ) Details of Depots etc S.No. Name and address of Depots/consignment
agents


(ii) Details of Sister units (if any) S. No. Name
and
address


ECC Code No. Nature of
Transaction dealt
with S.U.
(i i i ) Del ayed payment of duty
and interest/ penalty paid date wise


Amount
of duty
Total paid on Paid on Interest
levied/paid
Penalty
levied
12. (i)(a) Purchase of major inputs (3
years)
Year Commodity CSH Qty. Value Amount
Cenvat
credit
taken


(b) Purchase of major capital goods
(3 years)
Year Commodity CSH Qty. Value Amount
Cenvat
credit
taken


(ii) Name and address of the major
suppliers of inputs


S. No. Name and address

Name of input
13. Major inputs/capital goods cleared
as such and amount of Cenvat
reversed/duty paid


Year Qty. CSH Value Amount of
Cenvat
reversed
14. (i) Details of job work undertaken
for others (not subjected to duty)


Year Nature of job Qty. Value
(ii) Name and address of the parties
on whose behalf job work
undertaken



_____________________________________________

iv

15. (i) Details of goods sent for job
work and Qty./Weight of scrap
received back from job workers
Year Qty. value of goods sent for
job

Qty./Value of scrap
received & accounted
for
(ii) Details of job workers


S.No. Name and address ECC
code
Nature of job
16.

Other Details

a)

Period upto which unit was last
audited

b)

Details of outstanding objections
S.No. LAR Amt. Involved Status
No. report
c)

Year up to which financial accounts
are complete and balance sheet
prepared and shown to Audit

d)
Details of show cause notices
pending adjudication, as on date
Date of SCN Amt. Issue
Involved involved


Details of demands confirmed and
amount thereof (as on date)


(iii)
Details of amount of demands paid
out of (a) above


(iv)
Details of cases (and amt. Involved)
where appeals have been filed (as on date)

e)

Level of computerisation


(i)
Software used

(a) Foxpro
(b) Access
(c) Oracle
(d) Others, (Please specify)
(ii) Network (Internal)
v
(iii) Extent of Computerisation
1. Production
2. Clearance
3. PLA
4. Invoice
5. Monthly return
6. Others (Pl. specify)
(iv) Connectivity with department
6. Whether there are multi-locational
factories (give details)
7. Whether goods cleared for captive
consumption in a factory situated
elsewhere. If so, whether goods are
cleared on payment of duty
8. Whether assessments made are
provisional, if yes, attach details
(a) Peri od upto whi ch provi si onal l y
assessed
( b ) Period upto which assessment -------------------------------------------------------------------------
finalised
(c) Amt. of duty paid on finalisation
(d) Amt. of interest paid

9. Whether goods are cleared from the S.No. Name and address
factory gate direct to the buyer or
sold through Depot/Related persons.
Attach list of related persons

10. Whether goods are cleared in CKD ________________________________
condition to be installed at site, if so,
attach details of the goods installed at site,
during the three years period

11. The year upto which Income tax
returns are filed

12. The period upto which Sales Tax ____________________________
returns have been filed

13. Whether moul ds and di ce were _________________________
supplied to the job worker.
If so, attach up to date details

14. Whether debi t notes are i ssued _________________________
during the period covered by audit,
if so, collect details
vi
15. Whether commercial invoices are issued __________________________________
in addition to excise invoice

16. Whether goods are covered under the __________________________________
Weight and Measurement Act and
covered under MRP. Attach a list of
such goods.

17. Attach a copy of cost data of goods __________________________________
manufactured

18. Any other relevant information, not __________________________________
covered above




Signataure ___________________
Name ___________________
Designation Senior Audit Officer
CERA Party No. ______________

Annexure 4
(Refer paragraph 4.2.2)
Title sheet of draft Local Audit Report (LAR)
Part A

1
2.
3.
Name and address of the factory,
warehouse or other auditee
Names of Sr. AO/AO, AAO and
Sr. Auditor/Auditor in the party
Dates of Audit. Number of working
days in conduct of Audit



1.
2.
3.
4.

4. Period covered in audit


5.
6.
7.

The four weeks (in the. year) selected
for test audit giving reasons for any
shortfalls or deviations in extent of
audit
Reasons for changes, if any, in dates
or duration of audit from the
approved programme
No. and date of Audit memos with
revenue impact more than RS.IO lakh
or those involving serious procedural
or system defects.
8. Certified that documents not produced to audit have been listed in a para in Part B of
the draft LAR.
9. Certified that all outstanding paragraphs in the previous LARs have been gone through
by me personally and the remarks for dropping those which are not sustainable have
been given against each. Objections which are outstanding have to be considered for
clubbing and conversion into draft paragraphs or discussion with Commissioner or
Deputy Commissioner of Central Excise, by Group Officer.
10. Enclosures:
i. Draft Audit Report with KD
file
ii. Assessee's profile
iii. Check list (Questionnaire) duly
filled up and signed
iv. Working papers
v. Others
Signature of Senior Audit officer/Audit
Officer/Assistant Audit Officer
(Incharge of Party No.______)


Part B
Certified that the office copies of all audit memos (Sr. No. __________to )
issued to the Range Office have been annexed to the draft LAR. All replies to the Audit
memos received till date have been reviewed as suitably incorporated in the draft LAR.

Signature of Senior Audit officer/Audit Officer/
Assistant Audit Officer
(Incharge of Party No.______)

Part C


.
.
1 Entries made in Objection Book (Details ______ ~).
2 Entry in the PDP register made as per orders of Group Officer (Details_____)
_______



3 Previous LAR paras dropped as per orders of Group Officer and noted in
LAR and objection book (Details _______________ ).
4 Outstanding previous LAR paras for discussion with Commissioner of
Central Excise/Dy. Commissioner of Central Excise included in agenda for
next discussion after settling all accepted paras in the LAR.
Sr. Audit Officer/Audit Officer (Headquarters)
Date:
Caution: Title sheet is not to go out with LAR to auditee.

PROFORMA
LOCAL AUDIT REPORT
PART - I
l(a)lntroductory details
Name of the Commissioner Central excise
Name of the Division
Name of Range
Name and address of the assessee
Registration Number
CERA Party Number
Names of the Party Members
Period covered in Audit
Duration of Audit with details of deviation
from the approved programme
Details of goods manufactured with sub-
headings Number
Details of Revenue for three years
Details of Outstanding Demands against the
assessees
l(b)About previous Audit
Period covered in Audit the dates of Audit and
the CERA Party Number conducting Audit of
the Unit
Details of outstanding objections with the SI. Para LAR Objection Revenue Present
Revenue involved and present status No. No. No. in brief involved status

PART II
Current Audit
Results of Audit- Highlights of objections
Revenue involved

PART II-A
Para-wise details of major objections involving revenue impact of Rs.10 lakh and
above and those involving serious procedural or system defects
PART II-B
Para-wise details of objections involving revenue impact below Rs.10 lakh and those
involving procedural or system defects other than those mentioned in Part II-A
PART III
Para-wise list of objections involving revenue impact upto Rs. 10,000/- and other
minor objections on procedural irregularities (Paras to be pursued by the Internal Audit
Branch of the Commissionerate for settlement)



Signature of Senior Audit officer/Audit Officer/
Assistant Audit Officer
(Incharge of Party No.______)

xviii
Annexure 5
(Refer paragraph 4.2.4)
Register to watch receipt and issue of Local audit Reports

SI. Name Dealers of Audit as per Date of Date of submission for/after Date of Date of Details of para in
No. of unit approved programme receipt of vetting to Group Officer approval issue of LAR Part IIA.
and Reference No. to LAR from by Group LAR Part liB, TAN

programme register Party Officer

Ar. AAO Sr. AO/AO
1 2 3 4 5 6 7 8

1
Annexure 6
(Refer paragraph 4.2.5)
Objection Book (Part-I)
Objection Book for the month of __ Commisionerate of Cent real Excise _______________ _

81. Period Reference to Name& Rangel Nature of Amt. Classification No. & date of No. & date of Remarks
No. of audit para No. of address Division objection for purpose references confirmation
Local Audit of the in brief of audit issued/replies of demand

Report assessee Report received

2 3 4 5 6 7 8 9 10 11
Notes:
1. The objection book should be maintained Commissionerate-wise (outstanding objection should be
carried over to the current objection book)
2. When the objection is dropped or settled, the fact thereof should be noted in col.ll and cross
reference to serial number in the adjustment register given.
3. The objection book is in three parts.

4
.

Part-I of the objection book should be closed
every month as under: -

Position of objection outstanding for more than
six months

1. Opening balance from
previous month ......................... .
2. (Add) objection during the
month ..................................... .
3. Total
4. Less: Amount adjusted during
the month as per
adjustment register ................... .
(Objection Book Part-II)
5. Closing balance .................... .
(Certified that all objections
from LAR issued during the
month have been entered in the
objection book)

Ite
m

Amounts

Opening Balance ............. .
Addition ........................... .
Total ................................ .
Clearance ......................... .
Closing balance
.........................................
.
Year wise break up of
closing balance




No. of item

Amounts
xix
Objection Book (Part II)
Adjustment register for the month of __________ _
Commissionerate of Central Excise

Sl.
No.

Month and year of
objection book and
objection itemNo.
2

Letter No. and date of department
accepting objection OR date of order
of AO/Sr. DAG/AGIHQ for
dropping/settlement of objection
3

Amount
of
objection
dropped
4

Amount of
objection
settled
5

Total amount
adjusted
(ColA +5)
6

Remarks
7

1
.
2.
3.
4.
Total:

Monthly Total ______________ (A)
Year wise Break up of (Adjustments)
xix
Objection Book (Part III)
Year wise abstract of objection outstanding and adjusted which relate to
_______ Commissioner of Central Excise for the year ______________ _

Objections
relating to
Balance of
(and previous years)
Balance of
Balance of
Balance of
April 20 .... (Year)

Amount of objections
outstanding at the
beginning of the year

Adjusted
in April

Adjusted Adjusted
in May in J une

Adjusted
in J uly

Adjusted
in August

Adjusted in
September

May20

.(Year)

J une 20 ..... (Year)
J uly 20 ......... (Year)
August 20 .. (Year)
Objections
relating to
September 20 ",(Year)
October 20 "",,(Year)
November 20, ,,(Year)
December 20" ,(Year)
J anuary 20 ." ",(Year)
February 20 ,,,,,(Year)

Amount of objections
outstanding at the
beginning of the year

Adjusted
in
October

Adjusted ' Adjusted
in in
November December

Adjusted
in J anuary

Adjusted
in
February

Adjusted
in
March

Total
Adjusted

March 20
Total

",(Year)
20

Annexure 7
(Refer paragraph 4.2.5)
Part A
Statement of objections issued upto 31 st March .................. and outstanding as on 30
th

September ..................... in respect of Commissionerate of .......................... .

(Amount in lakh of rupees)
Sl. Name of Para o.and Objection Classification Duty effect Accepted/ Accepted but Remarks
No. Division No. & Date of in brief (Rs.) demand not raised/not

issue of L.A.R. accepted/not replied

2 3 4 5 6 7 8
Total

Note:

1.

This statement is due in CA.G's office by 20
th
October every year.

2. The words to be used in Col.(5) should be the appropriate one from the following
classification generally adopted in Audit Report.

Non Levy (NL)
Undervaluation (UV)
Misclassification (MC)
Incorrect grant of
Exemption (EX)

Exemption to Small Scale
Manufacturers (CR)
Irregular refunds of Rebates (Ref)
Short levy of Cess (Cess)
Incorrect grant of utilisation of
credit (Cr)

Internal Audit (IA)
Demands for duty not raised (ON)
Procedural irregu larities (Proc)
Other Topics of Interest (OTI)

Note 3. In Column (7) abbreviations having the following meaning may be used
AD Accepted
ADN Accepted but demand not raised
NAN ot accepted
NR Status not known
Part B
Statement of objections in respect of which even first replies have not been received
within six months of issue of Local Audit Reports (i.e. reports issued upto
31
5t
March .............. ) in respect of Commissionerate of Central Excise
.
(Amount in lakh of rupees)

Sl.
No.

Name of
Divisions

Para No. and No. and date of
Local Audit Report

Objection in brief Duty effect (Rs.) Classification

2

3

4

5

6

Note:

I.

Commissionerate wise separate statements should be sent

2. This statement is due in CAG's office by 20
th
October every year.
3. This statement is respect of which only interim replies have been received (but not a single
substantive reply has been received) may be treated as objections where even first replies
have not been received
4. Nil report have to be given in respect of Commissioner ate, if there be nothing to report.
5. The words to be used in Co!. (3) should be the appropriate one from the following
classification generally adopted in Audit Report'.

Non-levy (NL) Short levy of Cess (Cess)
Undervaluation (UV) Demands for duty not raised (DN)
Misclassification (MC) Procedural irregularities (Pro e)
Incorrect grant of Exemption (Ex) Internal Audit (IA)
Incorrect grant or utilisation of credit (Cr) Other Topics of Interest (PTI)
Exemption to Small Scale manufacturers (SSEx) Irregular refunds or Rebates (Ref.)

Annexure 8
(Refer paragraph 4.2.6)
Potential Draft Paragraphs Register

SI.
No.

Reference to
LARIpara No.

Name of Rangel Brief nature Amount
assessee Division/CCE of objeetion

Reference to SI. No. of
statement offacts Register

D.P. No.Near of
audit Report

Remarks

2

3


4

5

6

7

8

9

Annexure-9
(Refer paragraph 4.2.7)

SI.
No.

Reference
to LAR
para No.

Reference
to P.D.P.
Register

Name of Brief
assessee nature of
objection

Amounts

No. & date of letter
forwarding
statement of facts

Reference to
replies
received

D.P. No.1
Year of
report

Remarks

2

3

4

5

6

7

8

9

10

Annexure 10
(Refer paragraph 4.2.8)
Instructions for preparation of draft paras
1. The draft paras proposed for incorporation in Audit Report on Revenue Receipts should
be prepared in accordance with the instructions set out below: -
2. The para should be prepared and sent to Headquarters furnishing all relevant particulars
in the "Key" thereto. The "Key" should be prepared in Proforma' A" & 'B" as given
below: -
Key Proforma 'A'
1. Name of the Unit
2. Commissionerate

3.

(a)

Division

(b) Range
4. Reference:
(a) L.A.R. issued vide _________________________________________ (Copy)
(b) Department's reply to L.A.R. received _________________________ (Copy)
vide
(c) S.F. issued vide ___________________________________________ (Copy)
(d) Depoartment's reply to S.F. received ___________________________ (Copy)
vide
Key-Proforma 'B'

(a)
(b)
(c)
(d)
(e)
(f)

Date of audit objection/issue of audit report
Name of assessee
Reference to demand if any) raised
Whether the point was initially raised by audit or
by departmental authorities
Whether Internal audit party had reviewed the
particular assessment
Whether the audit objection is accepted/licensee
had gone in appeal/revision
(g)

Reference to previous correspondence with C
& AG on the subject, if any

3. Every draft paragraph should be accompanied by (a) Brief, (b) copy of statement of
facts, (c) copy of para LAR, (d) Calculation sheet for duty short levied reported (e)
copy of preliminary objection & (f) copy of department's reply.
4. Copies of all key documents references relating to the para should accompany the
brief.
5. All draft paras should be captioned only under the following heading:
(i) Non-levy of duty;
(ii) Short levy of duty due to misclassification;
(iii) Short levy of duty due to irregular grant of exemption
(iv) Short levy of duty due to undervaluation;
(v) Irregular grant of exemptions to small scale manufacturers;
(vi) Irregular availment of Modvat credit
(vii) Irregular availment of proforma credit and other credits;
(viii) Non-levy short levy of cess;
(ix) Other irregularities.
6. It should be ensured that the individual paragraphs relating to topics of reviews are
included in the Review and not sent separately as individual draft paragraphs.
Review para should be sent separately in a floppy and all annexures should be in
Excel format.
7. Identical paragraphs should be clubbed together before being sent to this office.
8. Cases in which draft paras are prepared either at the instance of the office of the
Comptroller and Auditor General of India or after obtaining a concurrence from that
office, references to such correspondence should invariably be given.
9. Where the draft paras purport to comment the Tariff Values or executive instructions
of the Board and where the cases had been concurred in by the Comptroller and
Auditor General's Office formal objection should be issued to the Commissionerate,
but these need not be pursued at the Commissioner level. This is with a view to
enable the acquaint himself with the audit objections.
10. The monetary limit may be RS.I0 lakh and above for any individual para. But there
is no rigidity in regard to this limit. For example cases may be of general nature,
involving other Commissionerate and in such cases, the overall effect may be
substantial. In such cases, paras should be proposed even if the amounts are lesser
than the limit laid down, and involve a point of law.
11. Care should be bestowed so that the paras are brief and clear, although anonymity
should be maintained to the extent possible.
12. Amounts should be rounded off to the nearest rupee in all cases. Mentioning of
fraction of a rupee should be avoided, except where rates have to be referred. A duly
checked and signed copy of calculation sheet of duty short levied arrived at should be
attached with the para.
13. All paras should be got approved by the Accountant General and sent to the office of
the Comptroller and Auditor General, as soon as they are ready.
14. Cases for draft paragraphs should be studied thoroughly to ensure the fact whether
audit had pointed out the objection. If the department was already aware of the audit
point, and was taking action, such facts should be clearly brought out.
15. Factual accuracy should be ensured. The brief to the draft para should contain all
details/events relating to the case.
16. Annual reports should be sent to Comptroller and auditor General on 20
th
September
of every year indicating therein the details of the paras sent.

Annexure 11
(Refer paragraph 4.2.8)
Register of Draft Paragraphs

S.No. Reference to
PDP/Sl.register
Name of
assessee
Brief
nature of
objection
Amount
(Rs in
lakh)
No. & date
forwarding the
DP to CAGs
Office
Reference
to paras in
Audit
Report
Remarks
(1) (2) (3) (4) (5) (6) (7) (8)