1. 1 Regional Training Institute, Ranchi Structured Training Courseware on State Receipts Audit Audit of State Excise Receipts

2. RTI, Ranchi2 Session Objectives At the end of these sessions, the participants will be able to understand Definition of State Excise receipts Nature of State Excise receipts Important Records & Registers Audit checks relating to state excise receipts

3. RTI, Ranchi3 Definition Excise duty is a tax on, –production or manufacture of goods produced or manufactured within the country Excise duty forms part of State list of Seventh Schedule of the Constitution

4. RTI, Ranchi4 Excise Duty States have the power to levy excise duty on, –alcoholic liquors for human consumption –Opium, Indian hemp and other narcotic drugs Which are manufactured or produced in the State and countervailing duty on similar goods manufactured or produced elsewhere in India.

5. RTI, Ranchi5 Excise Duty (contd.) Central Government has the power to levy excise duty on, –Medicinal and toilet preparations containing alcohol States authorized to collect excise duties on these preparations as per rates specified in Central Act.

6. RTI, Ranchi6 Excise Duty (contd.) State Governments have exclusively rights on, –Manufacture –Selling or –Processing of Alcoholic liquor and intoxicating drugs

7. RTI, Ranchi7 Alcoholic Liquor & Narcotics License / permit required from State Government for all activities related to alcoholic liquor & narcotics such as, –Raw materials –Production & manufacture –Storage –Transport within the State –Import / Export from one State to another –Wholesale and retail trade

8. RTI, Ranchi8 Organizational Set up Commissioner of State Excise (CSE) –Responsible for administration and execution of excise policies and programmes Jt. Commissioner (JCE) / Dy. Commissioner of excise (DCE) and Asst. Commissioner Excise (ACE) at Hdqrs.

9. RTI, Ranchi9 Organizational Set Up (contd.) Dy. Commissioner of Excise –Division level District Collector (assisted by ACE / Excise Superintendent) –District level Excise Inspectors –Circle level Excise Sub-Inspector –Block level

10. RTI, Ranchi10 Organizational Set Up (contd.) Commissioner Jt. CommissionerDy. Commissioner Asst. Commissioner/ Excise Superintendent Excise Inspector Excise Sub- Inspector Excise Constable

11. RTI, Ranchi11 Production of Alcoholic Liquors Main raw material for production of alcohol in India is molasses –Molasses is a by-product of sugar factories Sources like malt, fruit, grape, mahua flowers etc. are also used in some cases

12. RTI, Ranchi12 Distillation Production of alcohol from molasses is done through distillation process. Output is in the following categories: –Absolute alcohol, whose strength is 99.5 % by volume –Rectified alcohol, with water, whose strength is at least 91.27 % by volume –Plane spirit or country spirit, with water whose strength is at least 91.27 % by volume –Denatured spirit, basically rectified alcohol with denaturant with strength of at least 91.27 % by volume

13. RTI, Ranchi13 Distillation (contd.) Distillation includes Reduction Dilution Compounding Blending Colouring Flavouring Sohistication and fortification

14. RTI, Ranchi14 Distillation (contd.) Final output for sale falls into the following categories: –Denatured spirit and special denatured spirit –Country spirit (plain and spiced country liquor) and arrack –Indian Made Foreign Liquor (Whisky, Brandy, Rum & Gin)

15. RTI, Ranchi15 Alcoholic Liquors Beer is manufactured in a brewery –Germinated malt is made into beer wort and processed further to make beer Other categories of alcoholic liquors Wines –Made from fermentation of grapes Toddy –Made from fermentation of liquor tapped from trees

16. RTI, Ranchi16 Nature of State Excise Receipts Excise duty and fees as well as countervailing duty on alcoholic liquors and narcotics Fees for different kind of licenses e.g. distillery, brewery, wholesale, retail trade etc. Fees levied on hotels, bars etc. Vend fees on denatured spirits etc.

17. RTI, Ranchi17 Nature of State Excise Receipts (contd.) Tree charge and surcharge on toddy Permit fees Composition fees, fines and penalties Sale proceeds of Forms Collection of contribution from licenses in respect of excise staff posted on cost-recovery basis Duties on medicinal and toilet preparations with alcohol and narcotic ingredients

18. RTI, Ranchi18 Mode of Levy Rate of duty is subject to varying strength or quality of the item Excise duty or countervailing duty is levied –On excisable articles imported / exported / transported – payment of duty at the time of or before import / export / transportation or –upon issue for sale from warehouse established, authorized or continued under the State Excise Act

19. RTI, Ranchi19 Mode of Levy (contd.) Excise duty or countervailing duty is levied –On spirit or beer, manufactured in any distillery or brewery licensed, established, authorized or continued under the State Excise Act

20. RTI, Ranchi20 Mode of Levy (contd.) Excise duty is an indirect duty –Incidence ultimately on the consumer Always levied at first point of issue for sale of any excisable article Statutory liability for payment of duty is with dealer or manufacturer / producer on what is manufactured / produced by him

21. RTI, Ranchi21 Important Issues Issues relating to excise duty at different stages of production, manufacture and trading are –Distilleries –Breweries –Bottled Liquor –Import & Export –Transport & Storage –Permit and Pass –Wholesale & Retail Trade

22. RTI, Ranchi22 Important Issues (contd.) Distilleries Storage and supply of molasses regulated by State Government –Most States specify minimum outturn for spirit out of molasses –Most States also specify free allowance for wastage of molasses from sugar factory to distillery as well as storage losses at the distillery

23. RTI, Ranchi23 Important Issues (contd.) Distilleries –Almost all States prescribed free allowance for wastage of alcohol and spirit stored in distillery No allowance permissible for losses on transfer from VAT to VAT

24. RTI, Ranchi24 Important Issues (contd.) Distilleries Wastage allowances are also prescribed for processes like re-distillation, maturation in casks, blending etc. In respect of IMFL, rate of duty is dependent on strength of spirit in the liquor in many States

25. RTI, Ranchi25 Important Issues (contd.) Breweries Some States have prescribed norms for minimum out-turn of beer wort from malt, losses for converting wort into beer, and losses during bottling

26. RTI, Ranchi26 Important Issues (contd.) Bottled Liquor In most States, there is no permissible wastages allowance in respect of bottled liquor and beer

27. RTI, Ranchi27 Important Issues (contd.) Import & Export Import of liquor from other States is permitted against –Pre-payment of duty or –A bond for payment of duty In some States there is a system of transfer of duty through direct credit system or book transfer

28. RTI, Ranchi28 Important Issues (contd.) Import & Export Import permit is required, specifying the quantity and description of liquor, source of import and destination bonded warehouse Export permit is required and liquor export permitted against pre-payment of duty or bond for payment or bank guarantee

29. RTI, Ranchi29 Important Issues (contd.) Import & Export Acknowledgment of receipt of consignment from Excise department of importing State mandatory; else, exporter liable for duty or duty already paid will not be eligible for refund

30. RTI, Ranchi30 Important Issues (contd.) Transport & Storage Transport implies movement of liquor within the State –from one licensed premise to another All transport must be against pass Transport is either against pre-payment of duty or bond

31. RTI, Ranchi31 Important Issues (contd.) Transport & Storage Free wastage allowance for transit losses provided but No allowance for storage losses at a bonded warehouse Allowances for issue of liquor to armed forces & paramilitary forces personnel are specified by State or as per army approved entitlement scale

32. RTI, Ranchi32 Important Issues (contd.) Permit & Pass Pass authorizes removal of an excisable article Permit is ‘No Objection’ issued for removal

33. RTI, Ranchi33 Important Issues (contd.) Wholesale and Retail Trade Wholesale trade in liquor is normally managed by State Governments or private parties Retail liquor trade is generally with private parties except few Government shops

34. RTI, Ranchi34 Important Issues (contd.) Wholesale and Retail Trade Licenses are on annual basis Restrictions imposed on location of retail shops at, –Market places –Educational institutions –Railway stations –Religious institutions etc.

35. RTI, Ranchi35 Important Issues (contd.) Wholesale and Retail Trade Fees for licenses can be, –Fixed fees based on criteria like population –Public auction –Fixed retail prices –Minimum guaranteed volume Settlement of licenses is done by District Collector

36. RTI, Ranchi36 Important Issues (contd.) Wholesale and Retail Trade In public auction system successful bidders pay security or advanced license fee of specified amount Before auctioning licenses, reserve fee is determined

37. RTI, Ranchi37 Important Issues (contd.) Wholesale and Retail Trade Under contract supply scheme monopoly for supply of country spirit is granted to a contractor, who supplies at a fixed wholesale rate to all licenses retailed vendor within the area For retail sale, country liquor / arrack is sachetted

38. RTI, Ranchi38 Important Issues (contd.) Wholesale and Retail Trade License fee to be paid for serving liquor in a bar attached to hotel, restaurant, club etc. Additional fees payable for transfer of licenses from one party to another Unpaid license fees liable for recovery like arrears of land revenue

39. RTI, Ranchi39 Spirituous Medical & Toilet Preparations Excise duty levied on all allopathic/homeopathic/ayurvedic medicinal or toilet preparations, –Containing alcohol or narcotic drugs and intoxicants Duty levied on medicinal and toilet preparations containing duty paid tincture

40. RTI, Ranchi40 Spirituous Medical & Toilet Preparations (contd.) State Governments authorised to fix wastage allowances for alcohol used in specific medicinal and toilet preparations Exemptions from levy of duty can be granted only by Central Government, not State Governments

41. RTI, Ranchi41 Records & Registers Distilleries Separate accounts of manufacture, issues, storages and loss (both transit and storage) of rectified spirit and liquor are maintained –Issues made from distilleries only after payment of duty –For issues under bond, duty realised before issue from bonded warehouse

42. RTI, Ranchi42 Records & Registers (contd.) Bonded Warehouse Record relating to quantity of rectified spirit/country liquor received from distilleries Account of manufacture of country liquor from rectified spirit Record of daily issue of liquor against duty paid Stock account of spirit and liquor

43. RTI, Ranchi43 Records & Registers (contd.) Pharmacies Account of rectified spirit received from distilleries Account of spirit consumed in manufacture of medicines Duty is levied and realised before medicines are issued from pharmacies

44. RTI, Ranchi44 Records & Registers (contd.) Departmental Offices Register of licenses (retailers) Register of export/import permits Register of transport permits In case of free tax, –Register of tree details available for tapping –Shops to be established and –Register of licenses

45. RTI, Ranchi45 Records & Registers (contd.) Departmental Offices Register of collection and challan Demand, collection and balance register

46. RTI, Ranchi46 Audit Checks Scope of Audit Test check of accuracy of levy and collection of various excise duties and fees in accordance with Act/Rules Check of refunds with original credits to see correctness of computation

47. RTI, Ranchi47 Audit Checks (contd.) Scope of Audit Examine registers of outstanding demands to ascertain action against defaulters Test check of credits appearing in demand, collection and balance register vis-à-vis Government Accounts

48. RTI, Ranchi48 Audit Procedures – General Check if duty payable on excisable articles and vend fees have been correctly assesses, collected and brought to account Check if proper account of confiscated articles and disposal is kept and See if interest, penalty and fines have been levied wherever required as per rules

49. RTI, Ranchi49 Focus Areas System of auction for allotment of retail vends and fulfillment of conditions attached to the licenses Review of Inspection Reports of administrative officers and internal check reports of internal audit parties of the Department

50. RTI, Ranchi50 Focus Areas (contd.) Check rates of excise duty levied See whether continuous record of permits / passes issued, is maintained Scrutiny of records maintained in distilleries, bonded warehouses etc. Scrutiny of figures of sales with reference to the departmental records, where license fees are assessed with reference to spirits issued

51. RTI, Ranchi51 Focus Areas (contd.) Reconciliation of collection and deposits with the figures in treasury accounts Review of demand, collection and balance register to see that demands are raised promptly, collected in time and no arrears are allowed to accumulate

52. RTI, Ranchi52 Focus Areas (contd.) Whether refund is admissible and is covered by sanction in cases of refunds Scrutiny of all registers to ensure compliance with departmental instructions

53. RTI, Ranchi53 Focus Areas (contd.) Whether duty has been realized on looses in transit and storage in excess of prescribed limits Examining cases of write off, supply contract and auction cases Whether there is any system defect, lacunae leading to loss / leakage of revenue

54. RTI, Ranchi54 Detailed Audit Checks Whether wide publicity was given to the auction sufficiently ahead of the date of auction Whether settlement fees is generally higher than the Insured fee

55. RTI, Ranchi55 Detailed Audit Checks (contd.) Whether the advance license fee has been realized at the time of settlement Whether the installments of license fees of ganza, bhang, have been realized regularly

56. RTI, Ranchi56 Detailed Audit Checks (contd.) Whether defaulters of excise dues etc. have not been allowed to take part in the bids Whether in case of sliding sale shops, the annual license fees and security money have been calculated correctly and realized

57. RTI, Ranchi57 Detailed Audit Checks (contd.) Whether in case of non-payment of additional duty, late fee (Composition fee) has been calculated Whether in case of enhancement of excise duty from any particular date, the difference of duty has been calculated on the balance stock

58. RTI, Ranchi58 Detailed Audit Checks (contd.) Whether surcharge, if any, has been calculated correctly and realized Whether the fines and composition fees as entered in the register of misconduct (Form No. 78) have been realized in due course

59. RTI, Ranchi59 Detailed Audit Checks (contd.) Whether the cost price payable to the supply contractor has been calculated correctly and chargeable duty under various sections of the Excise Act have been deducted before any refund of cost price is made

60. RTI, Ranchi60 Detailed Audit Checks (contd.) Whether the refund cases have been sanctioned by the competent authorities and challan in which the amount was originally deposited may also be seen

61. RTI, Ranchi61 Detailed Audit Checks (contd.) Whether the challan registers have been correctly entered, and the monthly abstract has been certified by the treasury officers Whether compensation payable to the licensees been correctly calculated

62. RTI, Ranchi62 Detailed Audit Checks (contd.) Whether effective steps have been taken to realize dues Whether literage fee has been levied on wastages of denatured spirit from wholesale licensees If unauthorized concession / exemption been granted to any licensee / pass / permit holder

63. RTI, Ranchi63 Detailed Audit Checks (contd.) Whether adequate stamp has been affixed on the bond by the distiller Whether proper action was taken regarding seizure and confiscation of excisable articles

64. RTI, Ranchi64 Audit of Distilleries Whether the distilleries submitted indent to the Collector of molasses about estimated requirement of molasses Co-relate requirement of molasses at the distillery with allotment made by Collector

65. RTI, Ranchi65 Audit of Distilleries (contd.) Check account of receipt of molasses to ensure quantity allotted has been received in full Verify quantity of molasses received in distillery, with quantity dispatched from sugar factory

66. RTI, Ranchi66 Audit of Distilleries (contd.) Verify if molasses received were actually utilized for distillation (Register 82) Verify if spirit output is commensurate with the materials used and is not below the minimum yield prescribed

67. RTI, Ranchi67 Audit of Distilleries (contd.) Check if spirit produced has been transferred to receiver (Form 83) and then to the vats (Form 84) Check if wastage is in excess of permissible limit

68. RTI, Ranchi68 Audit of Distilleries (contd.) Check if bonds executed have been stamped and promissory notes tendered in lieu of such bonds have been properly hypothecated Check if export of rectified spirit and denatured spirit been made as per passes issued and export pass fee realised

69. RTI, Ranchi69 Audit of Bonded Country Spirit Warehouses Examine daily issue register of country spirit sachets with treasury challans to see if duty and cost price are calculated correctly Check if amounts received were remitted in the treasury on the following opening day

70. RTI, Ranchi70 Audit of Bonded Country Spirit Warehouses (contd.) Check if additional duty was calculated correctly See if transit wastage is in excess of permissible limit Check if country spirit dispatched from distillery /bonded warehouse been, –properly accounted for –transactions recorded appropriately and –balances worked out accurately

71. RTI, Ranchi71 Audit of Bonded Country Spirit Warehouses (contd.) Check if the reduction loss / gain been calculated as per percentage prescribed by chemist See whether total wastages allowed exceed 0.5% of total quantity of spirit issued to the sachetting plant during a year

72. RTI, Ranchi72 Audit of Bonded Country Spirit Warehouses (contd.) Verify annual stock taking report fore any wastage in excess of percentage fixed by the Board Check whether penalty levied on supply contractor, in case of failure to supply country spirit to the license vendors

73. RTI, Ranchi73 Audit of Bonded IMFL Warehouses Check treasury challans to make sure duty was realized at correct rates See of penal duty was realized on all transit deficiencies Verify if proper accounting is done

74. RTI, Ranchi74 Audit of Bonded IMFL Warehouses (contd.) Check shortages of foreign liquor in the warehouse due to breakage or otherwise See if foreign liquor issued at concessional rates is in accordance with entitlements

75. RTI, Ranchi75 Audit of Provincial Ganja Gola Check the following registers in this regard Register of Ganja imported / exported / transported under bond Register of receipt and issue of Ganja in and from Central warehouse for each cultivator Register of daily abstract of receipt and expenditure of Ganja

76. RTI, Ranchi76 Audit of Provincial Ganja Gola (contd.) Register of Ganja received into and issued from each permanent steel box for each cultivator Register of issue of Ganja to each warehouse Delivery register Register of defects Inspection book

77. RTI, Ranchi77 Audit of Central Ganja Gola See the terms and conditions of license to see whether cultivators are adhering to it Verify whether licensees cultivated full area allotted to them; if not, whether penalty imposed

78. RTI, Ranchi78 Audit of Central Ganja Gola (contd.) Check deposit by the cultivators to see whether the amount is adequate Verify all registers maintained in Gola to see if proper accounting is done Check whether dust ganja has been destroyed under proper authority

79. RTI, Ranchi79 Audit of Bonded Ganja and Bhang Gola Following registers and records should be checked Register of receipts Register for transport / export of ganja / bhang Register of issue Register of daily abstract Register of abstract of receipt and expenditure

80. RTI, Ranchi80 Audit of Bonded Ganja and Bhang Gola (contd.) Register of defects Inspection Book Guard files for transport passes Guard files for challans

81. RTI, Ranchi81 Audit of Bonded Ganja and Bhang Gola (contd.) Whether penal duty has been realized on transit deficiency Whether receipts have been –Properly accounted for –Transaction correctly noted –Balances worked out correctly

82. RTI, Ranchi82 Audit of Bonded Ganja and Bhang Gola (contd.) Whether annual wastage is within prescribed allowable limit Whether dust ganja has been destroyed under proper authority

83. RTI, Ranchi83 Audit of Bonded Laboratory Following registers and records to be checked Register of vessels Register of transactions Register of operations Register of preparation Guard files of challans for payment of duty

84. RTI, Ranchi84 Audit of Bonded Laboratory (contd.) Guard files of transport passes Guard files of requisitions Guard files for indents Guard files for applications for removal Guard files for return Inspection book

85. RTI, Ranchi85 Audit of Bonded Laboratory (contd.) Check whether penal duty was realized on transit deficiency Check whether all receipts and issues of spirit have been taken into account Verify accounts of finished product Check if penal duty was levied on all operational wastages Verify if duty is calculated correctly

86. RTI, Ranchi86 Audit of Circles Following registers and records should be checked Application register Register of account of collection of license fee Register of shops Subsidiary cash book Guard files of challans and MO receipts Inspection book Money receipt book

87. RTI, Ranchi87 Audit of Circles (contd.) Verify whether amount received in cash was deposited in the treasury / sub-treasury without delay Check if tree tax was levied correctly Check whether there are arrears of license fees

88. RTI, Ranchi88 Audit of Sugar Factories Following registers and records will be checked Account register of molasses Returns showing estimated production Returns showing final production Pass for transport of molasses

89. RTI, Ranchi89 Audit of Sugar Factories (contd.) Daily production register maintained by sugar factory Returns of daily production Returns of annual production Files containing allotment orders of Controller of Molasses

90. RTI, Ranchi90 Audit of Sugar Factories (contd.) Verify if daily production of molasses is noted correctly in the register Check whether molasses produced, are stored in steel tank and covered properly Reconcile dispatch of molasses with transport passes

91. RTI, Ranchi91 Audit of Sugar Factories (contd.) See if molasses ordered for destruction are actually destroyed Check if sugar factory has hypothecated any bank account in favour of Controller of Molasses

92. RTI, Ranchi92 Typical Audit Findings Audit findings and observations generally cover the following aspects: –No provision in the laws for free wastage allowances at different stages of supply of raw materials (molasses), production, manufacture, transit and storage.

93. RTI, Ranchi93 Typical Audit Findings (contd.) Irregular wastage allowance on losses of sealed bottles, transfer of spirit from vat to vat etc. Non-levy of duty / penalty on losses exceeding free wastage allowances at different stages

94. RTI, Ranchi94 Typical Audit Findings (contd.) Non-levy of duty / penalty on failure to achieve prescribed out-turn of –Spirit from molasses –Wort from grain –Beer from wort

95. RTI, Ranchi95 Typical Audit Findings (contd.) Non-levy of penalty on deficiency in stock of spirit Incorrect levy of duty without considering actual strength of spirit Levy of duty at old rates, without considering increase in duty rates as on the specified date

96. RTI, Ranchi96 Typical Audit Findings (contd.) Non-levy of duty on export, in the absence of acknowledgement / confirmation from importing state, use of forged permits etc. Waivers, reduction etc. under executive directions not in consonance with the legislative enactments.

97. RTI, Ranchi97 Typical Audit Findings (contd.) Rebate not in accordance with State Government notifications Irregular acceptance of auction bids Irregular fixing of fixed license fees, reserve / upset fees

98. RTI, Ranchi98 Typical Audit Findings (contd.) Non-verification of immovable properties of successful bidders for trade licenses and consequent loss to Government Non-consideration of actual wholesale / retail prices for levy of excise duty

99. RTI, Ranchi99 Typical Audit Findings (contd.) Non-cancellation of licenses of defaulters and failure to initiate recovery proceedings Non-recovery of losses due to re-auction from original bidders

100. RTI, Ranchi100 Typical Audit Findings (contd.) Late issue of licenses Non-realization of composition fees, and non-levy of interest and penalties