1. Suhasini Gotmare Director (CERA/CRA) O/O DGACR, DELHI

2. Session 1 Introduction to Audit of Central Excise

3. Just as the sun extracts water from the rivers and gives back as rain, so does a ruler extract taxes from the subjects and gives it back as prosperity Kalidasa, poet and scholar Chanakya describes taxation methods in detail in his epic work Arthashastra. Central Excise was introduced by the British in 1894.

4.  CBEC implements law and producers of Central Excise and Service Tax law by several regional units called Central Excise Commissionerates and Service Tax Commissionerates, each covering assesses spread over a specific geographic area.

5. Indirect Tax Laws Rules Notificatio ns Case Laws Trade Notices Circulars/ instructions Constitution of India Case Laws Act

6. Ministry of Finance Department of Revenue Central board of Excise and Customs

7.  The field formation consists of 3 layers- Commissionerates, Divisions and Ranges.(CDR)  92 CX Commissionerates, 7 exclusive ST Commissionerates and 5 LTU Commissionerates  Majority of the Central Excise Commissionerates administering service tax matters too.  The office of DGST administers service tax matters.  The office of DG (Audit) was formed in order to monitor, co-ordinate and guide the effective implementation of the new audit system Excise Audit 2000.

8.  Central Excise Act, 1994  Central Excise Tariff Act, 1985  Central Excise Rules, 1944  Additional duty of excise under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957  Additional duty of excise under the Additional Duties of Excise(Textiles & Textile Articles) Act, 1978.  Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000  Central Excise Rules, 2002  CENVAT Credit Rules, 2004  Others  Notifications  Circulars/instructions  Case Laws HISTORY Central Excise levy was existing for years. But in 1944, 11 different Acts were combined into one Act and this was then named as "TheCentral Excise and Salt Act, 1944". In 1996 it was renamed as "The Central Excise Act, 1944". This Act is the original Act for excise, which contains the Tariff Items1 to 67. In 1975 the Tariff Item 68 was introduced with the description "allother goods not elsewhere specified". The Industry starteddescribing it as "Terror Items". In 1985 the controversial Tariff Item 68 was abolished and a newTariff Act known as "THE CENTRAL EXCISE TARIFF ACT, 1985"(CETA) was introduced. This new act replaced the first schedule tothe original Act.

9. YearParticulars 194411 different Acts were combined into one Act and this was then named as "The Central Excise and Salt Act, 1944" 1985A new Tariff Act known as "THE CENTRAL EXCISE TARIFF ACT, 1985“ (CETA) was introduced. This new act replaced the first schedule to the original Act. Tariff Item 68 was abolished. 1994It forms the basic law relating to levy and collection of duties of Central excise.

10. 1. Basic duty of central excise Levied according to rates specified in Central excise Tariff Act 1985 2.Specific duty Some commodities like pan masala and cars have special excise duties levied on them, as covered in schedule II of Tariff Act

11.  3. Education cess on excise duty  4.Excise duty on domestic clearances by 100%EOUs

12.  Manufacture implies a change; but not every change is a manufacture.  A new product should emerge from the raw material stage with a new name, new use, moveability and marketability.

13. 1.Actual substantive manufacture 2. Deemed manufacture Process or activity specified in section or chapter notes Labeling or re labeling of containers Repacking from bulk packs to retail packs Adoption of any other treatment to render the product marketable to the consumer In relation to flat-rolled iron & steel products under chapter 72 & 73– the process of hardening or tempering or galvanization In relation to motor vehicles under chapter no 87 – building a body or fabrication or mounting or fitting of structures or equipment on the chassis falling under 8706

14.  If a good is produced in India, it is taxable  Sales tax is on sale, while excise is on manufacture.  A good is considered excisable only if it is mentioned in the Central Excise Tariff Act 1985.

15.  Under the Excise Rules each and every factory engaged in the manufacture of Excisable goods, is required to obtain registration and will be an assessee for the purpose of levy and collection of excise duty.  Therefore, if a company has got 3 or 4 factories located at different places, each of the factory will obtain Registration though it may belong to one company only.

16.  Rule 12. Filing of return. Every assessee shall submit to the Superintendent of Central Excise a monthly return in the form specified by notification by the Board, of production and removal of goods and other relevant particulars, within ten days after the close of the month to which the return relates

17.  Specific duty :  Duty payable on the basis of some physical feature of the product unit like length, weight, volume, thickness, etc.  Example: Cigarette-length,  matches-Box of 100,  sugar-quintal,  cement-per tonne

18.  Tariff duty {Section 3(2) }  Govt. declares value on the basis of which CE will be charged. Duty is charged on this value and original value is ignored.

19.  Maximum Retail Price (Section 4A): Duty is payable on MRP less abatement value irrespective of Transaction Value to related or unrelated buyer.

20.  Ad-valorem (Section 4) ( As per value )  Most frequently used basis is on the actual sale value of the good.  Assessable value to be determined in accordance with Section 4 of CE Act read with CE Valuation (determination of price of excise goods) Rules, 2000.

21.  Monthly returns by large units,  Quarterly returns by SSI/ EOU  Annual financial information statement  Information relating to principal inputs  Monthly returns of receipt and consumption of each principal inputs  Annual installment capacity ( of machinery)  Quarterly return ( by manufacturers of ready-made garments, 1% duty) If these returns are not submitted in time, assessees are liable to be fined by the department at the rate Rs.100 per day limited by a maximum of 20000 rupees.

22.  The Invoice shall be serially numbered & shall contain:- Name of the manufacturer/dealer Registration Number Address of the consignee/purchaser Description of goods Classification Time & Date of Removal Mode of Transport & Vehicle Registration No. Rate of duty Quantity & Value of goods Amount of duty Address of concerned Central excise Division.  It shall be prepared in Triplicate (Buyer/Transporter/Assesee).  Before using Invoice book, the serial no. should be intimated to Superintendent.

23.  Last Day :- 5 th day of following month and 6 th day of following month in case of E- payment.  Explanation :- The “date of presentation” of the cheque shall be the date on which duty is paid, subject to “realization” of that cheque.

24. RG-23A- Part I: (Stock Account of Input Goods) Shall contain: Receipt, Disposal, Consumption, Inventory of Inputs & Capital Goods RG-23A- Part II (Credit on Input Goods) Shall contain: Assessable Value, Duty Paid, Cenvat Credit taken or utilized, Persons from whom Input/Capital Goods are procured. * Conditions for allowing Cenvat Credit on “Input” Goods :- o 100% credit immediately on receipt of Input goods o Credit shall be taken on Process losses but not on Storage & Transit losses o Input does not includes LDO, HSD, Petrol.

25. RG-23C- Part II (Credit on Capital Goods) Shall contain: Assessable Value, Duty paid, Cenvat Credit taken or utilized, Persons from whom Input/Capital Goods are procured. * Conditions for claiming Cenvat credit on Capital Goods: o 50% in the year of receipt. Remaining 50% in subsequent year (if in possession) but possession not necessary for components, spares& accessories, refractory & refractory material, moulds & dies. Contd…

26.  RG-1 (Daily Stock Account) Shall maintain proper records on a daily basis with respect to 1.Description of goods manufactured 2.Opening Balance 3.Goods manufactured 4. Goods removed 5. Inventory 6. A.V of goods 7. Duty payable 8. Actual duty paid The first & last page of account shall be duly authenticated.

27.  PLA (Personal Ledger Account) The “Credit” in taken when duty is deposited through TR-6 Challans. The “Debit” is passed when duty is required to be paid. 2 copies of PLA & TR-6---- To be filed with ER-1.  Preserve Records for 5 years after the end of F.Y. to which records pertains.

28. TYPEPERIODICIT Y DUE DATE FOR FILING WHO CAN FILE ER4YEARLY30 TH NovAnnual Financial Information Statement of assesses paying annual duty of more than Rs. One crore. ER5YEARLY30 th AprilAnnual return of principal inputs filed by assessee paying duty of Rs. One crore or more per annum ER6MONTHLY10 th Monthly return of receipt and consumption of each of Principal Inputs. DATES WITH CENTRAL EXCISE - RETURNS ( Above One Crore- Assessees)

29. At the Ministry and CBEC its attached offices Scrutiny of Notifications, Clarifications, Instructions issued by GOI Local audit of Commissionerate, Division and Range Offices/Factories Compliance/Transactions Audit and DDO Audit

31.  The Constitution  Section 16 of the CAG’s DPC Act specifies the right of the CAG to audit all receipts of the Union and of the states.  Rule 22 of the Central Excise rules 2002 clearly grant access to registered premises to officers of the CAG in order to conduct audit.

32.  All dues are properly assessed, collected and accounted for  Adequacy of internal controls to secure effective check on assessment, collection and allocation of duty  Departmental machinery is sufficiently safeguarded against error and fraud and procedures are established as per law

33.  Directorate of Indirect Taxes at the Hqrs scrutinises all circulars, notifications & instructions issued by GOI and the Board  Issues guidelines to field offices in the conduct of audit  Prescribes the quantum and periodicity of audit

34.  Whether proper accounts and other records are kept by the assessee  Study the manufacturing process  Whether the tariff head is correct / exemption notifications are available  Correctness of figures shown in the PLA and other records

35.  (A) Whether a list of records being maintained at Range office, recovered  (B) whether all records meant to be maintained at Range offices are maintained ( prepare a list & tick out ).  Whether register of registration granted to all the (a) manufacturers (b) dealers complete and updated.  Whether all the returns have been received in time

36.  Have the department/ range officer taken appropriate action where returns are not received with results  Have the defaulter assesses been issued proper notice for forfeiture of the facilities to make payment of duty on fortmightly/monthly basis  In respect of unconfirmed demands, whether dept issued periodical demands from time to time  Whether material for monthly technical report (MTR) sent to Commissionerate office timely

37.  Selection of Audit Entity including assessees on the basis of risk assessment  Annual Audit Planning  Quarterly Audit Programme  Issue of intimation letter to Audit Entity  Issue of authority letter to Audit Party  Obtaining records from the Audit Entity  Desk Review  Visit to Audit Entity  Issue of Half Margin to Audit Entity (Range office in case of assessee)  Preparation of draft IRs/LARs  Submission of draft IRs/LARs to Sectional Headquarter  Issue of IRs/LARs to Audited Entity (in case of assessee to Commissionerate)  Issue of SOFs to Audited Entity ( sustainable Part-II A paras of LARs/IRs )  Proposal of LDPs to Headquarters Office for inclusion in CAG’s Audit Report.  Follow-up of Audit Reports (ATNs)

38. Thank you