INTRODUCTION: “A good beginning makes a good end”. Hope this comes true for the draft scheme of “On site audit”. Export-Import is an important determinant of growth of a country. A strict policy regarding the import-export may become an obstacle in the growth of the country while a liberal policy may prove destructive to the morals and safety of the country. So, while crossing the custom frontiers of the country, the goods are presided by a number of Rules and Regulations. “On site Audit” is a step towards liberalization of the import procedures, wherein it is proposed to allow the clearance of goods on the basis of declaration given by the importer as followed by the onsite audit. In this article, we are discussing the draft of on-site audit and pros and cons of the same.
PURPOSE: At the time of entry of imported goods at customs barriers the Customs Authorities more often examine the goods physically and all the documents relating to import are also verified. The main reason for this is to ensure that the imported goods should not be undervalued, the poor quality of goods are not imported and the goods actually imported are the goods declared by the importer. However, this process of verification of documents and goods increase the time of clearance thereby increasing the storage, warehousing and other related costs. For lessening the cost and for saving time the Government has proposed to allow the imported goods to be cleared on the basis of documents and for conducting of “On site Audit” in the context of post clearance audit (PCA).
FOUNDATION OF “ON SITE AUDIT” IN THE CONTEXT OF POST CLEARANCE AUDIT (PCA):
As per the Draft, the said scheme is being introduced based on the international trade agreement GATT. In Article VIII of GATT, the provision has been given for post clearance audit. It has been provided that if the goods are cleared at the time of the import on the basis of self assessment without examination of goods and the importer later on subject themselves to post clearance audit, this will result in saving cost as well as time. The underlying idea is to benefit both the importer as well as the Revenue.
Another International trade agreement, the Kyoto Convention of World Customs Organization (WCO) is the genesis of the Post clearance audit. It is prescribed that the customs control should be kept to the minimum necessary to meet the objective of maximum facilitation of international trade and travel.
THE KYOTO CONVENTION OF WCO: “International Convention on the simplification and harmonization of Customs procedures” commonly known as the ‘Kyoto Convention’; is an international instrument on the harmonization of Customs techniques covering all aspects of Customs legislation. It was done at Kyoto, Japan, on 18 May 1973 and entered into force in 1974. The Kyoto Convention, as has been revised in year 1999, gives the techniques and measures of custom clearances that commensurate with current demands of international trade.
PAST MEASURES INTRODUCED:
Based on the Kyoto convention, the Board has already introduced the Risk Management System (RMS) in November 2005 for Accredited Clients and Post Clearance Audit (PCA). It has also been extended it to certain other category of importers. The RMS was introduced in order to facilitate the speedy clearance of imported goods. Audit Based Control was introduced in the form of Post Clearance Audit (PCA) to ensure compliance.
However, the PCA introduced by the Board was different from the PCA envisaged in the Kyoto Convention. Thus, the international norms are not being followed word to word.
Accredited Clients Programme (ACP) was introduced to assist the importers provided they comply with the laws framed by the Customs Department. Further, the ACP clients are required to workout a reliable system of record keeping and internal controls. Their accounting system was also supposed to meet the recognized standards of accounting. In assurance of all these compliances, the importers were required to produce a certificate from a chartered accountant to this effect in a prescribed form. However, as of now, there is no such requirement for granting the ACP status and the documents are also not audited on site later on.
The major aspects of the proposal of on-site audit as discussed in the Draft scheme are as under:
– Jurisdiction of Audit: The manufacturers and service providers registered under the Excise/Service Tax who are already subjected to audit by the Central Excise or service tax Department; the on-site audit will be merged with that audit. Thus, only the importers engaged in trading activity and those units which are exempt/not registered will be left. It is proposed that the address of IEC code would decide the jurisdiction of the concerned audit party. In case the importer-manufacturer/service provider is having more than one premise in different Commissionerates, it is proposed that on-site audit will be conducted both at the factory premises as well as the business premises.
– Documents to be furnished: The Documents relating to the import of goods is going to have a major role to play in case of this scheme. Only when proper documents are maintained at all the time, can the scheme be effected in its essence. Thus, under the scheme it is proposed that all the relevant records relating to importation and sale of goods will have to be preserved for 5 years. These documents will be produced by the importer before the Audit party. The draft scheme gives the specimen list of documents like bill of entry, packing list, bill of lading, invoices, freight documents, bond records, duty paying documents, etc. Further, the importer may also be required to produce the financial records to the audit party including the Annual Financial Statements, Audit reports, credit notes, journal vouchers, etc.
– Procedure to be followed in on-site audit :It is proposed that the procedure for On-site Audit to be followed will be similar to the Central Excise Audit procedure which is done in line with EA-2000. Further, the full process to be followed by the importer and the audit party has been elucidated in the draft scheme. The procedure is more or less similar to a normal audit process. The guidelines have been given in the draft scheme regarding the selection of assessees, desk review, gathering information about the importer, internal control and revenue risk analysis, developing audit plan, site visit, verification, summarization of audit findings, reviewing the audit results, compliance of audit objections and future compliances.
The perusal of the scheme proposed for On-site audit in context of Post Clearance Audit (PCA) for Imports shows that the success of the scheme would depend on the full cooperation of the importer. The importer will have greater responsibility towards the goods which are being imported and will have to maintain near perfect records.
The timeliness or promptness of the audit will be the backbone of success of this scheme. This is due to the fact that since the physical verification will not be done at the time of import, so it would be essential to carry out the audit as soon as possible else the goods will be disposed off. In such cases, the goods may not be physically verified at all. This will make it impossible to check the quality of the goods imported. In such cases, this scheme will prove to be a weapon for the ill-intended importers. Further, this scheme will fail at the places where there is shortage of staff. The shortage of audit personnel will delay the audits of that area and every second of delay will defeat the custom conventions.
Anyhow, this procedure will facilitate the importers who will be saving a lot of time as well as money due to easy and quick clearance of goods. On the other hand, the risk lies with the customs of keeping the track of the imported goods with regard to the quality and quantity.
In the nutshell, on-site audit will serve its purpose only if done on time and in cases where the importers maintain the records genuinely without making undue advantage of this scheme.
Over and above all, this scheme is a good step taken by the government to facilitate the importers. However, time will tell whether the good beginning makes a good end or not.
Prepared By: CA Pradeep Jain, CA Preeti Parihar and Sukhvinder Kaur, LLB [FYIC]