Circular No. 731/47/2003-Central Excise

1st August,  2003

F.No. 206/01/2003-CX.6
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

Subject: – Revised Central Excise Audit Manual- regarding.

I am directed to say that as you are aware that Excise Audit manual for EA-2000 was first issued in March, 1998 which was updated in June 1999 and then in September 2001. Subsequent to that, Board had issued instruction dated 11th June 2002 for selection of units paying duty upto Rs.1 crore for EA 2000 Audit using Risk Assessment techniques. Over a period of time, experience has been gained in audit techniques and statutory changes in Central Excise Law and procedures have also taken place. Development of Professional Audit Programme by integrating the tools of information technology and using modern audit techniques is critical for effective auditing. The Central Excise officers have to perform the twin roles of ensuring effective revenue realization and as facilitator for trade and industry.

2. In the background of this, D.G. (Audit) has now prepared a comprehensive revised updated version of Audit Manual which has been approved by the Board and is being issued.  The manual intends to provide guidance to the officers in the performance of the task of auditing the units from the point of view of Central Excise. The revised manual incorporates the experience gained since the issue of earlier manuals and mentions important aspects requiring the attention of the auditors. It also provides guidelines for conducting audit in special situation and categories of industries.

3. Certain changes have been made in the revised Manual which may be gone through in details in the manual. However, important changes made are being highlighted below:


Chapter 6 of the existing Manual relating to Audit Protocol has been omitted on the ground that this was a limited initiative with the basic methodology of EA-2000 and after the initial response from few manufacturers, the major manufacturers have not responded positively. However, it is clarified that the existing Audit Protocols shall remain valid for those manufacturers who opted for it until their expiry.


For the calculation of R2 factor for Risk Analysis, the exempted clearances have been excluded from dutiable clearances. However, the exempted clearances such as clearances to EOUs , EHTP/STP units, UN organizations under notification number 108/95-CE etc. as mentioned in sub rule (5) of rule 6 of CENVAT Credit Rules, 2002 and export clearances under Bond shall continue to be  included for the purpose of calculation of R2 ratio.

(iii) Different cells in the Audit section have been merged and re-organised as single Audit cell.
(iv) Certain clarifications have been made in respect of audit of Multi locational or inter connected units.

Reference units selected for the purpose of audit shall now be accommodated within the overall limit of 50% (for units paying duty between Rs . 10 lakhs and Rs . 1crore )  and 20% (for units paying duty below Rs . 10 lakhs ).

(vi) Every audit shall cover the retrospective period upto the previous audit or last five years whichever is less.
(vii) All Export Oriented Units fall under the category of mandatory audits and should be audited once a year.
(viii) For the sake of uniformity, duration of audit is being prescribed for completion of audit.

S. No. Slab of annual PLA duty Frequency of audit Duration of Audit*
1. Rs . 0 to 10 lakhs To be audited at least once in five years 5 working days
2. Rs . 10 lakhs to below one crore To be audited at least once in two years 7 working days
3. Rs . 1 crore and above To be audited  once a year 10 working days

* The duration of audit is the entire period spent on audit of a particular assessee from Desk Review to preparation of audit results. It is clarified that in case of audit in respect of units at Sr. No. 1 above, not more than 3 days should normally be spent in the assessee’s factory.

4. Board’s instruction dated 11.06.2002 and other instructions/ circulars issued from time to time on this subject stands modified to the above extent.

5. Field formations may suitably be informed.

6. Receipt of this circular may please be acknowledged .

7. Hindi version will follow.

Vijay Mohan Jain
Under Secretary to the Government of India

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