AUDIT: FREQUENTLY ASKED QUESTIONS

[For general information – not statutory provisions]

Question 1: What is Central Excise/Service Tax Audit?

Ans: Audit is a verification of financial accounts and other records particularly records relating to production, clearance of goods or provision of service by the assessees to ascertain that duties of Central Excise / Service Tax are correctly paid.

Question 2: Who Conducts the Audit?

Ans: The Central Excise officers posted in Commissionerate of Audit conducts Audit which include Assistant / Deputy Commissioner, Joint /Additional Commissioner or Joint Director (Cost).

Question 3: When I file returns periodically to the department, what is the need of conducting audit?

Ans: The returns filed with the department are based on self assessment. The correctness of the payment and application of statute are verified during the periodical Audits conducted by the department.

Question 4: Will assessee be audited every year?

Ans:  The present periodicity of Central Excise audit:

1.Units paying more than Rs. 3 crores (PLA&Cenvat) Every Year
2.Units paying between Rs. 1 crore and Rs. 3 crores Once every two years
3.Units paying between Rs. 50 lakhs and Rs. 1 crore Once every five years
4.Units paying below Rs. 50 lakhs 10% of the units every year

For the categories mentioned at S. Nos. 2 to 4 of the above, the selection of units would be based on the unit-wise rupee risk parameters circulated

by DG (Audit) combined with local risk parameters, if any. The quantum of annual duty payment in cash and cenvat are taken together for selection of unit.

The present periodicity of Service Tax audit:

The present periodicity of Service Tax audit:
1.Taxpayers paying more than Rs. 50 lakhs Every year
2.Taxpayers paying between Rs. 25 lakhs and Rs. 50 lakhs. Once in two years
3.Taxpayers paying between Rs. 10 lakhs and Rs. 25 lakhs Once in five years.
4.Taxpayers paying below Rs. 10 lakhs – 2% of the total number every year

For the categories mentioned at S. No. 2 to 4 the selection of assessees would be based on working on rupee risk (S1 parameter) and local risk parameters mentioned in the Service Tax Audit manual. The quantum of annual duty payment in cash and cenvat are taken together for selection of unit.

Question 5: What is the duration of the Audit?

Ans: It depends upon the quantum of the record to be scrutinized and period covered for audit. In any case it may spread from two days to ten days.

Question 6: Will it be a surprise audit?

Ans: No. A minimum of 15 days prior notice is served on the assessees regarding proposed audit.

Question 7: If I am registered for both Central Excise and Service Tax, whether two separate audits are conducted?

Ans: Simultaneous Audit for Central Excise, Service Tax and OSPCA would be conducted.

Question 8: If factory is registered in one Commissionerate, Service Tax registration is in another Commissionerate, where registered office is located, what is the criterion for selection of audit?

Ans: If both the registrations i.e., Central Excise and Service Tax are in Hyderabad zone, simultaneous audit would be conducted by Audit Commissionerate.

Question 9: If an assessee is having multi location manufacturing units, who conducts audit?

Ans: Normally audit for Hyderabad Zone registered units is conducted by Hyderabad Audit Commissionerate. Multi locational units’ audit in a few cases would be taken up under the Co-ordination of Audit Directorate.

Question 10: Under what authority department conducts audit?

Ans: The statutory provisions relevant for audit is clause (x) of Section 37(2) and Rule 22 of the Central Excise Rules, 2002 for conducting Central Excise Audit and Rule rule 5A (2) of the Service Tax Rules, 1994 for Service Tax audit.

Question 11: Do I need to produce all my business records/documents?

Ans: Since there are no prescribed Central Excise records, records maintained by the assessees are requested for scrutiny. These may include, financial statements, invoices, ledgers, bank statements, cenvat credit documents, accounting policies etc., apart from statutory returns.

Question 12: How much time is given for production of records?

Ans: As an intimation of 15 days is given in advance, all records should be furnished to the audit team on or before their visit to the unit for audit.

Question 13: If records/accounts are maintained on a system using accounting packages like SAP/Tally/Focus etc., what is the procedure for conducting audit?

Ans: In such cases, normally Computer Aided Audit Programme is conducted. You are requested to produce the soft copy of the records and also the records maintained in physical form.

Question 14: Can I ask for postponement of audit due to prior business engagements?

Ans: Yes. In genuine cases on production of proper evidence, the competent authority may consider the request for postponement. Since the audit programme is drafted months in advance, postponements are not encouraged.

Question 15: Will I get to know the objections raised during audit?

Ans: Yes. The auditors discuss each and every objection they are going to raise and issue a spot memo. If assessees voluntarily rectify the error and corrects the same by payment of duty, interest and penalty etc., the para would be settled in MMCM.

Question 16: Can I get a copy of Final audit report?

Ans: Yes.

Question 17: How long does it take to receive Final Audit Report?

Ans: Normally within 15 days from the date of approval of audit report in Monthly Monitoring Committee meeting.

Question 18: Do I have opportunity to contest of the audit objection after receipt of Final Audit Report?

Ans: Yes, you may like to send your detailed reply to the concerned ADC/JC of the circle.

Question 19: What is the next cource of action if the Department do not agree with my reply?

Ans: A Show Cause notice is issued by the Audit Commissionerate answerable to respective competent authority in executive Commissionerate. The assessees written reply and submissions made in personal hearing will be considered and the case will be adjudicated.

Question 20: In case of grievance regarding the method of audit or behaviour of auditors, whom should I contact?

Ans: You may contact the concerned circle Additional Commissioner. The assessees are also provided along with final audit report, a feed-back form regarding quality of audit and suggestions for improvement of audit.

Question 21: Can I get guidance from the auditors regarding record keeping and application of law?

Ans: Yes. The auditors are professionally trained to guide, educate and encourage tax compliance.

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0 responses to “Service Tax / Excise Audit- Frequently Asked Question”

  1. Bhavin says:

    Dear Sir,

    Can they Isssue show cause notice for period not covered under Audit?
    For Eg: If Audit period is 09-10 to 13-14 . So can they ADD 14-15 in the SCN ?

  2. Muneer Mulla says:

    Dear Sir,
    This one is Excellent articles.

  3. Megh Nath Sidh says:

    Dear Sir,

    Very good information .
    very-2 thankyou.

  4. Ashish Nashikkar says:

    Dear Sir,

    This is a good artical.

  5. Chandra Sekhar says:

    Sir,
    Very good and the questions covered almost all the points/doubts that arise in the minds of assessees, particularly Service tax assessee. As far as the query raised by Mr. Paul, naturally the person paying service tax under reverse charge mechanism will be registered with the service tax department and the audit as per norms given in the article will be conducted. As far as Mr.Manish’s sigh regarding the providing guidance capacity of auditors, there are so many good senior officers, who are conducting the audit, with good knowledge of the provisions of rules capable of guiding the assessees. See, coin has two sides there may be some who are in the category opined by Mr. Manish.
    We welcome the articles of this nature.

  6. Manish says:

    “The auditors are professionally trained to guide, educate and encourage tax compliance.” Sigh!

  7. PNV GIRI says:

    Sir,

    With regard to the CE/ST audit, I wish to mention that three years back, we got only telephone call saying we would be visiting your office for audit next week. Is it required to have anything in writing ? Oral notice would be sufficient or written notice in advance required – Kindly clarify.

  8. PAUL says:

    Excellent summary. One important question requiring clarification is whether the limits specified for Service tax for periodicity of audit is also applicable to a ‘Service recipient and not a service provider’ who only pays service tax under reverse charge mechanism.

  9. M C Rawat says:

    Dear sir
    Very informative and excellasnr article. Keep it up. Thanks & Regards.

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