TaxTMI 
TaxTMI 
Audit under Central Excise (CERA / EA-2000) / How to handle audit
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....laws like sales tax, income tax etc. Thus, the conventional audit system is found to be unworkable. Hence, the traditional audit was replaced by a new audit system, termed as Excise Audit-2000 (EA-2000). Also all statutory records were abolished and now assesses are allowed to maintain their own records in whichever form they like provided the essential information required for calculation of duty liability can be obtained from such records. Thus the auditors can rely on assessee's own private record. Excise Audit-2000 (Internal Audit as conducted by Excise department) The new system of audit called the Excise Audit 2000 [EA 2000] was first started in December 1999. With effect from 01-01-2002, the CBEC instructed that henceforth all audits would be conducted under EA 2000 system and the traditional system of audit was phased out. EA-2000 audit is based on the scrutiny of private records of the assessee. This is more systematic wherein the auditors are required to gather basic information about the assessee and analyze them to find out vulnerable areas before conducting the actual audit. The audit is therefore more focused and in-depth and at every stage of audit the assessee ....
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....ng with the assessee, this step is called 'desk review'. For doing 'desk review', Department has decided to take help of practicing Chartered/ Cost Accountants. They will be paid fees on per day basis. 3. Gathering and Documenting assessee information At the stage of desk review, auditors may have identified certain areas, which warrant closer examination. The auditor may require certain documents or information from the assessee to complete his preliminary investigation. For this, he may write a letter to assessee or send him a questionnaire to obtain this information. 4. Evaluation of the Internal Controls The evaluation of Internal Controls is necessary for determination of the scope and extent of audit checks required for the assessee. The scope and the extent of the audit can be reduced if the internal controls are well designed and working properly. The reverse would be true if the internal controls are not reliable. In order to form an opinion about how effectively the prescribed procedures are actually followed, it is essential to test the application of internal controls in practice. Following are the ways of evaluating internal control system: - · Walk-through - '....
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....the presence of assessee so that he can clarify doubts and provide required information to others. 9. Summarizing audit findings All the audit findings are placed at one place in the audit file. Where necessary, important objections and findings are reviewed with the immediate supervisor before discussing them with the assessee. 10. Discussing audit objectives with party It is important that the auditor informs the assessee of all the objections before preparing draft Audit Report, The assessee must have the opportunity to know the objections and to offer clarifications with supporting documents. This process will resolve potential disputes early and avoid unnecessary disputes. Auditor should not take procedural lapses too seriously, instead advice the assessee to adopt correct procedure. 11. Compliance of Audit objections Where the assessee is in agreement with the audit findings, in part or in full, the auditor requests that payments be made promptly to stop accrual of interest. Voluntary compliance should be encouraged so as to avoid protracted legal wrangles. Attention of the assessee is invited to sub section [of Section 11 A of the Central Excise Act, 1944]. 12. Future....
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....Parliament. · Frequency of CERA audits is as per the importance they attach and availability of time to CERA audit parties. Self Audit (Internal Audit as conducted by expert employees) Such audit can be conducted by expert employees or outside experts. Each company should conduct self audit of their excise operations for various purposes: - · To ensure that duty is not paid in excess and classification and valuation is correct. · All excise Rules and Procedures are being scrupulously followed. · Cenvat is claimed on all inputs and inputs are procured from such sources that Cenvat credit on all inputs is available. · All export benefits are availed. Special Audit Central Excise Act, 1944 provides for two types of audit. These are: - 1. Special Audit for valuation purposes under section 14A of CEA 2. Special Audit for Cenvat credit purposes under section 14AA of CEA. 1. Valuation Audit [section 14A] · Valuation audit can be ordered at any stage of enquiry, investigation or any other proceedings by the excise officer, if he is of the opinion that the value has not been correctly declared or determined by the manufacturer. · Any central excise officer not below th....