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Circular No.580/17/2001-CX

F.No. 206/ 16/2000-CX.6

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

29th June, 2001.

Subject: Central Excise – Planning of Internal Audit for covering in this financial year all units paying duty Rs. One crores and above by EA-2000 – Reduced frequency and selective audit for other units – Instructions regarding –

            I am directed to say that the Board has analysed the data of frequency of audit under EA-2000 and non-EA-2000, number of units paying duty Rs. one crore and above as well as number of units paying duty below one crore in a financial year, the number of audit parties in the Commissionerates and the efficacy of audit under EA-2001 vis-à-vis audit under non-EA-2000. The analysis indicates the following: -

    1. There has been greater emphasis on auditing of units paying duty below Rs. one crore in most of the Commissionerates,

    2. In many Commissionerates, the units required to be audited under EA-2000 every financial year have not been adequately covered and the trend, by extrapolation, show that such units may not be covered during the current financial year,

    3. There is lop-sided distribution of audit parties in different Commissionerates between EA-2000 and non-EA-2000. In other words, there are not adequate audit parties for conducting audit under EA-2000, whereas there are large number of audit parties conducting non-EA-2000 audit.

    4. There are inadequate number of audit parties as compared to strength of Ranges, Division and Headquarter strength.

    5. There is vast difference across the Commissionerates in the ratios of – [number of audit parties: number of units] and [the number of audit parties auditing under EA-2000: number of units required to be audited under EA-2000].

2. From these indicators, it is concluded that the following actions are required: -

    1. adjusting frequency of audit so as to reduce audit of units paying duty less than one crore and that too by system of selection based on risk factors;

    2. re-deployment of officers in the Commissionerate, Divisions and Ranges in order to strengthen Internal Audit Wing;

    3. Improving the audit planning by greater involvement of senior officers; and

    4. Training of officers of all level in EA-2000 audit.

3. Considering the positions mentioned above, the Board has decided the following: -

(1) The units paying duty Rs. 1 crore or above (PLA) in a financial year should be audited every year. To reach this target, sufficient number of audit teams should be constituted, if necessary, by re-deployment of the available staff in the Commissionerate/Division/Range to strengthen Internal Audit Wing. The Commissioner shall ensure that ALL the units are covered by the end of the financial year.
(2) The audit of units paying duty Rs 10 Lakhs (PLA) and above but less than Rs 1 Crore (PLA) in a financial year should normally be done once in two years. The selection of units in this category should be prioritized by taking into account various risk factors Those units should be selected first which are assigned highest risk such as risk prone nature of a commodity, exemptions or partial exemptions or conditional exemptions, trade pattern relating to valuation, trend in CENVAT availment, revenue trends or any such other factors as may be specified by the Directorate General (Audit). The Board will further analyse the outcome of audit of these units and methodology of selection based on ‘Risk Assessment’ and re-determine the frequency, if necessary.
(3) Not more than 20% of the units paying duty less than Rs. 10 Lakhs (PLA) in a financial year in a Commissionerate should be audited. The selection shall be made in the same manner as specified in (2) above.
(4) The Commissioners shall undertake training programmes for all levels of officers in Audit Wing in consultation with National Academy of Excise, Customs and Narcotics so as to gear up for ensuring audit under EA-2000 as well as non-EA-2000.
(5) The re-deployment of staff to strengthen Internal Audit should be undertaken by 1st August, 2001 positively.

4. The Chief Commissioners shall monitor the action taken by Commissioners of their zone and send a compliance report to the Board in respect of Board’s decision mentioned at serial no. 4 and 5 of paragraph 3 above by 1st September, 2001.

5. Receipt of this Circular may please be acknowledged.

6. Hindi version will follow.