(I) PURPOSE OF AUDIT

The purpose of conducting audit is to ensure that the assessee has discharged his duty  liability  correctly  as per  law  both  with  reference  to  the  classification   of  goods  and  their  valuation; and also to ensure that all  procedures  established   by  the  law, that  is  to  say  the Central  Excise  Act, 1944, Central  Excise  Tariff  Act,1985, and all other related Rules, Notifications, Clarifications issued by  CBEC have  been  followed. 

(II) INTRODUCTION  TO  EA-2000

The traditional method of audit has been replaced by EA-2000 Audit.  It was initiated in November,1999  for assessees   who  had  paid  central  excise  duty   amounting  to   Rs.5 Crores and  above  in  their PLA during the previous financial year . In Sept. 2000, this audit was extended to units paying Rs. 1 Crores and above in PLA.  At present all units are audited under EA-2000 pattern and the frequency of audit is as under:

(III) ESSENTIAL PHILOSOPHY OF E.A.2000

The essential philosophy of EA 2000 is that this audit is based on the scrutiny of  business records of the assessee. This is a more systematic audit where the auditors are required to gather basic information about the assessee and analyse it to find out vulnerable areas before conducting the actual audit.

(IV) PROCEDURE OF  EA-2000

(a) Units are selected for audit based on  risk parameters.

(b) Prior to actual conduct of audit the auditors are required to gather as much information about the assessee as possible and analyse this information which is called  “Desk-Review.”

(c) Documentation – At the stage of Desk-Review the auditors  identify certain areas which warrant closer examination.  The auditor may also require certain documents or information from the assessee to complete this preliminary investigation which may be called from the assessee.

(d) The auditor will send a 15 days advance intimation to the assessee about the actual date of  audit.

(e) Touring- The auditors then visit the unit of the assessee to see the actual running of the unit, the system  followed for maintaining records and system of movement of goods and the related documents within the unit. The auditor will discuss with officers of various departments of the assessee like Purchase, Stores, Accounts, Marketing, Production, etc.

(f) Audit Plan- Based on the experience and information gathered  so far  about the assessee the Auditor prepares an Audit Plan.  The idea of developing the Audit Plan is to list the areas which , as per the  auditor are the vulnerable  areas from the revenue point of view.  Since number of documents/records maintained by assessee is huge in number it is also necessary that the auditor  select  some of them for verification.

(g) Verification- It is done as per the Audit Plan.

(h) Audit Objection/Para- Where the auditor finds instances of short payment of duty or non-observance of Central excise procedures, he is required to discuss the issue with the assessee.  After explanation provided by the assessee, if the auditor is satisfied that such non-tax compliance has occurred , he records the same as an ‘Audit Objection’ or ‘Audit Para’ of the ‘draft audit report’.

(i) Discussion- All audit objections as included in the draft audit report are required to be discussed with the assessee.   Efforts will be taken to recover the duty amount along with interest on the spot.
                                                                                                                                     
(j) Final Audit Report- All audit reports prepared in a month, are discussed in an internal audit board meeting(EMC), which is held once a month & cleared by the  Commissioner. After the objections are validated in the meeting, the final audit reports are issued.

(V) ROLE OF THE ASSESSEE IN E.A.2000  AUDIT

1) The assessee is required to furnish the requisite documents/ information such as Balance
sheet, Trial balance , Cost audit report, Income tax audit report, Sales tax return, Reconciliation of turnover as per excise record, financial records and sales tax return, production ,clearance and actual Central Excise duty payment statements, cen cr. availed & utilised,Manufacturing process, organisation chart, details of goods manufactured, marketing pattern etc. as called for by the audit party before the commencement of the actual audit of the unit.

2) On receipt of advance intimation for audit , the assessee is required to keep all the excise and business records ready for the audit scrutiny.

3) Full cooperation needs to be extended to Audit Parties so as to enable them to complete the audit within the scheduled time.

4) The assessee should discuss all points raised by audit parties and involve all their concerned officials to arrive at a logical conclusion.

5) Where the assessee agrees to the audit points, they should pay Govt dues along with interest voluntarily. Here attention is invited to the Sec;11A(2B) which speaks that, where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person, charged with the duty, may pay the amount of duty before service of notice on him under section 11(1) in respect of the duty, and inform the Central Excise Officer of such payment in writing , who, on receipt of such information may not serve any notice under the said section in respect of the duty so paid.