All Central Excise and Service Tax Audit
Objections Issued Prior to 1 Mar 2014 shall be Compared
with Pending Action Taken Notes (ATNs)
[CBEC Circular No. 1023 dated 8th
April 2016]
Subject: -
Adjudication of Show Cause Notices issued on the basis of CERA/CRA objection.
Central Board of
Excise and Customs has issued instructions from time to time regarding
adjudication of show cause notices issued on the basis
of audit objections of Central Excise Revenue Audit (CERA) and Customs Revenue
Audit (CRA), which is receipt audit wing of the Comptroller and Auditor General
of India. The pendency position of such notices in the Call-Book has been
reviewed and found to be larger than the number of audit objections which have
been converted into Audit Paragraphs. After due examination, it was felt that
there was a need to review the past practices and issue revised consolidated
guidelines to provide a clear procedure for the field officers to deal with the
CERA / CRA objections. The Tax Administration Reform Commission (TARC) report,
representations received form trade and inputs received from field officers
also indicated that there was a need to review past instructions to improve the
ease of doing business and bring certainty regarding tax liability of an assessee. Accordingly, all past circulars and instructions
on the subject are hereby rescinded and following procedure is prescribed for
dealing with audit objections raised by CERA / CRA.
2. An audit
objection may mature into an Audit Paragraph and become part of Audit Report
periodically submitted by the office of CAG to the Parliament. Various stages
involved in the life cycle of an audit objection and the timeliness prescribed
for replying thereto may be noted and strictly adhered to by the departmental officers.
These stages and timeliness are as follows :
(i) Half
Margin: Half margin/audit memo is issued to the Superintendent
of the Range during the course of audit on points noticed by CERA. The half
margin is to be replied to immediately and in any case before the end of the
audit of Range/Division/ Commissionerate concerned.
(ii) Local Audit Report (LAR): LAR containing audit paragraphs is
generally issued by the headquarters of the local CAG Office to the Assistant/
Deputy Commissioner generally within one month of the completion of the audit
by the headquarters of the Director General or Principal Director of Audit. The
Assistant/Deputy Commissioner is expected to reply to the LAR within thirty days.
(iii) Statement of Facts (SoF): SoF
is issued to the jurisdictional Commissioner/Addl. Commissioner on the major
audit observations which may feature in Audit Reports. It has been decided that
SoF shall be replied within
six weeks where the audit objection is not contested. Where the audit objection
is contested and the amount of duty involved in the audit objection is rupees
fifty lakhs or less, SoF
shall be replied with the approval of the Commissioner and for audit objections
involving higher amounts of duty, SoF shall be
replied with the approval of the Chief Commissioner. Detailed reasons for
contesting the audit objection should be recorded in the file quoting relevant
case-laws and circulars, if any.
(iv)
Draft Audit Para (DAP): Potential audit paragraphs considered fit for inclusion in the
Audit Report are issued by the CAG officer to the Ministry (CBEC) as DAPs. CBEC
is expected to reply to
DAP within four weeks of
its receipt.
(v) Audit Paragraphs: CAG's office,
after considering the reply of the CBEC may convert a DAP into Audit Paragraph.
Audit Paragraphs are periodically compiled and are submitted by the office of
CAG to the Parliament in the form of a report called Audit Report. CBEC is
expected to furnish an Action Taken Note on each of the paragraphs in the Audit
Report. The ATNs received are examined by the office of CAG and duly vetted
ATNs are submitted to the PAC. The process of submission of ATN, due vetting and
submission to PAC is expected to be completed within
four months of submission
of Audit Report. At both the DAP and Audit Para stages, it is essential that field
formations concerned give a detailed reply including the present status of the objection
to facilitate a meaningful reply by CBEC.
Coordination
Meetings:
3. One of the
reasons for pendency in adjudication of CERA/CRA objection is the lack of
mechanism for periodic reconciliation of the status of audit objections. It
has, therefore, been decided that a quarterly coordination meeting would be
held in each of the Zones by the officers of the revenue department with the
officers of CAG to ensure that the list of audit objections, replies given by
revenue and final view taken by CERA/CRA can be discussed. Chief Commissioner
shall identify a nodal officer, [preferably Additional Commissioner/ Joint
Commissioner, CCU] to coordinate and attend such meetings. An audit objection
is considered settled when the views of CERA/CRA and revenue converge due to
either CERA/CRA dropping the audit objection or revenue admitting the audit
objection.
Issue
of Show Cause Notice:
4.1 Audit
objection at LAR and SoF
Stage: Once an LAR or SOF is received, it should be replied by
the department forthwith. Based on the reply sent by the department, they can
be divided in following categories :
4.1.1 Where the
department has agreed with the audit objection on merits: Audit
objections where department has agreed to the merits of the objections
constitute a large proportion of the audit objections. In such cases, Show
Cause Notices should be issued immediately. Such cases should not be
transferred to the Call-Book and should be adjudicated forthwith and revenue
realized in cases of confirmed demand at the earliest.
4.1.2 Where the
department has not agreed with the audit objection on merits : No show cause notice
should be issued in cases where department has not agreed with the audit
objection on merits. In such cases audit objection should be replied following
the procedure laid in clause (iii) of paragraph 2.
4.2 Show Cause Notice at the direction of the Board: Where a contested audit objection has
become DAP and on examination it is found by the Commissioner (PAC) or joint Secretary
(Customs) in CBEC that the objection should have been admitted, they may give necessary
directions to the field to issue show cause notice and adjudicate the case on
merits.
4.3 No
transfer to call-book: It
may be noted that the procedure of transferring the show cause notice arising
out of CAG objection to call-book has been discontinued and in future no such
show cause notice should be transferred to the call-book. Circular nos
162/73/95-CX dated 14.12.1995 and 385/18/98-CX dated 30.03.98 on transfer of cases to the call book
arising out of CAG objections stands amended accordingly.
Adjudication
of Show Cause Notices :
5.1 Adjudication
of SoFs/LARs not converted into DAP: SoFs/LARs are replied by the Commissionerate
and therefore these cases may be adjudicated after ensuring that the reply
given by the Commissionerate is available on record.
5.2 Adjudication
of admitted DAPs/APs: DAPs are replied by the Ministry (CBEC)
and therefore adjudication of DAPs should be undertaken after ensuring that the
reply given by the Ministry (CBEC) is available on record.
5.3 Adjudicating
authority is a quasi-judicial authority and is legally bound to adjudicate the
case independently and judiciously taking into consideration the audit
objection by CERA/CRA, reply of the department as referred above, reply of the
party, relevant legal provisions, case laws on the subject and relevant
circulars of the Board, if any. It is expected that the factum of SCN being a
consequence of CERA/CRA objection, would be incorporated in the brief facts of
the case in the adjudication order.
5.4 Where an
issue was under audit objection and has been subsequently either judicially
settled, by say judgment of Hon'ble Supreme Court or
where a circular of the Board has been issued on the subject, further
correspondence with the Board on the audit objections, even if they have become
DAPs, is not necessary and such cases may be adjudicated on merits taking into
consideration the latest judgments and circulars.
Past
Cases:
6.1 All audit
objections relating to Central Excise and Service tax issued prior to 1.3.2014
shall be compared with the pending Action Taken Notes (ATNs), received from the
office of CAG, enclosed as Annexure B with the Circular. For Customs, the list
shall be separately issued. Show Cause Notices (SCNs) relating to audit
objections figuring in the list should not be adjudicated and further action
may be taken on them in consultation with the Commissioner (PAC). The rest of
the objections stand finally vetted by CAG Audit with no further comments which
means that the reply of the department has been accepted by the CAG office.
SCNs relating to these objections may be taken up for adjudication on merit,
including those in the call-book, following the procedure prescribed in
paragraph 5.
6.2 For audit
objections raised after 1.3.2014 and till the date of issue of this circular,
where SCNs have been issued, list of pending ATNs would be issued in due
course. These show cause notices pertaining to these objections may be adjudicated,
mutatis-mutandis following the procedure prescribed in paragraph 6.1 read with
paragraph 5.
Application:
7. All audit
objections in Customs, Central Excise and Service tax received after the issue
of this circular or past audit objections where no show cause notice has been
issued shall be dealt as per the provisions of this circular.
8. Difficulty,
if any, in implementing the circular may be brought to the notice of the Board.
F.
No. 206/02/2010-CX.6