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PRINCIPLES OF AUDIT

Service Tax - Central Excise and Service Tax Audit Manual - CBEC - 04 - Chapter 4 4.1 The objective of audit of assessees/taxpayers is to measure the level of compliance of the assessee/taxpayer in the light of the provisions of the Central Excise Act, 1944 and the Finance Act, 1994 and the rules made thereunder. It should be consistent with departmental instructions and should make use of professional audit methodology and procedures. The basic principles are: i. The audit should be conducted i .....

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unts. 4.2 Standards for conduct of audit: 4.2.1 In keeping with the outlined above, audit has to be conducted in a transparent and systematic manner with focus on business records of the assessee and taxpayer and according to the audit plan for each assessee and taxpayer. The assessee and taxpayer participation in the course of audit is also envisaged so that instead of raising purely technical objections (without any revenue implications), substantive issues are also focussed upon. 4.2.2 The au .....

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fy systemic failure. In fact, the relative materiality of an individual item has to be viewed against the net effect on over-all compliance and interest of revenue. ii. General or Particular Items: An error made in a particular transaction may be an aberration if it is a stray, single instance but the effect may be material, if it is of recurring nature. Thus frequency of error is of importance. iii. Effect in relation to scale of a assessee/taxpayer operation: An error may appear to be small in .....

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necessary legal enablement has been made in the jurisdictional Notifications No. 20/2014-ST and 21/2014-ST, both dated 16.09.2014. 4.2.4 Period to be covered during audit Every audit should invariably cover the retrospective period up to the previous audit by the departmental audit group or of the last 5 years, whichever is less and should extend up to the last completed Financial Year preceding the date of commencement of the audit. 4.3 Duration of audit 4.3.1 Efforts should be made to complet .....

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for conduct of Central Excise/Service Tax audit covering one year period. In case the audit coverage is for five years, the number of days may be increased to maximum of 16/12/8 days for Large, Medium and Small taxpayers respectively. In other words the number of days for conduct of audit may be increased proportionately, with an increase of 25% of working days for every additional year of coverage. If an integrated audit is to be conducted covering both Central Excise, Service Tax and OSPC audi .....

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