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SELECTION OF ASSESSEE/TAXPAYERS FOR AUDIT

Service Tax - Central Excise and Service Tax Audit Manual - CBEC - 05 - CHAPTER 5 5.1 Objective: Selection of assessees/taxpayers for audit means selection of assessees and taxpayers to be audited during a specified period, taking the available resources into account. Given the large number of registered assessees and taxpayers under Central Excise and Service Tax, it is impossible to subject every assessee/taxpayer to audit each year with the available resources. Further, emphasis placed merely .....

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dministrative resources. These assessees and taxpayers should be selected on the basis of assessment of the risk to revenue. This process, which is an essential feature of audit selection, is known as Risk Assessment . It involves the ranking of assessees and taxpayers according to a quantitative indicator of risk known as a risk parameter . 5.2 Method of selection based on risk assessment: The selection of assessees and taxpayers would be done based on the risk evaluation method prescribed by t .....

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for a period of last three years, which would facilitate risk assessment and preparation of the list of assessees/taxpayers to be audited in the current year. 5.2.1 Basing on the risk methodology, a list of units will be communicated to the Audit Commissionerates by the NRM, for the purpose of conducting audit for the audit year. The Audit Commissionerates may select the units to be audited in a particular year after reviewing the list forwarded to them by the DG(A), in the context of local risk .....

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on such random selection and results of audit thereof would help in evaluation of parameters used for the process of selection. 5.2.3 After preparation of the annual plan of audit coverage as indicated above, the Audit Commissionerates would also prepare a list of units, in whose cases the risk can be mitigated through a detailed scrutiny of returns and convey the details to the Executive Commissioners for taking necessary action. Selection of such units can be carried out at the Zonal level so .....

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next year) and the month in which the Audit officers would visit the units for verification of records. The Audit coverage (i.e. number of units selected for Audit in a year) may be calibrated with the manpower availability in a Commissionerate. The working strength of officers in Audit Commissionerate would be taken as the basis for calibration. ii. In order to ensure adequate coverage, the assessees/taxpayers shall be categorized into three categories namely large, medium and small units.Given .....

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ium and small units would be as discussed in chapter 2 iv. The indicative duration for conduct of Audit that is inclusive of desk review, preparation and approval of Audit plan, actual Audit and preparation of Audit report wherever necessary, for each category would be as discussed in chapter 4 v. Given that there are around 249 working days in a year, the number of Audits that can be conducted approximately in a year are as follows: a. 31 large units (calculated at 8 days per unit) by one Audit .....

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by the number of Audit Groups earmarked for each category to arrive at the total number of Audits that can be conducted by each Audit Commissionerate during the year. vii. The manner of deployment of officers as mentioned above and calculation of number of units that can be audited during the year are illustrated below: a. Suppose the working strength of an Audit Commissionerates is 60 Superintendents and 80 Inspectors. The deployment of officers would be: 24 Superintendents and 32 Inspectors wo .....

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/taxpayers would be divided amongst the Circles proportional to the number of large assessees/taxpayers under each circle. The deployment has to be done in similar manner for medium and small units. b. Using the manpower as above, there would be around 10 groups for large units, 12 groups for medium units and 6 groups for small units. The total number of units that could be audited in a year works out to around 310 large units, 504 medium units and 372 small units i.e. 1186 units in all.The Audi .....

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ce Tax paid in the case of Service Tax. The threshold limits of value of clearances / value of services for categorizing the units into large, medium and small would be dependent upon (i) the available manpower in the Audit Commissionerate and (ii) the assessee/taxpayer base, turnover and duty paid by each assessee/taxpayer in the jurisdiction of the Audit Commissionerate. It may be noted that threshold limits may vary from one Audit Commissionerate to another Audit Commissionerate in view of va .....

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by Directorate General of Audit during the month of March / April every year. ix. The Audit Commissionerates shall consult Zonal units of Directorate General of Audit while finalizing the Annual plan of Audit coverage with the available manpower at the beginning of the financial year. The scheduling can be reviewed half yearly for necessary adjustments, if any. The Directorate General of Audit will also periodically review and revise, wherever necessary, the criteria for categorizing the units .....

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coverage of all categories of assessees/taxpayers falling under the jurisdiction of the zone. 5.4 Integrated audits: 5.4.1 Wherever, the assessee/taxpayer is registered both under Central Excise and Service Tax, integrated audit of both Central Excise and Service Tax may be taken up.Currently, audit is undertaken for each tax separately even though the business and financial records verified during the audit are common for all the three taxes administered by the Board. In order to improve the e .....

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gistered under Central Excise, Service Tax and Customs (OSPCA) need not be subjected to three separate audits. The information about various registrations being available, such assessees/taxpayers would be subjected to a comprehensive audit by the designated Audit Commissionerate. For this purpose the Principal Chief Commissioner / Chief Commissioner will assign the audit of such an assessee/taxpayer to a particular Audit Commissionerate, within the Zonal jurisdiction, based on payment of Centra .....

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ay be a special situation, where there are multiple registrations of an assessee / tax payer in the same premises, i.e., if a tax payer having a service tax registration falling in the jurisdiction of an exclusive service tax Commissionerate under a Service Tax CC Zone, is also having a Central Excise registration in the same premises, registered with a Central Excise Commissionerate of a different Central Excise CC Zone, both such registrants should be audited simultaneously, coordinated by the .....

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ns contained in Chapter 9 may be referred to. ii. Audit of ACP importers may be conducted as contemplated in the Manual on OSPCA.However, if such an ACP importer is selected for audit under the risk evaluation method in a particular year, a comprehensive audit of Central Excise, Service Tax and Customs OSPC Audit may be conducted. 5.6 Theme based coordinated audits 5.6.1 Theme based co-ordinated audits at all India level would be conducted by the concerned Audit Commissionerates in a coordinated .....

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. Detailed questionnaires would be prepared to serve as guidance to the Audit parties. The dates for such audits would be fixed in advance, say, sometime in December every year, so that they can be blocked by the Commissionerates. The number of such audits will be one or at best two in a year. The selection of theme/issue, coordination and dissemination would be done by DGA in consultation with the field formations. 5.6.2 The theme based coordinated Audits would also be carried out at the Zonal .....

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