Circular No.821/18/2005
                   7th November, 2005

F.No. 224/22/2005-CX-6

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

Subject: Guidelines for selection of cases for Desk review by Chartered/Cost Accountant

 The Board has been examining various initiatives to enhance the effectiveness of EA 2000 Audit. It has been decided that the expertise of the Chartered/Cost Accountants can be availed in the process of Desk review being conducted by the Department. The services of Chartered/Cost Accountants would be paid at the rate of Rs. 5000/- per day with service tax and other government dues being extra. Their services are to be used in an advisory capacity only for cases of audit of very large assessees having complicated accounting systems and voluminous transactions, e.g. audit of multi-location units. To facilitate the process of selection, both the Institute of Cost and Works Accountants of India & Institute of Chartered Accountants of India have identified a panel of their accountants whose services can be used. The services of accountants appearing in the panel alone should be used. Before appointing an accountant, the issue of conflict of interest should be kept in mind, i.e. the accountant who is in any way connected to the assessee or its group of companies should not be engaged.

2.   The following guidelines can be used to select units for such Desk Review:

a The assessees who have filed their ER 4 Return or
b The assessees who have submitted copies of their cost audit reports under Section 233B of the Companies Act, 1956;the Income Tax audit report under section 44AB of the Income Tax Act, 1961, annual financial statements such as the Balance Sheet, Trial Balance, Profit and Loss Account etc., Form 3CD, Internal Audit Report, Income Tax Return and the departmental auditors find it difficult to use the information contained in any of these statements. Assessees who have filed their ER 5 and ER 6 Returns or
c Two or more manufacturing units, which are related persons or inter-connected units as per the Central Excise Act, 1944 or
d  Inter connected assessees who manufactures and supplies all or part inputs to inter connected unit who manufactures final products or
e Assessees selling goods through related/associated units or
f Assessees manufacturing goods on job work basis whose valuation may require examination or
g Assessees whose assessable values are showing a downtrend or
h The scrutiny of monthly returns by the Range Officers indicates repeated high risks as per the scrutiny guidelines.

 

3.         The services of Chartered Accountants can be used in cases so selected for validating and interpreting the information contained in the ER 4 return and identifying issues for audit verification on this basis. They can also be used for scrutinising the Balance Sheets, Profit & Loss A/c, Annual Report, Income Tax Audit Reports or any other return filed the other authorities in complicated cases for identifying issues for inclusion in the Audit Plan. Their services can also be used for derivation of unit-wise (i.e. factory wise) financial information from consolidated accounts in case of multi-location units in complicated cases.
 

4.         The services of Cost Accountants can be used for validating, interpreting and analysing the information disclosed by the assessees in ER 5 & ER 6 returns (consumption of inputs) for identifying issues of CENVAT misuse, in the case of units filing these returns. They can also be used for identifying valuation issues during desk review stage in case of sales to related units and captive consumption.

 

5.         The above guidelines are merely illustrative and not exhaustive. Commissioners are directed to report instances wherein selection of units using other criteria produces good results/detections. The Board further desires that in the ensuing quarter of the current financial year, two units per Commissionerate should be picked up for such Desk Review. The result of the initiatives taken for the quarter ending December, 2005 may be forwarded to the DG(Audit) by 10.1.2006.  The consolidated report to the Board may be forwarded by DG(Audit) by 10.1.2006.

 

6.         Receipt of the circular may be acknowledged.

 

7.         Hindi version will follow.

 

 

Yours faithfully,

Hemambika R. Priya
Director to the Govt. of India

Copy to

All Chief Commissioners of Central Excise and Customs

All Director Generals

All Commissioners of Central Excise