The Central Excise as well as Service Tax have been amended post liberalization to follow the self assessment scheme. It means that the return is accepted as correct. However as a check against filing incomplete, incorrect, faulty returns there are provisions for search & seizure as well as summon for giving evidence.
In addition at times the Special audits in case of suspected revenue leakages or irregular cenvat credit the appropriate officer can get the same audited by a chartered / cost Accountant as per Section 14A & 14AA respectively. Similar provisions under section 72 A of the FA 1994 for service tax exists.
Further under rule 22 of the Central excise Rules any officer authorised by the Commission can seek information for scrutiny, verification and check to safeguard revenue. Similarly under Rule 5-A(2) of ST Rules.
The officer asking the documents has to be authorised and ultimately, the audit is to be conducted by the Audit Party headed by the Chartered Accountant/Cost Accountant, as the case may be, deputed by the Commissioner. This maybe a safeguard to ensure independence and avoid conflict of interest if done by the tax collecting body.
In a recent judgment of Allahabad HC in M/S A.C.L. Education Centre (P) Ltd. & Others V/s. Union Of India Thr.Secy.Deptt.Of Revenue, New Delhi & Others Case held that in case of private assessees, the Commissioner could refer the matter to an officer to collect the material or Chartered Accountant for the purpose of audit. Thus, for the purpose of audit, the material can be collected either by the officer authorized by the Commissioner or by the Auditor himself. But, audit will be performed only by the Chartered Accountant or Cost Accountant.
In the last decade we have observed that the severity of audit by the IAP as well as the CAG has been more and more an exercise in extortion for personal and revenue gains. The audit is a not a revenue augmentation/ collection division of the tax dept.
Tax compliant assesses may seek clarity from the audit wing by way of a RPAD letter seeking confirmation from them whether the same applies every time they have an audit and if insisted agree to comply under protest.
Note: This issue may be resolved by getting the provisions amended to include audit powers retrospectively, but till then one could examine whether they wish to resist.
Warm Regards
Madhukar N Hiregange
CAclubindia
