Audit
This query is : Resolved
07 December 2009
Dear Expert
Can anybody provide me audit programe for excise records of a factory?
Can anybody provide me audit programe for excise records of a factory?
09 December 2009
CENTRAL EXCISE REVIEW AUDIT PROGRAMME
Office
Name of the Concern:
Address of the Concern:
Contact Persons:
Telephone Numbers:
Items Dealt in:
Tariff Classification/s:
E-mail ID:
Date on which audit commenced:
Date on which audit ended:
Audit team comprising of:
Audit team leader:
Partner in charge of audit:
Total man days
Audit period planned
A. Risk Assessment and overview of controls
Sl No Area Covered Reviewed by
1 Risk Assessment
a) Check whether the assessee has registered under the law recently or is an old assessee
b) Review the correspondences file with regard to previous track record/litigations involving the assessee/his sub-contractors
c) Review the operations of the enterprise by visiting the shop floor where applicable keeping in mind the industrial background
d) Review the past audited financial statements/reports of auditors to get an idea as to litigations, accounting policies, qualifications (if any) and grounds for the same, frauds (if any in the past) etc.
e) Review the system of record-keeping and find out whether the same is outsourced and if so, the controls built into the system to check errors
f) Review the assignment of responsibilities to check whether the organization is dependant solely on select individuals for compliance with the law
g) Review whether the responsibilities are divided or the executives in charge of excise compliance also handle various other tasks
h) Review the product portfolio of the enterprise and find out whether it is one regarding which the law has seen many amendments in the recent past
i) Review whether the operations are multi locational and whether substantial transactions are through related parties/associates
j) Check whether the assessee is in the process of migrating from one system of record-keeping to another
2 Organisation and activities
a) Check the organizational structure as relevant to excise function and see whether there is dual subordination
b) Check whether the enterprise has a good documentation system with regard to raising of GRN, production requisitions, work orders/job orders and dispatch reports etc.
c) Where the records are computerized check whether the system can generate the desired reports
d) Check the procedure regarding rejections of materials purchased in stores
e) Check whether the assessee has cases where materials are rejected while in process and if so whether goods are said to have been manufactured and the treatment thereof.
f) Check whether the assessee has a system of sending goods for sub-contracting and if so whether the stocks at the sub-contractor’s end are verified/monitored regularly and the procedure adopted
g) Check whether the assessee undertakes activities outside factory premises (at site or at branches/customer’s premises etc., ) and if so the nature of activities and the remuneration for the same
h) Check the purchase orders and order acceptances/sales checklists/service agreements to ensure that the liability on the taxation front has been captured correctly
i) Check whether the assessee has entered into joint collaborations/technical assistance agreements with parties abroad for which payment is to be made by the assessee and the nature of such activities
j) Check the nature of services provided by any and the activities involved and the liability considered if any
k) Check whether the assessee has any R&D division/lab and if so, the nature of the work undertaken and the supply of materials/capital goods/input services needed
B. Detailed Verification
Sl.No: Area Covered. Extent Covered. Covered By.
1. Reconciliation’s
a) VAT 100 v/s financial records –
1. For sales (local and others) and output tax payable
2. For purchases (local and others) and the input set off claimed
b) Financials Vs. Excise Records –
1. For sales and other removals and duty payable
2. For cenvat credits
2. Financial review
a) Review of the debit notes to find out cases where the materials have been sent out to suppliers as rejects and credits not reversed/customers debited with additional consideration or cases where job workers have been debited for shortage in material receipts or for non-receipt of scrap etc.
b) Review of credit notes to find out the cases where the customers have returned the goods as rejects or cases where additional discounts have been given to the customers or materials have been sent by customers
c) Review of the journal register to find out cases of material stocks written off/destroyed or stocks transferred to trading or other units/for research/branches etc.
d) Review the profit/loss account to find out the break up of other incomes received if any to judge impact on service tax and expenses to find out eligibility to service tax credits.
e) Review the balance sheet to find out the investments made in any associate companies and the possible impact on the concept of related party under excise. Also find out the composition of assets to know about the assets purchased or disposed off (in comparison with the prior period balance sheet).
f) Review the fixed asset register to check whether credits availed on non-productive assets.
3. Ratio Analysis
a) Cenvat credit availed/total duty payable
b) Cenvat Credit availed /total purchases
c) Gross profit ratio on the basis of the financial records reviewed
d) Other ratios specific to industry
4. Sales / Removal
a) Quantify the after sales discounts as provided to customers as the same can be deducted from the AV if given as trade discounts
b) Check samples removals/removals other than sales to customers at the factory gate for valuation adopted and consequent duty payment.
Check whether goods sold through depots etc, and whether price prevailing at depot at the time of removal from factory correctly ascertained.
c) 1. Captive consumption (ensure whether Invoice is raised) though benefit of notification 67/95 is claimed and entered in DSA.
2. Find out whether any FG have been used in the factory premises or elsewhere for purposes other than manufacture and check the duty payment and valuation. Whether valuation method of COP+10% followed?
d) Verify whether any inputs have been removed as such and where so, trace any credits availed on them by reviewing the stores ledger and the cenvat invoices and find out whether any credits availed have been reversed.
e) Verify whether any capital goods are removed-
a) As such – reversal of credits to be seen
b) As scrap or waste – duty to be paid on the basis of TV
f) See whether finished goods are cleared as scrap and duty paid where necessary
g) Cross-verification of daily stock account with the invoices (sales as well as other removals)
h) 1. Check the details of the goods repaired (process amounting to manufacture) and sent under invoice by paying duty and cross verify the details with either the DSA or register for repairs/rejects (as the case may be)
2. Check whether goods repaired (process not amounting to manufacture) have been cleared on reversal of credits availed earlier on receipt of the same for repairs
i) Check whether Rule 11 of CER 2002 has been complied with in regard to invoicing and Rule 10 with regard to DSA
j) Check the production document and cross verify the same with the DSA as far as the quantities and description of the items produced are concerned
k) List out the tariff classification adopted for the finished goods along with the description of the finished goods and compare the same with the tariff classification as per CETA
l) Cross verify the service invoices raised to bill clients for services rendered with the statement/register maintained to calculate service tax liability for the purpose of making payment of service tax payment
m) Where the assessee does manufactures as a job worker/sub-contractor, check the valuation method adopted.
Where the product is a final product cleared as such by the principal manufacturer, whether duty is paid by the contractor on the price adopted by the principal manufacturer in line with Rule 10A of Valuation Rules?
5. Physical Verifications and reviews
a) Review of physical verification reports to find out cases where the physical quantities are lesser than the book figures –
1. In case of raw materials
2. In case of finished goods
b) Physical Verification
 Raw materials
 Finished goods
c) Review the stores ledger to find out cases where the raw materials have been transferred for purposes other than manufacture or to other units/branches
d) Review the stores ledger to identify the cases where the assessee has availed credit on receipt of raw materials and later on issued the same for consumption in manufacture of exempted final product (where applicable)
e) Review the repairs register and the stores ledger to find out cases where the materials had been drawn from stores and used in the repairs process not amounting to manufacture and whether credits availed have been reversed
f) Verify the fixed asset register and ensure that the assessee has availed depreciation on the cost of the asset excluding the cenvat credit portion and where depreciation has been claimed on the full amount ensure that the credit has been reversed
6. Exports/deemed exports
a) Verification of export invoices and ARE 1 forms for clearances and cross verification with the daily stock account
b) Verification of Annexure 19 as to the cases where proof of export is pending and cases where the same has been received and follow up on Bill of export/shipping bill
c) Verify whether any export incentives are being claimed and if not, the opportunities that exist
d) Where a claim for drawback is being filed whether cenvat credits are also availed
e) Review of Letter of Undertaking/bond to check the validity of the same
f) Verify whether the claim has been made for refund/rebate where the assessee has opted for that route
g) Verification of ARE-3/ARE 1 with invoices & daily stock account for deemed exports
h) Review the CT-3/CT 1 certificates issued to the assessee by the unit receiving the goods and check the eligibility of the clearances to exemption
i) Verify whether goods are cleared to an EPCG licence holder and check whether the invalidating letter has been obtained by the assessee
j) Verify the scheme that the assessee has opted for and the payment of duty and subsequent refund where the terminal excise duty scheme has been opted for.
k) Verify the clearances made to a unit in a SEZ with the DSA and the receipt of a DPC for clearing goods without payment of duty
l) Verify whether the assessee has opted for the advance license route and if so, whether the materials have been used for the specified purposes
7. Job Work
a) Verify whether the goods sent for job work have been received back within 180 days of the date of sending and if not credit on materials sent reversed where they had been availed
b) Cross verify the challans with the job work register/statement to ensure that the transaction is properly reflected in both the documents
c) Verify whether the scrap or waste generated at the job workers’ end is received back into the factory on the basis of particulars furnished on the challan
d) Verify whether the assessee is availing credits reversed earlier on the basis of the receipt of materials sent for job work after the period of 180 days
e) Verify whether the assessee is in possession of a declaration from the raw material supplier undertaking to pay duty where the assessee does job work for others
f) Verify whether the assessee has obtained service tax registration and is paying service tax on job work done for others where such process does not amount to manufacture
g) Check the security returnable registers and ensure that all the materials on which cenvat credits are normally availed and sent through delivery challans (other than Job Work challans) have been received back into the factory premises within the stipulated period of 180 days and if not so check the debits as per cenvat register/PERSONAL LEDGER ACCOUNT for credit reversals
8. Departmental Correspondence
a) Verify whether the assessee has submitted a list of records maintained in accordance with Rule 22(2) of CER 2002 to the excise authorities
b) Verify whether the assessee has intimated the names of persons who would sign the excise records and returns
c) Verify whether all the correspondences are properly acknowledged
d) Verify whether the fact of cancellation of invoices has been intimated to the department
e) Verify whether all the queries posed have been replied to on a timely basis
f) Whether doubts in regard to product/ cenvat have been intimated to department?
9. Cenvat Credit
a) Check the correctness of cenvat credit availed on capital goods and the treatment of balance 50% credit
b) Cross verify the cenvat invoices with the Cenvat credit Register
c) Check the cenvat invoices to ensure that the details as to items and their description and the values and credits and the assessee name have been mentioned correctly
d) Cross verify the cenvat register/invoices with the Goods Received Note's to ensure that no credit has been missed out
e) Verify whether the assessee is availing credits in respect of tax paid on ELIGIBLE input services and cross verify the service bills with the service tax credit register
f) Cross verify the service bills with the bank payment vouchers/file to ensure that credit is taken only on those bills on which payment has been made
g) Verify whether Cenvat credit has been availed on materials used in R&D activity and check the eligibility of the same to credits
h) Check the totaling of the credits in the credit register
i) Check the margins being charged by dealers and note down cases where excess margin has been charged by them on their cost
j) Verify that the accounts support proper credit capture / availment?
10. Returns
a) Cross check the removal entries in the ER-1 Return/ER-3 Return with the details in the Daily Stock Account as to quantities, values and duty payable and tariff classification
b) Cross verify the duty payment and credit details of the return with the cenvat register and the PERSONAL LEDGER ACCOUNT and observe the miscellaneous payment details
c) Go through the ER-5 Return and note down the quantities of input required for a unit quantity of a particular product and perform an input output analysis based on the raw materials consumed and quantities manufactured for a particular period
d) Go through the ER –4 return and compare the details furnished with the financial figures
e) Go through the ER-6 Return and compare the details of the goods manufactured with the details furnished in the ER-1 Return
f) Ensure that the returns are filed in time and are properly acknowledged
11. Review of following reports
A Cost audit report
B Internal audit reports
c) Statutory audit report
d Our previous reports
e) Information security audit reports
f) Income tax reports
CENTRAL EXCISE REVIEW AUDIT PROGRAMME
Office
Name of the Concern:
Address of the Concern:
Contact Persons:
Telephone Numbers:
Items Dealt in:
Tariff Classification/s:
E-mail ID:
Date on which audit commenced:
Date on which audit ended:
Audit team comprising of:
Audit team leader:
Partner in charge of audit:
Total man days
Audit period planned
A. Risk Assessment and overview of controls
Sl No Area Covered Reviewed by
1 Risk Assessment
a) Check whether the assessee has registered under the law recently or is an old assessee
b) Review the correspondences file with regard to previous track record/litigations involving the assessee/his sub-contractors
c) Review the operations of the enterprise by visiting the shop floor where applicable keeping in mind the industrial background
d) Review the past audited financial statements/reports of auditors to get an idea as to litigations, accounting policies, qualifications (if any) and grounds for the same, frauds (if any in the past) etc.
e) Review the system of record-keeping and find out whether the same is outsourced and if so, the controls built into the system to check errors
f) Review the assignment of responsibilities to check whether the organization is dependant solely on select individuals for compliance with the law
g) Review whether the responsibilities are divided or the executives in charge of excise compliance also handle various other tasks
h) Review the product portfolio of the enterprise and find out whether it is one regarding which the law has seen many amendments in the recent past
i) Review whether the operations are multi locational and whether substantial transactions are through related parties/associates
j) Check whether the assessee is in the process of migrating from one system of record-keeping to another
2 Organisation and activities
a) Check the organizational structure as relevant to excise function and see whether there is dual subordination
b) Check whether the enterprise has a good documentation system with regard to raising of GRN, production requisitions, work orders/job orders and dispatch reports etc.
c) Where the records are computerized check whether the system can generate the desired reports
d) Check the procedure regarding rejections of materials purchased in stores
e) Check whether the assessee has cases where materials are rejected while in process and if so whether goods are said to have been manufactured and the treatment thereof.
f) Check whether the assessee has a system of sending goods for sub-contracting and if so whether the stocks at the sub-contractor’s end are verified/monitored regularly and the procedure adopted
g) Check whether the assessee undertakes activities outside factory premises (at site or at branches/customer’s premises etc., ) and if so the nature of activities and the remuneration for the same
h) Check the purchase orders and order acceptances/sales checklists/service agreements to ensure that the liability on the taxation front has been captured correctly
i) Check whether the assessee has entered into joint collaborations/technical assistance agreements with parties abroad for which payment is to be made by the assessee and the nature of such activities
j) Check the nature of services provided by any and the activities involved and the liability considered if any
k) Check whether the assessee has any R&D division/lab and if so, the nature of the work undertaken and the supply of materials/capital goods/input services needed
B. Detailed Verification
Sl.No: Area Covered. Extent Covered. Covered By.
1. Reconciliation’s
a) VAT 100 v/s financial records –
1. For sales (local and others) and output tax payable
2. For purchases (local and others) and the input set off claimed
b) Financials Vs. Excise Records –
1. For sales and other removals and duty payable
2. For cenvat credits
2. Financial review
a) Review of the debit notes to find out cases where the materials have been sent out to suppliers as rejects and credits not reversed/customers debited with additional consideration or cases where job workers have been debited for shortage in material receipts or for non-receipt of scrap etc.
b) Review of credit notes to find out the cases where the customers have returned the goods as rejects or cases where additional discounts have been given to the customers or materials have been sent by customers
c) Review of the journal register to find out cases of material stocks written off/destroyed or stocks transferred to trading or other units/for research/branches etc.
d) Review the profit/loss account to find out the break up of other incomes received if any to judge impact on service tax and expenses to find out eligibility to service tax credits.
e) Review the balance sheet to find out the investments made in any associate companies and the possible impact on the concept of related party under excise. Also find out the composition of assets to know about the assets purchased or disposed off (in comparison with the prior period balance sheet).
f) Review the fixed asset register to check whether credits availed on non-productive assets.
3. Ratio Analysis
a) Cenvat credit availed/total duty payable
b) Cenvat Credit availed /total purchases
c) Gross profit ratio on the basis of the financial records reviewed
d) Other ratios specific to industry
4. Sales / Removal
a) Quantify the after sales discounts as provided to customers as the same can be deducted from the AV if given as trade discounts
b) Check samples removals/removals other than sales to customers at the factory gate for valuation adopted and consequent duty payment.
Check whether goods sold through depots etc, and whether price prevailing at depot at the time of removal from factory correctly ascertained.
c) 1. Captive consumption (ensure whether Invoice is raised) though benefit of notification 67/95 is claimed and entered in DSA.
2. Find out whether any FG have been used in the factory premises or elsewhere for purposes other than manufacture and check the duty payment and valuation. Whether valuation method of COP+10% followed?
d) Verify whether any inputs have been removed as such and where so, trace any credits availed on them by reviewing the stores ledger and the cenvat invoices and find out whether any credits availed have been reversed.
e) Verify whether any capital goods are removed-
a) As such – reversal of credits to be seen
b) As scrap or waste – duty to be paid on the basis of TV
f) See whether finished goods are cleared as scrap and duty paid where necessary
g) Cross-verification of daily stock account with the invoices (sales as well as other removals)
h) 1. Check the details of the goods repaired (process amounting to manufacture) and sent under invoice by paying duty and cross verify the details with either the DSA or register for repairs/rejects (as the case may be)
2. Check whether goods repaired (process not amounting to manufacture) have been cleared on reversal of credits availed earlier on receipt of the same for repairs
i) Check whether Rule 11 of CER 2002 has been complied with in regard to invoicing and Rule 10 with regard to DSA
j) Check the production document and cross verify the same with the DSA as far as the quantities and description of the items produced are concerned
k) List out the tariff classification adopted for the finished goods along with the description of the finished goods and compare the same with the tariff classification as per CETA
l) Cross verify the service invoices raised to bill clients for services rendered with the statement/register maintained to calculate service tax liability for the purpose of making payment of service tax payment
m) Where the assessee does manufactures as a job worker/sub-contractor, check the valuation method adopted.
Where the product is a final product cleared as such by the principal manufacturer, whether duty is paid by the contractor on the price adopted by the principal manufacturer in line with Rule 10A of Valuation Rules?
5. Physical Verifications and reviews
a) Review of physical verification reports to find out cases where the physical quantities are lesser than the book figures –
1. In case of raw materials
2. In case of finished goods
b) Physical Verification
 Raw materials
 Finished goods
c) Review the stores ledger to find out cases where the raw materials have been transferred for purposes other than manufacture or to other units/branches
d) Review the stores ledger to identify the cases where the assessee has availed credit on receipt of raw materials and later on issued the same for consumption in manufacture of exempted final product (where applicable)
e) Review the repairs register and the stores ledger to find out cases where the materials had been drawn from stores and used in the repairs process not amounting to manufacture and whether credits availed have been reversed
f) Verify the fixed asset register and ensure that the assessee has availed depreciation on the cost of the asset excluding the cenvat credit portion and where depreciation has been claimed on the full amount ensure that the credit has been reversed
6. Exports/deemed exports
a) Verification of export invoices and ARE 1 forms for clearances and cross verification with the daily stock account
b) Verification of Annexure 19 as to the cases where proof of export is pending and cases where the same has been received and follow up on Bill of export/shipping bill
c) Verify whether any export incentives are being claimed and if not, the opportunities that exist
d) Where a claim for drawback is being filed whether cenvat credits are also availed
e) Review of Letter of Undertaking/bond to check the validity of the same
f) Verify whether the claim has been made for refund/rebate where the assessee has opted for that route
g) Verification of ARE-3/ARE 1 with invoices & daily stock account for deemed exports
h) Review the CT-3/CT 1 certificates issued to the assessee by the unit receiving the goods and check the eligibility of the clearances to exemption
i) Verify whether goods are cleared to an EPCG licence holder and check whether the invalidating letter has been obtained by the assessee
j) Verify the scheme that the assessee has opted for and the payment of duty and subsequent refund where the terminal excise duty scheme has been opted for.
k) Verify the clearances made to a unit in a SEZ with the DSA and the receipt of a DPC for clearing goods without payment of duty
l) Verify whether the assessee has opted for the advance license route and if so, whether the materials have been used for the specified purposes
7. Job Work
a) Verify whether the goods sent for job work have been received back within 180 days of the date of sending and if not credit on materials sent reversed where they had been availed
b) Cross verify the challans with the job work register/statement to ensure that the transaction is properly reflected in both the documents
c) Verify whether the scrap or waste generated at the job workers’ end is received back into the factory on the basis of particulars furnished on the challan
d) Verify whether the assessee is availing credits reversed earlier on the basis of the receipt of materials sent for job work after the period of 180 days
e) Verify whether the assessee is in possession of a declaration from the raw material supplier undertaking to pay duty where the assessee does job work for others
f) Verify whether the assessee has obtained service tax registration and is paying service tax on job work done for others where such process does not amount to manufacture
g) Check the security returnable registers and ensure that all the materials on which cenvat credits are normally availed and sent through delivery challans (other than Job Work challans) have been received back into the factory premises within the stipulated period of 180 days and if not so check the debits as per cenvat register/PERSONAL LEDGER ACCOUNT for credit reversals
8. Departmental Correspondence
a) Verify whether the assessee has submitted a list of records maintained in accordance with Rule 22(2) of CER 2002 to the excise authorities
b) Verify whether the assessee has intimated the names of persons who would sign the excise records and returns
c) Verify whether all the correspondences are properly acknowledged
d) Verify whether the fact of cancellation of invoices has been intimated to the department
e) Verify whether all the queries posed have been replied to on a timely basis
f) Whether doubts in regard to product/ cenvat have been intimated to department?
9. Cenvat Credit
a) Check the correctness of cenvat credit availed on capital goods and the treatment of balance 50% credit
b) Cross verify the cenvat invoices with the Cenvat credit Register
c) Check the cenvat invoices to ensure that the details as to items and their description and the values and credits and the assessee name have been mentioned correctly
d) Cross verify the cenvat register/invoices with the Goods Received Note's to ensure that no credit has been missed out
e) Verify whether the assessee is availing credits in respect of tax paid on ELIGIBLE input services and cross verify the service bills with the service tax credit register
f) Cross verify the service bills with the bank payment vouchers/file to ensure that credit is taken only on those bills on which payment has been made
g) Verify whether Cenvat credit has been availed on materials used in R&D activity and check the eligibility of the same to credits
h) Check the totaling of the credits in the credit register
i) Check the margins being charged by dealers and note down cases where excess margin has been charged by them on their cost
j) Verify that the accounts support proper credit capture / availment?
10. Returns
a) Cross check the removal entries in the ER-1 Return/ER-3 Return with the details in the Daily Stock Account as to quantities, values and duty payable and tariff classification
b) Cross verify the duty payment and credit details of the return with the cenvat register and the PERSONAL LEDGER ACCOUNT and observe the miscellaneous payment details
c) Go through the ER-5 Return and note down the quantities of input required for a unit quantity of a particular product and perform an input output analysis based on the raw materials consumed and quantities manufactured for a particular period
d) Go through the ER –4 return and compare the details furnished with the financial figures
e) Go through the ER-6 Return and compare the details of the goods manufactured with the details furnished in the ER-1 Return
f) Ensure that the returns are filed in time and are properly acknowledged
11. Review of following reports
A Cost audit report
B Internal audit reports
c) Statutory audit report
d Our previous reports
e) Information security audit reports
f) Income tax reports
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