Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs)
Circular No. 1023/11/2016-CX
New Delhi, Dated the 08th April, 2016
To,
All Principal Chief Commissioners/Chief Commissioners of Customs, Central Excise
& Service Tax;
All Director Generals/Directors of Customs, Central Excise & Service Tax;
All Principal Commissioners/Commissioners of Customs, Central Excise & Service
Tax holding charge of Chief Commissioners;
Webmaster, CBEC
Subject: – Adjudication of Show Cause Notices issued on the basis of
CERA/CRA objection reg.
Madam/Sir,
Central Board of Excise and Customs has issued instructions from time to time
regarding adjudication of show cause notices issued on the basis of audit
objections of Central Excise Revenue Audit (CERA) and Customs Revenue Audit
(CRA), which is receipt audit wing of the Comptroller and Auditor General of
India. The pendency position of such notices in the Call-Book has been reviewed
and found to be larger than the number of audit objections which have been
converted into Audit Paragraphs. After due examination, it was felt that there
was a need to review the past practices and issue revised consolidated
guidelines to provide a clear procedure for the field officers to deal with the
CERA / CRA objections. The Tax Administration Reform Commission (TARC) report,
representations received form trade and inputs received from field officers also
indicated that there was a need to review past instructions to improve the ease
of doing business and bring certainty regarding tax liability of an assessee.
Accordingly, all past circulars and instructions on the subject are hereby
rescinded and following procedure is prescribed for dealing with audit
objections raised by CERA / CRA.
- An audit objection may mature into an Audit Paragraph and become part of
Audit Report periodically submitted by the office of CAG to the Parliament.
Various stages involved in the life cycle of an audit objection and the
timeliness prescribed for replying thereto may be noted and strictly adhered to
by the departmental officers. These stages and timeliness are as follows :
- Half Margin: Half margin/audit memo is issued to the Superintendent of the
Range during the course of audit on points noticed by CERA. The half margin is
to be replied to immediately and in any case before the end of the audit of
Range/Division/ Commissionerate concerned.
- Local Audit Report (LAR): LAR containing audit paragraphs is generally
issued by the headquarters of the local CAG Office to the Assistant/ Deputy
Commissioner generally within one month of the completion of the audit by the
headquarters of the Director General or Principal Director of Audit. The
Assistant/Deputy Commissioner is expected to reply to the LAR within thirty
days.
- Statement of Facts (SoF): SoF is issued to the jurisdictional
Commissioner/Addl. Commissioner on the major audit observations which may
feature in Audit Reports. It has been decided that SoF shall be replied within
six weeks where the audit objection is not contested. Where the audit objection
is contested and the amount of duty involved in the audit objection is rupees
fifty lakhs or less, SoF shall be replied with the approval of the Commissioner
and for audit objections involving higher amounts of duty, SoF shall be replied
with the approval of the Chief Commissioner. Detailed reasons for contesting the
audit objection should be recorded in the file quoting relevant case-laws and
circulars, if any.
- Draft Audit Para (DAP): Potential audit paragraphs considered fit for
inclusion in the Audit Report are issued by the CAG officer to the Ministry
(CBEC) as DAPs. CBEC is expected to reply to DAP within four weeks of its
receipt.
- Audit Paragraphs: CAG’s office, after considering the reply of the CBEC may
convert a DAP into Audit Paragraph. Audit Paragraphs are periodically compiled
and are submitted by the office of CAG to the Parliament in the form of a report
called Audit Report. CBEC is expected to furnish an Action Taken Note on each of
the paragraphs in the Audit Report. The ATNs received are examined by the office
of CAG and duly vetted ATNs are submitted to the PAC. The process of submission
of ATN, due vetting and submission to PAC is expected to be completed within
four months of submission of Audit Report. At both the DAP and Audit Para
stages, it is essential that field formations concerned give a detailed reply
including the present status of the objection to facilitate a meaningful reply
by CBEC.
Coordination Meetings:
- One of the reasons for pendency in adjudication of CERA/CRA objection is the
lack of mechanism for periodic reconciliation of the status of audit objections.
It has, therefore, been decided that a quarterly coordination meeting would be
held in each of the Zones by the officers of the revenue department with the
officers of CAG to ensure that the list of audit objections, replies given by
revenue and final view taken by CERA/CRA can be discussed. Chief Commissioner
shall identify a nodal officer, [preferably Additional Commissioner/ Joint
Commissioner, CCU] to coordinate and attend such meetings. An audit objection is
considered settled when the views of CERA/CRA and revenue converge due to either
CERA/CRA dropping the audit objection or revenue admitting the audit objection.
Issue of Show Cause Notice:
- 4.1 Audit objection at LAR and SoF Stage : Once an LAR or SOF is received, it
should be replied by the department forthwith. Based on the reply sent by the
department, they can be divided in following categories :
4.1.1 Where the department has agreed with the audit objection on merits: Audit
objections where department has agreed to the merits of the objections
constitute a large proportion of the audit objections. In such cases, Show Cause
Notices should be issued immediately. Such cases should not be transferred to
the Call-Book and should be adjudicated forthwith and revenue realized in cases
of confirmed demand at the earliest.
4.1.2 Where the department has not agreed with the audit objection on merits :
No show cause notice should be issued in cases where department has not agreed
with the audit objection on merits. In such cases audit objection should be
replied following the procedure laid in clause (iii) of paragraph 2.
4.2 Show Cause Notice at the direction of the Board: Where a contested audit
objection has become DAP and on examination it is found by the Commissioner
(PAC) or joint Secretary (Customs) in CBEC that the objection should have been
admitted, they may give necessary directions to the field to issue show cause
notice and adjudicate the case on merits.
4.3 No transfer to call-book: It may be noted that the procedure of transferring
the show cause notice arising out of CAG objection to call-book has been
discontinued and in future no such show cause notice should be transferred to
the call-book. Circular nos 162/73/95-CX dated 14.12.1995 and 385/18/98-CX dated
30.03.98 on transfer of cases to the call book arising out of CAG objections
stands amended accordingly.
Adjudication of Show Cause Notices :
- 5.1 Adjudication of SoFs/LARs not converted into DAP: SoFs/LARs are replied by
the Commissionerate and therefore these cases may be adjudicated after ensuring
that the reply given by the Commissionerate is available on record.
5.2 Adjudication of admitted DAPs/APs : DAPs are replied by the Ministry (CBEC)
and therefore adjudication of DAPs should be undertaken after ensuring that the
reply given by the Ministry (CBEC) is available on record.
5.3 Adjudicating authority is a quasi-judicial authority and is legally bound to
adjudicate the case independently and judiciously taking into consideration the
audit objection by CERA/CRA, reply of the department as referred above, reply of
the party, relevant legal provisions, case laws on the subject and relevant
circulars of the Board, if any. It is expected that the factum of SCN being a
consequence of CERA/CRA objection, would be incorporated in the brief facts of
the case in the adjudication order.
5.4 Where an issue was under audit objection and has been subsequently either
judicially settled, by say judgment of Hon’ble Supreme Court or where a circular
of the Board has been issued on the subject, further correspondence with the
Board on the audit objections, even if they have become DAPs, is not necessary
and such cases may be adjudicated on merits taking into consideration the latest
judgments and circulars.
Past Cases:
- 6.1 All audit objections relating to Central Excise and Service tax issued prior
to 1.3.2014 shall be compared with the pending Action Taken Notes (ATNs),
received from the office of CAG, enclosed as Annexure B with the Circular. For
Customs, the list shall be separately issued. Show Cause Notices (SCNs) relating
to audit objections figuring in the list should not be adjudicated and further
action may be taken on them in consultation with the Commissioner (PAC). The
rest of the objections stand finally vetted by CAG Audit with no further
comments which means that the reply of the department has been accepted by the
CAG office. SCNs relating to these objections may be taken up for adjudication
on merit, including those in the call-book, following the procedure prescribed
in paragraph 5.
6.2 For audit objections raised after 1.3.2014 and till the date of issue of
this circular, where SCNs have been issued, list of pending ATNs would be issued
in due course. These show cause notices pertaining to these objections may be
adjudicated, mutatis-mutandis following the procedure prescribed in paragraph
6.1 read with paragraph 5.
Application:
- All audit objections in Customs, Central Excise and Service tax received
after the issue of this circular or past audit objections where no show cause
notice has been issued shall be dealt as per the provisions of this circular.
- Difficulty, if any, in implementing the circular may be brought to the notice
of the Board. Hindi version would follow.
(Shankar Prasad Sarma)
Under Secretary to the Government of India
F. No. 206/02/2010-CX.6
ANNEXURE – A
DETAILS OF THE AUDIT OBJECTION
Sl. No. |
Commissionerate |
LAR/ So F No. |
DAP No. |
Audit Para No. |
Amount Involved |
Gist of the Objection |
Gist of the Department’s reply |
Relevant Board’s Circular/Instruction/Judgment, in any |
NOTE : The copy of audit objection and the reply should be enclosed with this
proforma.
|