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CAG Audit of CBEC field offices vis-a-vis Industry's premises

FEBRUARY 08, 2011

By Saravanan R, Supdt. of C.Ex (System Admin)

THE new concept of audit proposed by the AG-CERA for switching the target of auditing unit from the assessee to the CBEC field offices is implied with many technological, establishment and administrative consequences for the CBEC. Proposed changes require sufficient pioneering project tests before it is launched. The CBEC itself is undergoing vast changes bundled in the Taxpayer Service-oriented ACES online automated project. This project was launched in the end of 2009 and it is only one year since its launch all over India. The ACES project is a critical mission mode project, encompassing many functional areas of the entire hierarchy of the CBEC field offices.

Though ACES is a taxpayer service, it is an overall performance-boosting measure with main emphasis on the accountability of revenue generation measures like complete accounting of all the demands, show cause notices, bank collections, cenvat credit tracking, reconciliation of exports and drawback, and many more. This e-governance project enables proper internal systemised auditing of all the executive functions discharged by the field officers. All the actions taken by the field officers can be easily tracked at any stage and remedial action can be taken at any level. All the human errors that might have occurred during the conventional functional style are now totally eliminated which can plug in the loopholes for revenue leak. Only the knowledge process of subtle analysis required to issue a show cause notice or an order-in-original or order-in-appeal only are left with for human intervention - all of which cannot be brought under algorithm of computerisation, while all the basic level functions including many of the auditing functions hitherto performed by audit groups, or even those performed by AG-CERA, are now computed by the ACES.

The architecture of assessment under ACES is so robust that the Returns filed by assessees are filtered at many levels and are auto-transferred to risk management system by computing many financial ratios of the transactions captured in the Returns by the Assessee. The industry has become so IT-savvy that auditors find it extremely difficult to audit the factory in the conventional mode, with many of the physical record system fully replaced with screen based journals and ledgers. Unlike in the physical mode, the online records are made accessible for the factory officers on the previleges set by the system, which has rendered the audit team unable to access the record at their convenience. The industry has also set up IT-savvy auditing firms to audit their IT strength through the auditors known as ISA (Information System Audit). However, the central excise dept. having adopted the EA2000 concept and the C.A.A.P. it has been able to weather the changes brought about by the industry. The factory's entire records of sales and purchases are now taken into a pen-drive or a DVD which is then run on the relevant software of C.A.A.P. to instantly detect the discrepancies that cannot be perceived easily by the human mind. The internal audit team's performance has always tracked the changes pioneered by the industry and the ACES project is the feather on the cap. The Dept. has always armed itself with the changing environment of the business houses.

The ACES project's efficiency is so huge and sharp that when the back-end data is built through the 'data-warehousing' and then intelligently analysed by the 'data-mining' to understand various permutations and combinations of the financial and accounting ratios in the entire arena of the business - like sourcing the inputs, manufacturing, marketing and selling - the resultant picture will display the entire needs of the policies for tax collection and tax recovery. However these advanced concepts of computing of ACES requires back-end data for the past periods, at least for three years.

Unfortunately, the Dept. has only a year's historical data, that too not properly arranged owing to certain changes that might not be possible for quick execution in the software requirement of the Scrutiny of Returns filed in the ACES. Once the glitches in the preliminary scrutiny is fully set right in the software end, then the scrutinized Returns are marked for risk assessment to be handled by the internal audit. It is only a matter of time until such resolution of glitches in the automated scrutiny of Returns are made. The earlier departmental software 'Sermon's database not being so accurate and may be for incompatibility of being migrated into the ACES, the new project currently lacks such old data. In due course, after a year or two, when the database becomes large, the full utility of the ACES can perhaps makes the auditors' job less easier or even obviate the basic functions of auditing.

Until then, it will be a transition period for entire department, with the officers being made to work both in the conventional paper-based transactions and simultanously working on the ACES to build up the database for future. In all the private enterprises or even PSU's or government departments, transition from paper-based functioning to online/screen-based working has been so painful that part of the workforce has left the job for want of ability to grasp the new work culture or lack of training in the new environment. Central Excise Dept. too is in the transition period now, with the loss of the morale of the officers due to increased workload, piling volume of transactions, lot of vacancies and stagnation in various cadres. When the Dept. is already under sagging morale, shifting the auditing event from the premises of the business houses to the controls of the CBEC may further damage the functioning of the department, even without the assumed multiplicity of assessee base on the eve of launching of the GST at the Centre.

Such sudden transformation without proper testing may result in large exodus of workforce unable to cope up with new changes that may threaten their career future. Even if such auditing is shifted to the CBEC field offices, with the prowess of the ACES software, any level of auditing can be done in the Directorate General of Systems and Management, with associated feeds from other Directorates like DGST, DGV, etc. If due privelege is given to the AG-CERA auditing can be undertaken from the macro level at the CBEC to micro level of a Range Office. The entire data in various levels may be available with the DGSM. Hence, before the concept of CERA audit is changed, sufficient field level project may be undertaken to study various aspect of the changes.

(The views expressed are strictly personal)

Sub: CAG Audit of CBEC field offices vis-a-vis Industry's premises

It is heartening to note that the Department is complating the idea of
switching the target of auditing unit from the assessee to the CBEC field offices. Though the anxieity of the author from Department perspective is understandable, he miserably fails to appreciate a crucial point that this sort of CAG audit visiting the Taxpayer's premises for conducting the audit is statutorily blessed only in the area of Central Excise. The CERA officials visit the Service Providers premises too for their audit eventhough they are not statutorily empowered in this regard. CAG officials confine their audit under other enactments like, Customs, Income Tax & Sales Tax/VAT by verifying the records at the respective field offices only. Only in Central Excise & Service Tax, the Tax payers are put to great inconvenience in extending hospitality to these CERA officials! It is not surprising that the author has no sympathy for the Tax payers who are put to unnecessary inconvenience owing to the frequent intrusions of CERA

Posted by raman jhffd