CHAPTER 19
AUDIT OF RECEIPTS
19.1 Under the Audit and Accounts Order, 1936 as
adapted, audit of receipts accruing under Debt, Deposit and Remittance heads
and of those included in the subsidiary accounts of Government Commercial
undertakings devolved on the Comptroller and Auditor General under paragraph
13(1) of the Order and is conducted in such manner and to such an extent as may
be prescribed by him. The Comptroller and Auditor General may, with the
approval of and shall if so required by, the President or the Governor of
State, audit and report on the receipt of any Department of the Union or State
and for this purpose the President or the Governor may, after consultation with
the Comptroller and Auditor General, make regulations with respect of the
conduct of audit of such Department.
19.2 The position in this regard has undergone a
radical change with the coming into force of the Constitution. Article 151 of
the Constitution and Section 49 of the Government of Union Territory Act, lay
down that the Reports of the Comptroller and Auditor General of India relating
to the accounts of the Union/Union Territories with Legislature and the States
shall be submitted to the President or the Governor/Administrator, as the case
may be, who shall cause them to be laid before each House of Parliament or
Legislature. The reports of the Comptroller and Auditor General must relate to
the totality of the accounts of the Union and of the States and thus cover not
only the expenditure, but the receipts as well. Article 151 of the Constitution
and Section 49 of the Government of Union Territories Act, 1963 thus lay on the
Comptroller and Auditor General the duty for auditing the accounts, not only of
expenditure, but also of receipts of the Union/ Union Territories with
Legislature and the States.
The Comptroller
and Auditor General’s (Duties, Powers and Condition of Service) Act 1971
clearly reflected the above position by explicitly stating audit of all
receipts so the duty of the C&AG.
19.3 Due to historical reasons, the audit of receipts has not been so
pervasive as audit of expenditure. Receipts of the Customs, Public Works and
Forest Departments were audited by the Auditor General for a long time. The
checks exercised in audit were confined to seeing that (a) sums due are regularly recovered and checked
against demand; and (b) sums received are duly brought to credit in the
accounts. The detailed audit of receipts of the other major revenue earring
departments like Income Tax, Excise, Sales Tax etc., was taken up in 1960
Nature of Revenues
19.4
Government revenues, i.e. Government receipts other than those under
fund, deposit and loan heads of account, may be classified as tax revenues and
not-tax revenues. Taxes are collected by the State for general purpose of the
community; these do not involve any direct quid pro quo from the State to the
tax payer. Taxes are generally levied as direct taxes and indirect taxes.
Sometimes these are divided as personal taxes and taxes on services and
commodities.
19.5 Not-tax revenues, on the other hand, involve
some quid pro quo; these are, generally, receipts in return for supplies and
services rendered by the State and include contractual receipts like those from
sales of forest produce, gross revenues of service organizations or public
utilities like road transport or railways and also surpluses of State
commercial enterprises.
19.6 The levy and collection of a tax are
regulated by substantive and procedural provisions of a law. A Non-tax revenue, on the other hand, is
generally gover ned by a contract, a tariff or general financial rules and
regulations. A tax assessment is a quasi-judicial act; a non-tax revenue is
purely an administrative decision. This distinction governs the principles of
audit of the two tax revenues.
🔲.
Assessment to tax is a .....................Action.
(A)
Statutory
(B)
Quasi-judicial
(C)
(D)
Judicial
Statutory Authority
19.7 With the passing of the Comptroller and
Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971 the
audit of all receipts is vested in the Comptroller and Auditor General under an
express provision in the Act in the following words:
“It shall
be the duty of the Comptroller and Auditor General to audit all receipts which
are payable into the Consolidated Fund of India and of each State and to
satisfy himself that the rules and procedures in that behalf are designed to
secure an effective check on the assessment, collection and proper allocation
of revenue and are being duly observed and to make for this purpose such
examination of the accounts as he thinks fit and report thereon”.
19.8 The Comptroller and Auditor General now audits all tax and
non-tax receipts of the Union, States and Union Territories. The more important
of these receipts are:
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🔲. Sales
Tax is a:
(A)
Indirect tax of the union
(B)
Direct tax of the union
(C)
Indirect tax of the state
(D)
Direct tax of the state
19.9 Interpretation of law is a judicial
function. Audit his therefore, to be regulated mainly with regard to the
statutory provisions as judicially interpreted. Audit may well point out cases
where there is an apparent lacuna or loophole in the law or where certain
provisions in their actual working do not apparently bring out the true
legislative insertion. As for the rules, regulations and instructions issued by
the Revenue Departments under their delegated powers, or the exemptions granted
by them, Audit has to see that these are issued by competent authorities after
following the procedures prescribed by law and in accordance with the
guidelines laid down in the law.
Function of Audit
19.10 The most important function of audit is to
see (1) that adequate regulations and procedure have been framed by the Revenue
Department to secure an effective check on assessment, collection and proper
allocation of taxes; and (2) to satisfy itself by adequate test check that such
regulations and procedure are actually being carried out. Audit also makes such
examination as it thinks fit with respect of the correctness of the sums
brought to account.
19.11 The Audit Department does not, in any
substitute itself for the Revenue Authorities the performance of the statutory
duties, but Audit satisfies itself in general that the departmental machine is
sufficiently safeguarded against errors and fraud, that so far as can be
judged, the procedure is calculated to give effect to the requirements of law.
19.12 It is not the duty of Audit to review a
judicial decision nor does it consider it any part of its duty to passes in
review the judgment exercised or the decision taken in individual cases by
officers entrusted with those duties, but it must be recognized that an examination
of such cases may be an important factor in judging the effectiveness of
assessment procedure. Where, for example the information available on an
individual case is insufficient, to enable audit to see how the requirements of
the law have been complied with Audit may consider it its duty to ask any
further information to enable it its duty to ask any further information to
enable it to form the judgment required of it as to the effectiveness of the
system. It is, however, to forming a general judgment, rather than to detection
of individual errors of assessment etc. that the audit enquiries should be
directed. The detection of individual errors is an incident rather than an
object of audit.
19.13 Any obvious errors in computation of
assessment etc., can be pointed out in audit leaving it to the administrative
authorities to set right errors by adopting such legal course as they may deem
necessary.
19.14 Where any financial rule or order
applicable to the case prescribed the scale or periodicity of recoveries, it
will be the duty of Audit to see as far
as possible, that there is no deviation without proper authority from such
scale or periodicity. When this check cannot be exercise centrally, a test
audit may be conducted local inspections, the aim being to “apart from due
realisation of particular debts” of rules or defects of procedure are not such
as to lead to leakage of revenue.
19.15 Ordinarily, audit will see that the
internal procedure adequately secures correct and regulating accounting of
demands, collections and refunds that no amounts due to Government are left out
standing on its book without sufficient reasons and that the claims are pursued
with diligence and are not abandoned or reduced except with adequate
justification and with proper authority. Audit should carefully watch any
outstanding dues and suggested to the departmental authorities any feasible
means for their recovery. Whenever any dues appear to be irrecoverable, orders
for their waiver and adjustment should be sought. But unless permitted by any
rule or order of a competent authority no sums may be credited to Government by
debit to a suspense head. Credit must follow and not precede actual
realization.
19.16 To sum up, the most important function of
Audit in relation to assessments, collections and refunds is to satisfy itself
by such test checks as it may consider necessary that the internal procedure
adequately provides for and actually secures:
(1) the collection and utilization of data necessary for the
computation of the demand or refund under the law;
(2) the prompt raising of demands on tax payers
in the manner required by law;
(3) the regular accounting of demands,
collections and refunds;
(4) the correct accounting and allocation of
collections and their credit to the Consolidated Fund;
(5) that proper safeguards exist to ensure that
there is no omission or negligence to levy or collect taxes, or to issue
refunds;
(6) that claims of tax payers are pursued with
due diligence and are not abandoned or reduced except with adequate
justification and proper authority;
(7) that double refunds, fraudulent or forged
refund orders, or other losses of revenue through fraud, default or mistake are
promptly bought to light and investigated.
19.17 The procedure prescribed for raising and
pursuing audit objections in relation to expenditure including power of Audit
Officers to waive recovery of Government dues under certain conditions shall
apply mutatis mutandis (=à´®്à´¯ൂà´Ÿ്à´Ÿാà´±്à´±ീà´¸് à´®്à´¯ൂà´Ÿ്à´Ÿà´¨്à´¡ിà´¸് à´µിശദവിവരങ്ങളിà´²് ആവശ്യമാà´¯ à´േദഗതി വരുà´¤്à´¤ിà´¯ിà´Ÿ്à´Ÿ്, à´¯ോà´œിà´š്à´š à´®ാà´±്റങ്ങളോà´Ÿെ)in respect of audit objections on any account of
receipts.
Customs Audit
19.18 The audit of customs revenue is limited to
receipts under the Customs Act, 1962 and includes all receipts of every description
under that Act Customs Revenue is collected at the various Customs Stations
comprising Customs Ports, land customs stations and Customs Airport. The audit
of the various customs stations is entrusted to the Accountants General, Bihar,
Gujarat, Kerala, Punjab, Rajasthan, Tamil Nadu, and Uttar Pradesh and Directors
of Audit Central Bombay, Central Calcullta and Central Revenues, New Delhi
according to the locations of the Customs stations in their respective
jurisdictions.
19.19 The audit of customs documents is a test
audit on a percentage basis conducted by resident audit parties stationed in
major customs houses. Particular cases are taken up for audit and followed
through the various prescribed processes to see that the regulations and
procedures have been observed and indicate no defect in system or laxity on the
part of the executive. The audit so conducted is purely financial and not in
the nature of an administrative audit or inspection, The audit of Customs
documents may be broadly categorized under two parts:
(i) The day-to-day scrutiny of current documents
in the customs house involving a general review of all such documents and the
detailed check of the percentage of them. These documents are (a) bills of
entry; (b) shipping bills; (c) bills of export; (d) in-to and ex-bond bills;
(e) baggage declarations and baggage duty receipts; and (g) postal transactions.
(ii) Audit of ships file (import and export). It
is at this stage that ordinarily the audit of procedure is carried out and
audit sees that the department accounts satisfactorily for all goods which
enter the customs area and also for those liable to duty which are exported
there from.
19.20 The audit staff also carries out a test
check of payments like refunds, and drawbacks to see that they are in
accordance with the statutory provisions, rules and regulations.
Audit of Central Excise Duties
19.21 Central excise duty is levied and collected on all excisable
goods which are produced or manufactured in India as and at the rates set forth
in the first schedule of the Central Excise and Salt Act, 1944. Audit of
Central Excise Receipts and Refund mainly consists in seeing that the rates as
laid down in the first schedule have been correctly applied as per tariff
description and classification and that the levy and collection of duties,
including granting of refunds, are in accordance with the statutory provisions
of the Act and the rules made there under.
19.22 Central excise control, including levy and collection of duties
on excisable goods, now operates under two different systems, viz.
(a) Physical Control
(b) Self-removal Procedure
(a) Physical control- Under this system,
production and clearance of excisable goods is, inter alia, subjected to daily
physical supervision by the Central Excise Officers without whose approval as
recorded in the various assessment documents and the gate passes, no goods, can
be removed outside the factory.
(b) Self removal procedure- Under this system, a
manufacturer can himself remove the goods from the factory on payment of duty
in the prescribed manner without the intervention of any Central Excise
Officer. A manufacturer is required to file a monthly return in the prescribed
form to the Central Excise Office (in charge) for scrutiny of the value or
quantity of goods removed and finalization of assessment.
19.23 The system of physical control previously applicable to all
excisable commodities has now been restricted to a few commodities, viz.
Khandsari Sugar, unmanufactured tobacco, all types of mineral oils, paints and
varnishes, paper cotton yarn and fabrics, jute manufactures. All other
commodities come under the system of self-removal procedure (e.g. tea, steel
products, wireless receiving set, patent and proprietary medicines, motor
vehicles, etc.).
19.24 In respect of units governed by the self
removal procedure, it has been made obligatory on the part of an assessee to
produce all the accounts and return (whether the same are prescribed under the
statute or not) to the audit parties.
19.25 The audit of central excise receipts is
conducted at two levels:
(a) Review and test check of all initial
assessment documents maintained by central excise ranges and factory/ warehouse
units under both the systems (i.e. physical control and self-removal
procedure); this is done by the peripatetic parties.
(b) Review of the work of departmental internal
audit conducted by the chief accounts officer for each central excise
collectorate. This is done by a concurrent audit party.
19.26 The Chief Accounts Officer receives copies
of most of the initial assessment documents from the range/factory officer for
internal scrutiny and record. He also deceives a copy of duty paying account
(viz. treasury challans in Form AR I or DDI as the case may be) independently
from the Treasury Officer. Audit undertakes a review of the check exercised by
the chief accounts officer and sees that the prescribed percentage of checks is
being followed by him. It is also the duty of audit to satisfy itself that the
system of check prevalent in the subsidiary records and registers maintained by
the Chief Accounts Officer’s office are adequate and properly designed to
detect irregularities. Audit has in particular to ensure that every assessment
document is duly vouched for by treasury challans or other duty-paying
documents which are independently supplied by the Treasury Officer to the Chief
Accounting Officer. This check provides the most effective safeguard against
payment of duty by licensees under forged treasury challans.
19.27 The broad outlines of the techniques of
central excise revenue audit including those followed by the peripatetic
parties, may be stated as follows:
(a) A study should be made of the manufacturing
process of the commodity/ commodities concerned with special reference to the
raw materials used and the excitability or otherwise of products formed in the
intermediate stage, with a view to satisfying in audit that duty is levied on
all excisable materials and that the charge to duty is raised as soon as the
goods are in a fully manufactured condition, and not deferred to a subsequent
stage.
(b) Correctness of the classification of goods
for the purpose of assessment should be invariably examined from all possible
angles.
(c) Any assessment at Concessional rate of duty
should be supported by an appropriate exemption notification. It should be
specially seen whether the notification has been correctly applied.
(d) Executive instruction of the Central Board
of Excise and Customs authorizing non-levy/ concessional levy should be
carefully examined in audit.
(e) Where the classification and the rate of
duty depend on the test reports of the Chemical Examiner, they should be
scrutinized in detail.
(f) All kinds of processing loss and storage
loss should be examined to see that the losses were properly attributable to
bonafide causes and were not unduly more than what could be justified by
genuine causes like drayage etc.
(g) Movement of goods enjoying special
concession/exemption for their use in specified industrial processes should be
examined with reference to relevant documents to ensure that goods were not
diverted for other uses.
(h) In respect of goods falling under the self
removal procedure the raw materials should be correlated with the finished
product with the help of the master formula of production which the licensee is
required to submit to the Collector. Other collateral factors like labour, fuel
etc. should wherever possible be taken into account in examining this aspect.
(i) Judicial decisions and standard definitions
given by Indian Standard Institute and other recognized bodies should be
applied with a view to interpreting the tariff in case of doubt and determining
the correct basis of assessment.
Export of excisable goods outside India
19.28 Under the central excise rules full rebate
of duty paid on excisable goods exported out of India is admissible subject to
certain conditions as laid down under the rules. Goods can also be exported
under bond without payment of duty. Apart from the fulfilment of certain
factors regarding the periods during which (i) the goods are to be exported and
(ii) the claim for rebate is to be put up, etc. it should be specially seen in
audit that no rebate of duty was granted on accidental losses of duty paid
goods occurring between completion of excise formalities on shore and shipment.
The rebate allowed should be restricted to duty equivalent of the quantity of
goods actually exported.
Audit of refund bills
19.29 Claims of refunds arise in the following
cases:
(1) Rebate of duty on goods outside India;
(2) Revision of duty when the duty ahs already
been paid;
(3) Ad hoc refunds allowed by Government to
encourage the production of expert of certain goods;
(4) Cost of damaged labels, unused central
excise stamps, license fees on rejected applications;
(5) Fines and penalties subsequently waived. While conducting audit of refund bills, the
prescribed checks are exercised by audit.
Modvate
scheme
19.30 Modified Value Added Tax has been
introduced through the Finance Act, 1986 and has been effective from March 1,
1986.
19.31 The MODVAT scheme allows the manufacturer
to obtain instant and complete reimbursement of the excise duty paid o the
components and raw materials used as inputs for the final product. The scheme
has been introduced for all goods covered by 73 specified chapters of the
Central Excise Tariff Act, 1985 excluding the following:
Tobacco;
Mineral
oils etc;
Matches;
Specified
chemicals; and
Textiles
and Textile articles.
19.32 Proforma credit given will cover both excise duty and additional
duty of customs also known as counter-vailing duty. Items outside these
chapters availing proforma credit and benefits of set off under any erstwhile
schemes would be allowed to continue to get relief to the extent the revised
tariff headings permit. However, the MODVAT scheme and the erstwhile schemes to
the extent they are continued, will be mutually exclusive.
19.33 Audit of Receipts under MODVAT scheme is done by verifying that:
(i) MODVAT credit is allowed only when the inputs and
final products fall under any of the 73 Chapters prescribed in the scheme.
(ii) In respect of the intimation which the manufacturer
has to send to the concerned Assistant Collectors about the articles on which
he proposed to have MODVAT credit and the product that he would manufacture out
of those articles, the dated acknowledgement has been obtained and that the
articles used and final product manufactured correspond to his earlier
declaration.
(iii) MODVAT credit is not allowed in cases
where the final product manufactured is assessable to nil rate of duty or is
wholly exempt from duty.
(iv) The credit taken in respect of duty paid on
raw materials or component parts should be checked with reference to the
amounts of duty mentioned on Gate pass, ARI, Bill of Entry or any other
document accompanying the raw materials or component parts evidencing the
payment of duty.
(v) Where the same input is used for different
finished products, some of which are not dutiable, credit is taken for that
part attributable to inputs which are
used for the manufacture of dutiable finished products only.
(vi) It has to be seen that MODVAT is not made
available for duty paid on non-consumable capital goods used for the manufacture
of final products.
(vii) In so far as allowing credit of duty is
concerned, it has been allowed in relation to Basic excise duty, special excise
duty and counter-vailing duty only and such credit has been utilized for
payment of basic excise duty only; and
(viii) The excise duty paid on inputs removed
for home consumption or for export under bond with the permission of the
Assistant Collector is not less than the credit taken by the manufacturer
earlier.
State Receipts
19.34 The basis and procedure for levy and
collection of taxes and non-tax revenues are regulated by:
(a) Laws as are enforceable in different States.
(b) Rules framed under the relevant acts and
(c) Judicial decisions and executive
instructions interpreting the provisions of the Acts and Rules.
Auditor is therefore required to be fully
conversant with the relevant Acts and Rules of the respective Governments.