Report of the Comptroller and Auditor General

of India

for the year ended March 2015

Union Government Department of Revenue

(Indirect taxes – Central Excise) Report No. 2 of 2016

Laid on the table of Lok Sabha/Rajya Sabha on ____________

Table of Contents

Contents Pages

Preface (i)

Executive summary (iii)

Chapter I : Department of Revenue – Central Excise 1-22

1.1 Resources of the Union Government 1

1.2 Nature of Indirect Taxes 1

1.3 Organisational structure 2

1.4 Growth of Indirect Taxes - trends and composition 3

1.5 Indirect Taxes – relative contribution 3

1.6 Growth of Central Excise receipts - trends and composition 4

1.7 Central Excise receipts vis-à-vis Cenvat credit utilised 4

1.8 Central Excise revenue from major commodities 6

1.9 Tax base 7

1.10 Budgeting issues in Central Excise 8

1.11 Central Excise revenue forgone under Central Excise Act 8

1.12 Trade facilitation 9

1.13 Scrutiny of Central Excise returns 10

1.14 Refunds 12

1.15 Internal Audit 13

1.16 Call book 14

1.17 Arrears of Central Excise duties 15

1.18 Additional revenue realised because of Anti-evasion measures

16

1.19 Revenue collection due to departmental efforts 17

1.20 Cost of collection 18

1.21 Adjudication 18

1.22 Appeal cases 18

1.23 Non-furnishing of data and discrepancy in data furnished by the Ministry

20

1.24 Audit efforts and Central Excise audit products - Compliance Audit Report

21

1.25 Sources of information and the process of consultation 21

1.26 Report overview 21

Contents Pages

1.27 Remedial action taken on the Compliance Audit Report 21

1.28 Performance Audit Reports 21

1.29 Revenue impact of Audit reports 22

Chapter II : Central Excise exemptions for SSI units 23-33

2.1 Exemption to Small Scale Industries in Central Excise 23

2.2 Audit objective 23

2.3 Scope and coverage 23

2.4 Audit findings 23

2.5 Revenue foregone and collected 24

2.6 Inadequacy of monitoring mechanism 25

2.7 Non-fulfilment of conditions for Exemption 28

2.8 Cenvat Credit 30

2.9 Other Topics 31

2.10 Conclusion 33

Chapter III : Functioning of Director General of Audit and Its Zonal units

35-52

3.1 Introduction 35

3.2 Organization 35

3.3 Functions and process 36

3.4 Audit objectives 37

3.5 Scope and Audit coverage 37

3.6 Audit findings 37

3.7 Conclusion 52

Chapter IV : Tax Accounting and Reconciliation in Central Excise, Service Tax and Customs

53-107

4.1 Introduction 53

4.2 Accounting of Central Excise Duty 58

4.3 Effectiveness of Monitoring and Internal Control 71

4.4 Accounting of Service Tax 80

4.5 Effectiveness of Monitoring and Internal Control 89

4.6 Accounting of Customs Duty 92

4.7 Effectiveness of Monitoring and Internal Control 104

Contents Pages

4.8 Conclusion 107

Chapter V : Issue of Show Cause Notice and Adjudication Process 109-128

5.1 Introduction 109

5.2 Audit objectives 111

5.3 Scope of Audit and coverage 111

5.4 Audit Findings 111

5.5 Issue of SCN 111

5.6 Completeness of Show Cause Notices 115

5.7 Procedure of Adjudication 115

5.8 Adjudication of remanded cases 119

5.9 Effectiveness of monitoring and Internal control 121

5.10 Conclusion 128

Chapter VI : Non-compliance with rules and regulations 129-134

6.1 Introduction 129

6.2 Non-payment / Short payment of Central Excise duty 129

6.3 Cenvat credit 133

6.4 Other issues 134

Chapter VII : Effectiveness of Internal controls 135-151

7.1 Introduction 135

7.2 Audit findings 135

7.3 Internal Audit 135

7.4 Other lapses 147

Appendix I 153

Appendix II 154

Appendix III 156

Glossary 157