Circular No. 1023/11/2016-CX
F. No.206/02/2010-CX.6
Government of India,
Ministry of Finance,
Department of Revenue,
(Central Board of Excise & Customs)
New Delhi, the 8 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subject are hereby rescinded and following procedure is prescribed for dealing with audit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.
Zs 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
1
: ~ —“ars-Te: SENS
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 :
(i) 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.
(ii) 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.
(iii) 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.
(iv) 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.
(v) 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:
3. 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.
9.3 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.
9.4 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:
7. 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.
8. Difficulty, if any, in implementing the circular may be brought to the notice of the Board.
Hindi version would follow. i ,
hex
1 \ 6 .
e 4 ‘
8
(Shankar Prasad Sarma)
Under Secretary to the Government of India
ANNEXURE- A
DETAILS OF THE AUDIT OBJECTION
Sl. | Commissione | LAR | DA | Aud | Amou | Gistof | Gistofthe | Relevant
No | rate /So |P_ | it nt the Departme | Board’s
F No | Par | Involv | Objecti | nt’sreply | Circular/Instru
No. a ed on ction/Judgment
No. , if any
NOTE: The copy of audit objection and the reply should be enclosed with this
proforma.
Para
wise
details
of
Status
of
Actlon
Taken
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(As
on
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Audit)
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With
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|
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|
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Report
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