Audit Alteram Parten
At the G-22 summit in Evian, France in June 2003, President Bush asked a question, “How many countries even audited their accounts?” India’s irrepressible Prime Minister Vajpayee retorted, “My problem is that I am tired with the number of audit objections that I receive.’’
Audit is no doubt an essential requirement but when Audit goes berserk and raises patently ridiculous objections, that throw overboard established systems and when babus refuse to take decisions for fear of Audit, it’s time we have a relook at the whole concept and process of Audit itself. Let us look at the scenario in Central Excise.
The long history of trouble starts with picking up the auditors for the great audit work. Once this preliminary courtesy is extended, neither the assessee nor the Central Excise officer can rest. After a few days of continuous audit, the Audit party issues half margin memos to the Superintendent of Central Excise in charge of the factory listing out their objections and the Superintendent is required to give his replies. Whatever be his reply, the objection is not closed. The Audit party goes and in due course the Audit report arrives and this time the AC/DC of the Division is expected to answer which means the paras will be sent to the ranges and the Superintendent will be required to answer, which means the paras will be sent to the assessees and he will be asked to answer the Audit paras. Some assessees take the help of consultants in replying to Audit paras for the department. Even before the AC/DC sends his reply, in most cases the objection is converted into an SOF( Statement of Facts) and now the Commissioner is involved and before you can say AG, it becomes a DAP ( Draft Audit Para) and now the Board is involved, which means, the Commissioner, DC, Superintendent and assessee are involved. By this time the files become bulky in all offices and with frequent transfers of officers within the department, nobody has any idea as to what the original objection was and then it is converted into a PAC matter and a group of Hon’ble Members of Parliament will summon the Commissioner and other officers to discuss the issue and things will revert to stage 1. In the mean time whether the department agrees with the audit objection or not, Show Cause Notices will be issued and they will be in different stages of adjudication, appeal or hibernation. Mountains of papers are created and thousands of man hours engaged in the great audit chase – finally nothing may happen and usually nothing does.
Of late, Audit has raised objections on the rules, notifications and Board circulars and auditors often remark, “we are a constitutional authority” and so believe they are not bound by ‘law’ created by the executive. Some of the objections raised by Audit have created comical situations. Immediately on receipt of an audit objection, the department is required to issue protective Show Cause Notices. Audit had raised objections that the abatement allowed from MRP for aerated waters is more than the permissible limit; 12% credit allowed for purchases from re rolling mills is too much; certain exemptions given to textiles are not correct and many more, some of which we chronicled in these columns recently.
Government issues notifications in exercise of powers conferred under the Act and the Audit’s audacity to question this power is logically fallacious. Can the AG ever know better than the Board as to how notifications are to be given? . But when Audit raised an objection, the field officers are required to give a notice and the notice would have to be to explain why duty cannot be demanded for the offence of following Government notifications! And Board directs that Show Cause Notice has to be given even when Audit attacks the law.
It will be a worthwhile exercise for the CAG to conduct an audit of his own offices to find out how much his objections have cost the exchequer and the assessees and how many of the objections were sustained in Tribunal and above. Above all the CAG should realise that an overdose of Audit will lead to a stage when Audit will have to face total non-cooperation from the audited, as the Income Tax Department seems to have already done as reported in these columns yesterday. What will the Audit do if records are not made available to them? Does the Audit have the machinery to prosecute for non-production of records? And should Audit be more loyal than the King?