Should AG's Audit be allowed to visit factories and Premises of Service Tax Assessees?
THERE is a mistaken belief that CAG's Audit has a constitutional mandate and power to visit factories and other premises to audit for Central Excise and Service Tax. In fact the AG's Audit gets its power to visit the offices of the Central Excise and Service Tax assessees by virtue of the power given under the Central Excise Rules and Service Tax Rules and these rules are made by the Government means Board. So the Board has simply invited the AG Audit to come and act like a bull in its China shop!
In fact the Kelkar Committee had recommended that “Rule 22(3) of the Central Excise Rules, 2002 may be amended to exclude reference to audit party deputed by the CAG so that they need not visit the tax payer's premises.”
For the assessees it is a regular nuisance to attend to the periodic visits of the Auditors from the AG's office. 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 Local 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. 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.
Somebody once remarked that an Accountant General is an accountant who gets the salary of a General.
When CAG does not audit assessees under Income Tax, Customs, VAT, State Excise, Municipal taxes, why only Central Excise and Service Tax assessees should be subject to this torture by CAG Audit?
CBEC should have followed Kelkar's advice and removed the power of AG Audit to visit factories and the entire industry would have been grateful to the Board!
If you look deep, you will realise that the AG is responsible for all the pendency. Look at this real example. The AG raised an objection about a particular exemption which is crystal clear to everyone except the AG. The department has issued SCNs and is continuing to issue SCNs. They are not able to adjudicate the issue as they all know that the Audit objection is outright stupid. And they hope that one day wisdom will dawn on the portals of Audit Bhavan and the objection will be dropped. No such chance. AG makes it a Draft Audit Para and now nobody in the department will touch the case with a barge pole. The assessee continues to get SCNs for the last twenty years. And the latest objection from the AG- SCNs are pending for the last twenty years involving Crores of rupees. Why? Because of the AG!