Internal Audit by Department - Not very vigilant - CAG
THE CAG observed, "One of the main compliance verification mechanisms in the department is the internal audit which carries out audit at assessee premises by following prescribed procedures including selection of assessee units based on risk parameters and scrutiny of records of the assessee to ascertain the level of compliance with the prescribed rules and regulations. Internal audit is empowered under Central Excise and Service Tax Rules, to access the records of the assessees at their registered premises. The Directorate General of Audit with its seven zonal units at Ahmedabad, Mumbai, Delhi, Bangalore, Kolkata, Chennai and Hyderabad is to provide a focal link between the Commissionerates (who actually run the audit process) and the Board on all audit-related matters. On the one hand, it aids and advises the Board in policy formulation and on the other, it guides and provides functional direction in planning, co-ordination, supervision and conduct of audits at the local level. Every Commissionerate has an Audit cell, manned by an Assistant/Deputy Commissioner and auditors and headed by an Additional/Joint Commissioner and this cell prepares, co-ordinates and monitors the audit plan. Internal audit parties consisting of Superintendents and Inspectors carry out this audit."
CAG attempted to check the efficiency of the selection process of assessees by internal audit cell of the department and actual audit done by the internal audit parties by verifying some assessee records already audited by the internal audit parties. And they found several issues not noticed by the Department's Audit.
Audit is the most lucrative section in the Department now and the consideration demanded for not raising audit points has shot up to lakhs of rupees. Assessees who have refused to budge to the high demands from Audit parties have found to their shock that it is much cheaper to pay off even lakhs to Audit parties than enter into litigation. The Audit can raise any objection on even issues settled long back. The Commissioners routinely approve these audit objections especially when huge evasion figures are shown. This results in a Show Cause Notice and the long process of litigation begins. You hire the best lawyers and plead before the learned Commissioner that the issue had already been decided in your favour by the Supreme Court. The Commissioner will come up with weird reasons for not following the Apex Court and one strong reason could be the assessee is different. He will demand duty for five years even if you were filing returns (which the officers were mandated to scrutinise and which they will not touch with a barge pole), impose an equal penalty and demand interest. He may also impose penalties on the officers of the Company. You have to make a pre-deposit for going in appeal. In the meantime even if your stay petition is pending, the Department will threaten you with attachment of goods and your bank accounts. Life will be made miserable and you will begin to realise that paying the auditor in the beginning of the story would have been the wisest decision. Sometimes wisdoms dawns a little late.