EA 2000 Audit - some facts - Where is risk review?
WE got this mail from a concerned Netizen:
During the year 2011-12, 22534 units were audited and total recovery (including under protest) is 1243 crores. This data is based on the report released by Directorate General of Audit.
100 Commissionerates, each one having audit wing, collecting 1243 Crores per year (including under protest) means 12.43 Crores per Commissionerate per year. This is mere 0.21 percent of the total indirect tax collection of Rs. 6 lakh crores.
This could be assumed that 99.80 % collection is coming in spite of the audits. If the registered assessees are paying 99.80% of the tax due, it is appreciable and must not be subjected to this mechanical audit each year without any risk to revenue.
Recovery per assessee audited, comes to an abysmal Rs. 5 lakh in a year. This suggests that there is no "risk based audit" but actually mechanical audit without any risk/desk review.
Audit staff in a Commissionerate could be 20 persons comprising inspectors and superintendents plus DC, JC, and may be commissioner.
Out of 22534 (if not all), at least half will be issued SCNs.
Ripple effect on litigation machinery including CESTAT, Commissioner Appeals, Range Staff and all the assessees, lawyers.
Tons of paper will be used for audit reports for each assessee, issuing SCN, reply to SCN, filing appeals with Commissioner Appeals, CESTAT and in few thousand cases to the High Courts and Supreme Court.
Audit Report - 22500 reports, at least comprising 6 pages, 5 copies = 6,75,000 pages which equals to 1700 reams of paper.
SCN - 12000 * 10 pages each * 5 copies = 1500 reams of paper
Reply to SCN - 12000 * 20 pages * 5 copies = 3000 reams of paper
Order-in-original - again 3000 reams of paper
Appeal to CA - at least equal to reply to SCN plus OIO plus annexures, conservatively - 12000*20 SCN pages plus 20 OIO pages plus 20 pages of annexures * 5 copies = 9000 reams
Appeal to CESTAT - at least equal to CA - again 9000 reams
If half of these cases landed at HC/SC - again 5000 reams
Total paper consumption could be - 1700+1500+3000+3000+9000+5000 = 23200 reams of paper
This is exclusive of the printed data sheets which will be prepared by the assessee during audit and the documents submitted to audit department before and after the audit. Few correspondences between audit and assessee, audit and range, notices, personal hearings, additional submissions and so on..
Besides the documents asked before the audit includes photocopies of the following documents for last three years (during each audit).
Balance sheet, Trial Balance, Income Tax audit report (3 CB), Cost audit report, sales tax returns, income tax returns, GLs, Registration Certificate/ copies of returns/ intimations/ permissions and many other documents. In some cases this may contain a full load of index file (400 - 500 pages).
Cost of audit and litigation could be more than the amount collected, leave aside the man-days lost for assesses and burden on the courts/tribunals plus the space required to stores these mountain of papers in the offices across the country.
This is high time to review the EA audit process and requirement.
In fact audit must be based on the "actual risk review" and the DG Audit should be accountable for the number of audit conducted vis-à-vis the recovery. If the recovery is few lakhs of rupees from an assessee, means that the "risk review" is farce and audit is without real objective but ………
There is no departmental audit in income tax and the collection is much more than the indirect taxes collectively. There is no departmental audit in VAT and collection is notches higher than the excise, customs and excise duty.
Introduce a process similar to income tax and VAT where annual audit report from an independent chartered accountant is submitted to the department - Ease of doing business.
Depute the audit staff to look into "un-registered" category.
Minimum Government - Maximum Governance - Go Green - Swachh Bharat