Professional Documents
Culture Documents
Manual Customs PCA
Manual Customs PCA
Manual Customs PCA
Manual For
Customs
Post Clearance Audit
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PCA MANUAL
TABLE OF CONTENTS
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PREFACE
In recent years, Central Board of Indirect Taxes and Customs has laid significant emphasis
on trade facilitation measures by reducing controls and procedures exercised at the time of
clearance of imported and export goods. At the same time, Board is aware that certain
controls are essential for revenue realisation and ensuring compliance to laws of the land.
With the increase in facilitation levels at the time of import, it has become imperative to
strengthen the post clearance audit. As a step towards strengthening the post clearance
audit, three Audit Commissionerates at Delhi, Mumbai and Chennai have been created in the
year 2017. These Commissionerates are expected to verify the records/declarations made by
the importers or exporters or other auditees in terms of provisions laid down under the
Customs Act, 1962 or any other law of the land. This Manual provides the details with
regard to types of audit that would be carried out and check lists/tools/procedure to
effectively carry out such audit. However, it should be noted that the purpose of this
manual is to serve as a guide or advisory and it is neither exhaustive nor legally binding. All
concerned are advised to peruse the Statutes, Rules, Regulations as well as Board’s Circulars
for ascertaining the correct legal provisions. The Check-lists have been appended to the
Manual as a sample ready reckoner. The Audit Commissionerate should endeavor to update
the Check lists at a regular interval for making audit process more effective.
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CHAPTER 1
INTRODUCTION TO CUSTOMS POST CLEARANCE AUDIT (PCA)
TRANSACTION BASED AUDIT (TBA), THEME BASED AUDIT
(ThBA) AND PREMISES BASED AUDIT (PBA)
1.1 INTRODUCTION
1.1.1 Customs Post Clearance Audit (PCA) is an initiative based on global best
practices. It is aimed at creating an environment of increased compliance while
allowing the Department the flexibility to enhance the facilitation for importers and
exporters. PCA allows Customs to reduce border controls by shifting compliance
checks from the clearance stage to the post clearance stage. Checks conducted at
the point of clearance can be time consuming and hinders smooth and timely
clearance of goods. Further limited documentation available at the time of import or
export does not provide a comprehensive view of a commercial transaction. It often
becomes difficult for Customs officers to properly assess custom duties and ensure
compliance within the short time available to them. Delay in clearance of goods
results in an economic cost to the traders and the economy as a whole. Customs
administrations, therefore, now concentrate their controls on the post-clearance
environment, whilst retaining selective and targeted checks at the frontier. It may
however be noted that border controls cannot entirely be done away with, but must
be used in cases where the risk to revenue or public health and safety cannot be
postponed. PCA enables Customs to apply a risk based control approach by moving
from a transaction based control environment at the border, to a stronger audit
based compliance verification system. PCA is recognized as an effective tool to
measure and improve compliance through a structured examination of the business
environment and commercial system of the importer/exporter. PCA promotes a
culture of voluntary compliance.
1.1.2 In Indian Customs, Post clearance audit was first introduced in 2005 (when
the Risk Management System was operationalized). It replaced the conventional
system of concurrent audit, which formed a part of the assessment process by
separating audit function from assessment function, thereby facilitating expeditious
clearance of goods. A risk-based approach was adopted to assess cargos compliance
with trade laws and regulations. In the year 2011, the concept of self-assessment
was introduced, which placed more trust on the importers and exporters.
Simultaneously, Onsite Post Clearance Audit (OSPCA) was also introduced in 2011,
which envisaged a more comprehensive audit carried out at the premises of
importers and exporters.
1.1.3 With the increased expectations of trade and business for faster clearances of
goods and for reduction in time and cost, it has become necessary to enhance the
facilitations level for trusted and compliant stakeholders. Based on the internal
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experience gained over the years and with exposure to international best practices,
need for a new audit approach has been felt. The present Customs Audit Manual
explains the principles behind such an approach and procedure for conducting three
types of customs audit i.e Transaction based audit (TBA), Theme based audit (ThBA)
and Premises basedAudit (PBA). Technological transformation in implementing the
mandates of Customs functions, increases the need to keep the Audit procedures up
to date. Further, based on the experience and feed-back from Audit Officers,
Customs formations and various stakeholders, there is a need to review, improve,
and update this Manual periodically.
1.2 Legislative framework for Post Clearance Audit and Customs Audit
Regulations, 2018
1.2.1 Hitherto, PCA was conducted under section 17(6) of the Customs Act, which
restricted the scope of audit to assessment of duty. As per the new scheme
introduced in Budget 2018, the endeavor is to audit the assessment and also to
verify compliance of an auditee with the various provisions of the Customs Act and
other allied laws in respect of imported or export or dutiable goods, as a means to
measure and improve compliance. A new Section 99A (under Chapter XIIA) has
been introduced in the Customs Act 1962, to provide a statutory framework for the
procedure for conducting post clearance audit. Section 99A is reproduced below:
99A. The proper officer may carry out the audit of assessment of imported goods or
export goods or of an auditee under this Act either in his office or in the premises of
the auditee in such manner as may be prescribed.
Explanation. ––For the purposes of this section, “auditee” means a person who is
subject to an audit under this section and includes an importer or exporter or
custodian approved under section 45 or licensee of a warehouse and any other
person concerned directly or indirectly in clearing, forwarding, stocking, carrying,
selling or purchasing of imported goods or export goods or dutiable goods.’.
1.2.2 A new clause (k) has been inserted in Section 157 of the Customs Act to
enable the Board to frame regulations in accordance with the new Section 99A of
the said Act. Clause (k) of Section 157 reads as:
1.2.3 Earlier, Board had issued ‘On-site Post Clearance Audit at the Premises of
Importers and Exporters Regulations, 2011’, which have now been replaced with the
new Regulations, [Customs Audit Regulations, 2018 issued vide Notification No.
45/2018-Cus (NT) dated 24.5.18].
1.2.4 Board vide Notification No. 39/2018-Customs (N.T.) dated 11th May, 2018 has
appointed officers of Customs of specified ranks as officers of Customs Audit for the
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purpose of carrying out audit under section 99A of the Customs Act, 1962. The
specified officers have also been empowered under Section 17 and Section 28 of
the Customs Act, 1962 vide Notification No. 40/2018-Cus (NT) dated the 11th May,
2018 which shall enable them to issue necessary show cause notices based on the
findings of audit.
1.2.5 As per the scope and coverage of audit under the PCA regime, not only
transaction level details but more importantly the trader’s commercial systems are
also to be evaluated for compliance. This may necessitate the audit of the entire
gamut of persons/companies directly or indirectly involved in the transactions of
export and/or import of goods. It may also be noted that as per the new Section 99
A of the Customs Act, the definition of auditee is not limited to importers and
exporters alone but extends to other entities who are concerned with imports or
exports. This extended definition now makes all entities liable for audit, as per
departmental instructions/ Circulars. The extended scope of audit coupled with
theme based audit and Premises based Audit would allow Customs to develop an
overarching framework of compliance and facilitation. In this manual, ‘proper
officer’, who conducts audit under the PCA procedure shall for convenience sake be
referred to as ‘auditor’.
1.2.6 CBIC has issued “Customs Audit Regulations, 2018”. These Regulations
explain in detail the rights and obligations of the auditees. They also explain the
manner in which the audit shall be conducted.
1.3.1 With the simplification, modernization and harmonization of export and import
procedures among the member countries of WTO and WCO, the scope of PCA can
be understood by reference to its usage internationally. PCA or audit-based controls
are defined by the Revised Kyoto Convention as measures by which the Customs
satisfy themselves as to the accuracy and authenticity of declarations through the
examination of the relevant books, records, business systems and commercial data
held by persons concerned.
1.3.2 Further, Revised Kyoto Convention, under General Annex, states the
following: -
“Chapter 6
6.10. Standard
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The Customs shall evaluate traders’ commercial systems where those systems
have an impact on Customs operations to ensure compliance with Customs
requirements.”
“5 Post-clearance Audit:
5.1. With a view to expediting the release of goods, each Member shall adopt
or maintain post-clearance audit to ensure compliance with customs and
other related laws and regulations.
1.3.4 WCO Tools: In the WCO “Guidelines for Post-Clearance Audit (PCA)
Volume-I” adopted by the Council in June 2012, the WCO has defined the PCA
process as a “structured examination of a business’ relevant commercial systems,
sales contracts, financial and non-financial records, physical stock and other assets
as a means to measure and improve compliance.” WCO has issued further
guidelines for PCA, as part of the Revenue Package. WCO “Guidelines for Post-
Clearance Audit (PCA) Volume-I”, is an open document while Volume II if
restricted for Customs Administration only and contains detailed guidelines for
conducting audit.
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1.4.2 Transaction based audit (TBA) was introduced in 2005 (when the Risk
Management System was operationalized). TBA is different from Onsite Post
Clearance Audit (OSPCA) that was introduced in 2011. TBA, which is done in the
Customs Houses, continued side by side with OSPCA, the latter being done at the
premises of the importers / exporters. Although TBA is not as thorough as a field
audit on site, it uses fewer resources and acts as a reminder to business/trade that
Customs are monitoring their activities. It should also be noted that a TBA may
subsequently involve a field audit, if deemed necessary, in order to examine an issue
/entity in more detail.
1.4.3 CBIC vide Circular No. 43/2005-CUS, dated 24th November 2005, stated the above intent
in clear terms. Extract of Para 6 is as follows: “The existing system of concurrent
audit shall be abolished and replaced by a Post-Clearance Compliance
Verification (Audit) function. The objective of the Post Clearance Verification
Programme is to monitor, maintain and enhance compliance levels, while reducing
the dwell time of cargo. The Risk Management System (RMS) will select the bills of
entry for audit, after clearance of the goods, and these selected bills of entry will be
directed to the audit officers for scrutiny by the EDI system. In case any possible
short levies are noticed, the officers will issue a Consultative Letter setting out the
grounds for their view to the Importers/Customs Brokers. This is intended to give
the importers an opportunity to voluntarily comply and pay the duty difference if
they agree with the department's point of view. In case there is no agreement, the
formal processes of demand notices, adjudication etc. would follow. It may also be
noted that the Audit Officers are specifically being instructed to scrutinize
declarations with reference to data quality and advise the importers/CB/CHAs
suitably where the quality of their declarations is found deficient.”
1.4.4 Premises based Audit (PBA) Under this Audit process, the legal
compliance and correct assessment of Customs duties will be verified by the
Customs at the premises of importers, exporters and other related entities felt
necessary in the completion of this process. In PBA, Customs would review the
imports and exports over a given period and checks all relevant commercial records,
including financial statements and contracts to verify the particulars given in a goods
declaration. PBA would enable the department to bridge the communication divide
and usher in a new era of partnership with trade. The amount of information to be
examined by the Audit officers under PBA is potentially large and depends on the
length of time lapsed, since the previous audit of the business in question. However,
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a complete picture of the business can be captured during the audit, including
details of business systems, trading methods, partners, etc.
1.4.5 Theme based audit (ThBA) provides for review of data relating to the
entire business activity for a particular commodity, industry or issue. It provides a
systematic approach to data collection and an analysis of data to determine the
likelihood of non-compliance. This type of audit may in some situations entail audit
at the premises of the auditee. The results of the audit are useful for peer review of
importers/exporters across a specific industry. Further, Audit would be able to
provide a valuable feedback on the levels of compliance to the Risk Management
System, thereby enhancing facilitation to the most compliant sector of
business/trade.
1.5.1 The Board vide Notification No 85/2017-Customs (N.T.), dated 7th September,
2017 has notified Audit Commissionerates in Chennai, Delhi and Mumbai Zone-I with
all India jurisdiction with effect from 1st April, 2018 under the administrative control
of the Chief Commissioner of Customs Chennai, Delhi and Mumbai Zone-I
respectively. Audit Commissionerates are headed by a Principal Commissioner /
Commissioner of Customs rank officer for different functions. The functionality of
these Audit Commissionerates is being enhanced by organising the audit teams into
Transaction based Audit (TBA), Theme based Audit (ThBA) and Premises Based
Audit (PBA) each consisting of three circles. The Audit Commissionerate shall have a
full complement of officers similar to that of an Executive Commissionerate and the
Principal Commissioner / Commissioner shall be designated as Head of the
Department. The Commissionerate would comprise of: Planning and Coordination
Section, Administration, Personnel & Vigilance Section and Audit Circles, equivalent
to Assessment Groups in Executive Customs Commissionerates.
1.5.2 Initially, in each of the Audit Commissionerates there would be nine audit
circles assigned the work of audit, out of which three audit circles each are expected
to look after TBA, ThBA and PBA respectively. Common numerical code shall be
assigned for each of the three categories of Audit Circles. A1, A2 & A3 shall
represent TBA Circles, B1, B2 & B3 shall represent PBA Circles and C1, C2, C3
shall represent ThBA Circles. These numbering will be used for ease of
identification in correspondence and office work. Further, depending on the work
load, the Committee of Chief Commissioners may review the number of audit circles,
required for effective audit. In order to ensure effective audit, the TBA, ThBA teams
of Commissioner (Audit) may continue to be stationed in the Jurisdictional Customs
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1.5.4 The PBA of Multi Locational Units (MLUs) shall be the responsibility of the
Customs Audit Commissionerates having jurisdiction over the Registered Office /
Head Office of the Auditee. Details are given in Section II of this Manual.
1.5.5 In respect of Customs formations other than those in, Chennai, Delhi and
Mumbai-I, the officers of respective jurisdictional Customs Commissionerates have
been empowered by the Board as proper officers under Section 99A. These
Commissionerates shall continue to conduct TBA within their jurisdiction. They shall
also assist Audit Commisionerates in conduct of ThBA and PBA.
identify the themes for ThBA in advance. The committee may like to coopt
additional member (s) for discharge of the responsibilities assigned to them. For
administrative convenience, the secretariat of said Committee shall be at New Delhi
in the office of Chief Commissioner of Customs in-charge of audit. The Committee
shall amongst other things, be responsible for the following:
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1.8.2 All auditors need a range of general skills relevant to the task of auditing.
These skills include:
1.8.3 It is also recommended that some officers working in audit should develop
special skills or knowledge in technical areas, such as:
2
Please refer to Guidelines issued by WCO for Strengthening Cooperation and the Exchange of Information Between
Customs and Tax Authorities at the National Level. (Para 11 to 16)
3
(refer http://www.wcoomd.org/en/Topics/Facilitation/ Activities%20and%20Programmes/ Ecommerce for more
details)
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1.8.4 Customs recruitment, placement and training policy should address the
above needs. In some cases, external support may be necessary to augment /
provide the specialist skills including taking assistance from professional institutes /
experts such as IIMs, Central Forensic Laboratory, Hyderabad, Institute of Chartered
Accountants of India (ICAI), National Law University etc. Assistance on transfer
pricing may be sought from Direct Tax Officials. With regard to knowledge of money
laundering, assistance may be sought from Enforcement Directorate etc.
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(f) Equity/Impartiality
Auditors are required to be objective, maintain fairness and adopt same treatment
for similar issues noticed during audit of different auditees. They should not act
arbitrarily or allow bias, conflicts of interest or undue influence to override
professional judgments.
(g) Respect for auditee’s property etc.
During audit, the auditors should not cause any damage to the auditee’s property
including account books, systems etc. and should respect company health, safety
and security policies and requirements, without prejudice to the requirements of
audit.
1.10 Dealing with the auditee
1.10.1 Board’s objective is to ensure collection of the correct amount of duties
from importers / exporters and to secure compliance of applicable laws in a
responsive, fair, transparent and cost effective manner, thereby inspiring public
confidence in tax administration. This should get reflected in an auditor’s conduct
and attitude during the audit.
(i) They will be better equipped to comply with the Customs Law and
Procedures;
(iv) Better compliance will encourage the Department to further enhance their
facilitation levels, thereby, reducing dwell time and transaction costs.
1.10.3 An auditor should be tactful in gaining the goodwill and confidence of the
auditee. However, in the event there is lack of co-operation or deliberate failure to
provide information and records by the auditee or in case of any other exigency, an
auditor should immediately inform the superiors and follow it up with a written
report, if necessary.
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1.11.1 The terms which are being used in the Manual are given in the Glossary of
Terms at Annexure-11. The checklists and legal text provided in this manual are
for easy of reference only and are not intended to be a substitute for specific legal,
provisions or notifications or circulars etc. While CBIC will endeavor to update the
content of this manual on a regular basis, users are advised not to rely solely on the
content available in this manual and to undertake their own independent due
diligence. Users are advised to read or refer to the official documents or visit the
relevant websites for latest updates on laws, rules, notifications, regulations,
circulars etc.
1.11.2 This Manual does not deal with the Customs law and its legal interpretations.
Whenever considered necessary during the process of audit, the auditors shall refer
to the Customs Act, 1962, other Acts, relevant Rules, Regulations, Notifications,
Circulars etc. for guidance and clarity.
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SECTION-I
TRANSACTION BASED AUDIT
CHAPTER 2
INTRODUCTION TO TRANSACTION BASED AUDIT
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2.3.1 Selection of transactions for TBA would be done by the Risk Management
Centre of Customs, vertical of Directorate General of Analytics & Risk Management
(DGARM) based on risk parameters identified at the national and local levels. Audit
Commissioners have the facility to increase or decrease the numbers of bills of
entry/shipping bills which are marked for audit. They can also refine the
parameters regarding the local risk according to which the transactions are
selected for this audit. The parameters may be decided by the ADC/JC in charge of
the Planning and Coordination section of the respective Audit Commissionerate.
2.3.2 Depending on the availability of manpower for TBA (in TBA Circles of
Customs Audit Commissionerates and other jurisdictional Customs
Commissionerates), the percentage of selection of transaction for audit purposes
shall be decided by the respective Commissionerates.
2.3.3 Committee of Chief Commissioners shall review the total number and
percentage of transactions selected for TBA (as reported in Monthly
Commissionerate Report referred to in para 5.3) periodically and advise the
Commissionerates suitably.
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CHAPTER - 3
AUDIT STEPS
3.1 Steps for conducting TBA
3.1.1 The objective of Transaction Based Audit is to monitor, maintain and
enhance compliance levels, while reducing dwell time of cargo. An Auditor is
expected to conduct TBA in a systematic manner on sound auditing principles to
assess the degree of compliance and to ensure that duty has been correctly
assessed and paid. The work flow for PCA in ICES is as follows-
To start the audit of PCA selected Bill of Entry, Appraiser / Superintendent will
select PAO Role from “change role” menu on the ICES Screen.
There are 8 options in PAO Role including “post audit of BE”, Generation of
CL/Show Cause Notice, Challan for Post Audit, Conversion from CL to SCN,
reports etc.
There is a drop down menu for selecting the bills of entry for audit purposes
in “post audit of BE (option 1). The Bill of Entry which has to be audited can
be selected from option 1
On selecting a particular bill of entry and after pushing enter button, Auditor
will be able to see the bill of entry including all the particulars like queries,
invoice, IGM details, examination report, RMS instructions etc.
If the importer, to whom the CL was issued, agrees with the query raised by
PCA Section, then the concerned Appraiser / Superintendent can generate the
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challan from the ‘Post Audit Challan Generation’ menu in their PAO Role and
the importer will pay the duty online once the challan is generated.
If the importer, to whom the CL was issued, does not agree with the query
raised by PCA Section, then the concerned Appraiser / Superintendent will
scrutinize the documents submitted by the importer and if found merits in
importer’s claim, the objection may be withdrawn after taking approval of
competent authority. If the Appraiser / Superintendent found no merits in
importers submission, he can convert the CL into SCN by selecting
‘Conversion from CL to SCN’ menu in their PAO Role.
For viewing Bills of entry, which have been filed under e-sanchit, there is an
option of viewing supporting documents, where auditor will be able to view all the
uploaded documents .
A. IMPORT TBA
A1. Check Compliance of RMCC instructions, PCA instructions etc.
Read all Instructions as mentioned above and verify compliance on the basis of
either physical docket or soft copies available (if scanned copies are available in the
system, like Document Management System (DMS) etc.). Scanned copies of
documents will be available under eSANCHIT, which has been made mandatory for
imports from 1st April 2018, and thus all documents submitted by importers /
exporters are accessible in ICES. The audit officer is advised to read available
instructions given for a said item so that his scrutiny will cover all flagged
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parameters. Over the years, various instructions have been refined and made
specific to the commodity. While some appraising instructions inform the officer
about the existence of valuation alerts, or DGOV Circulars, there are others that alert
the officer on misclassification trends in a commodity. The audit officers are advised
to explore the entire range of information made available under the “View” menu
available on the auditor’s screen in ICES. It includes particulars of number of
containers and container number, IGM particulars, valuation declaration etc.
For example: Valuation declaration submitted by the party gives information on
whether the party is related or not. Appraising instructions alert about parties known
to be related. The audit officer may look for mismatch observed between the
valuation declaration and appraising instructions.
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which are considered important. The auditor shall refer to updated “CTH Wise
Checklist” to identify the revenue risk for the CTH under scrutiny. An auditor shall
bear in mind that the various instructions fed by the RMCC are for national level
risks. There may be misclassification trends, wrong availment of notification etc.,
which is unique to a port. An auditor shall consult his counterpart in the appraising
group and update the said Checklist on a regular basis. Such updating shall
continue to be done on the basis of inputs from audit groups, history of audit paras
that are minuted in the Monitoring Committee Meetings, admitted CERA objections,
Board Circulars, DRI Alerts, DGOV references, important detection by SIIB / CIU/DRI
etc., so that it is effective in mitigating the risk arising out of increased facilitations.
All Checklists are required to be updated by the “Co-ordination & Planning Section”
of the Audit Commissionerate.
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8 Auditor should also look out for close resembling entries, which
may be used to avoid either an exim restriction or duties like
ADD / SD / CVD.
A4.2. Where the auditor is not satisfied with the classification of the goods based
on the declared description, he may seek additional inputs from ‘AC/DC
Group’ before taking a final decision. Any important issues noticed shall also be
discussed during the monthly “Monitoring Committee Meetings”.
A4.3 In case of a doubt, a quick internet search is also likely to yield relevant
information especially in respect of classification / composition / use etc. of
chemicals, fertilizers, rubber, metals, branded goods, electronic goods etc.
A4.4 With the introduction of GST w.e.f. 1.7.2017, there are some significant
changes on the import side. While there is no impact on the levy of Basic Customs
duty, Education Cess, Anti-dumping duty, Safeguard duty and the like, however
Additional duties of Customs, which are in common parlance referred to as
Countervailing Duty (CVD) and Special Additional duty of Customs (SAD), have been
replaced with Integrated Goods and Services Tax (IGST), barring a few exceptions.
The effective rate of IGST, duty calculation, valuation and method of calculation as
provided in the Board's instructions issued from time to time, advisory on customs
related matters, guidance note on imports and exports under GST regime may be
complied with by the Audit Officers, and made use of at the time of audit.
There are certain goods, which, as of now, are outside the ambit of GST and
are still governed by Central Excise Act, 1944 for calculation of Additional Duties of
Customs. The auditors should be aware of the list of such goods and ensure that
applicable duties have been paid correctly. IGST rates as notified from time to time
should be checked. IGST rate on any product can be ascertained by selecting the
correct Sl. No. as per description of goods and tariff headings in the relevant
schedules of the notification. The actual rate applicable to an item would depend on
its classification which has been specified in Schedules notified under section 5 of
the IGST Act, 2017.
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Auditors should also refer to the London Metal Exchange (LME) prices, PLATT,
Valuation Bulletin and alerts published/issued by the Directorate of Valuation etc.
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2 Whether goods have been imported from countries, and obtained Yes/No
from manufacturer & suppliers (as specified in ADD Notification)
and whether said duty has been paid correctly?
3 If goods are leviable to anti-dumping duty but such duty has not
been paid because the goods were declared to be imported from
other countries, check the following:
(i) Whether Bill of Lading/Airway Bill shows that the goods
were loaded from the “Non-Anti-Dumping Country Yes/No
(NADC)” or “Anti- Dumping Duty Country (ADC)”?
(ii) Whether the website of supplier shows, supplier exists in Yes/No
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A11. Verify “Unique Quantity Code (UQC)” & check complete & proper
description of goods
Refer Customs Tariff. Where ever, UQC is not declared correctly as per
standard UQCs, valuation should be looked at closely. Even if there is no revenue
consideration, information should be shared with the Customs Commissionerate for
taking necessary action for improving the data quality. Same action needs to be
taken if description of goods is not declared properly / completely / abbreviated.
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Check whether:
i. RSP has been declared in the BE
ii. RSP declared in the BE matches with RSP declared in invoice / packing list
iii. Has the importer produced valid “registration certificate” of the supplier
/goods issued by “Central Drugs Standard Control Organization (CDSCO)”
in Form-43 in terms of “Drugs & Cosmetics (4th amendment) Rules-2010”
[Registration Certificate is valid for the “product” and manufacturer]
iv. NOC has been produced from Assistant Drug Controller (ADC) office in
respect of imported goods
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The Auditor should check whether the MEIS/SEIS scrips have been correctly used for
payment of duty as per the notification applicable on the relevant date.
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1. Check whether all the importations are authorized and all the conditions of
the authorization have been fulfilled.
4. If the goods were imported under ATA carnet, whether the same was
valid?
For reference a list of such re-import and temporary import notifications are placed
at Annexure “Checklist for re-import & temporary import”. [CHECKLIST-8]
1. Check whether value and classification of goods has been declared correctly
with reference to date of filing of into bond Bill of entry.
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2. For warehousing bills of entry check for correct classification and valuation as
is to be done for a normal bill of entry.
3. Check whether the rate of duty or tariff valuation has been correctly applied
with reference to date of filing of ex bond Bill of entry
4. Check whether IGST has been correctly paid.
5. Check whether the requirements under any other law has been complied with
at the time of filing of into bond Bill of entry.
6. Check the applicability of IGST/GST on goods being sold while being
deposited in warehouse, as per Board Circular 46/2017 dated 24.11.2017
B. EXPORT PCA
B1.1 Many goods, software, technology, chemicals etc. are covered by international
treaties and/ obligations. For eg.
1. 'Appendix 3' to Schedule- 2 of ITC (HS) Classification of Export and Import
Items, 2012 contains the list of specified goods, services and technologies,
i.e. Special Chemicals, Organisms, Materials, Equipment and
Technologies (SCOMET)
2. Chemical weapons: [Convention on the Prohibition of the Development,
Production, Stockpiling and Use of Chemical Weapons and on their
Destruction) is an arms control treaty that prohibits the use, development,
production, stockpiling and transfer of chemical weapons. Any chemical used
for warfare is considered a chemical weapon by the Convention. The parties'
main obligation under the convention is to effect this prohibition, as well as
the destruction of all current chemical weapons.]
3. Mandatory certificates and permissions required for legal export of any
Narcotics & Psychotropic substances
4. Discharge of obligations under “Convention on International Trade on
Endangered Species of Wild Flora & Fauna (CITES)
[https://www.cites.org/eng/disc/species.php]” and Montreal Protocol (relating
to Ozone Depleting Substances) [http://ozone.unep.org/en/treaties-and-
decisions/montreal-protocol-substances-deplete-ozone-layer ]
5. Requisite certificates in case of any export of Antiques
6. Export of Hazardous Waste [Basel Convention on the Control of
Transboundary Movements of Hazardous Wastes] A waste falls under the
scope of the Convention if it is within the category of wastes listed in Annex I
of the Convention and it exhibits one of the hazardous characteristics
contained in Annex III;
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(i) Whether correct serial number relevant to the export goods as mentioned in
the drawback schedule has been applied
(ii) where higher rate of drawback has been claimed, check if the required
declaration or undertaking in respect non-availment of IGST credit on inputs
has been furnished
(iii) In case of duty drawback under section 74, whether all conditions relating
to grant of drawback such as establishing the identity of goods, period within
which the goods are required to be re-exported are fulfilled.
2. Individual Shipping bills where IGST amount claimed is more than Rs.5 Lakhs.
3. Cases where:
i. Exporter is a trader.
ii. Exporter is a new IECs registered in past 1 year.
iii. Sensitive item, where higher IGST rate is applicable
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CHAPTER – 4
AUDIT PROCEDURE FOR TBA
4.1 Procedure
4.1.1 During the course of audit, the auditor may find it necessary to elicit additional
information from importer or seek clarifications from him. However, the queries
during the audit process have to be limited to the minimum and should be resorted
to only where there is a real information gap. The existing version of PCA on ICES
does not have a facility for raising queries. Pending introduction of the feature,
queries have to be raised, manually by the auditor, from the concerned audit file.
The queries have to be sent by email or letters to the Auditee. Any query should be
raised on the auditee only with the approval of AC / DC (Audit).
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i. The PCA workflow in the ICES also envisages generation and issue of
advisories to the auditee with a view to improving data quality.
ii. An advisory can also be issued to the assessing officers with a view to
improve quality of verification of declarations or any shortcoming noticed.
iii. Any advisory to an officer should be issued only after approval of Audit
Commissioner.
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4.4.2 A ‘minutes’ of the MCM shall be drawn up showing the decision taken on each
of the audit objection discussed during the meeting. A copy of the ‘minutes’ of the
MCM shall be provided to the jurisdictional commissioner. If there are issues which
require immediate attention, the Audit Commissioner may inform the jurisdictional
Commissioner of the issue at the stage of detection itself.
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CHAPTER – 5
PREPARATION OF AUDIT REPORT AND FOLLOW-UP
Note. If one consultative letter is issued with reference to a number of BEs/SBs, then
details of all such BEs / SBs should be entered in Column (4).
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TOTAL OF COLUMN.7
Part. II. Outstanding from previous months
TOTAL OF COLUMN.7
Note 3. For filling details in column (5), separate sheets may be used, if found
necessary.
PART-B
Bill of Entry
Sl. No. of BEs given OOC No. of BEs selected % selection No. of BEs No. of BEs pending
No. during the month for TBA for the audited during for audit at the end
month the month of the month
(1) (2) (3) (4) (5) (6)
Shipping Bills
Sl. No. of SBs given LEO No. of SBs selected % selection No. of SBs No. of SBs pending
No. during the month for TBA for the audited during for audit at the end
month the month of the month
(1) (2) (3) (4) (5) (6)
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Total Total no. of Total no. of Total Total Total No. of Total Remar
no. of Audit Consultativ no. of no. of duty cases duty k
BEs/ Objections e Letters cases cases recovere out of involved
accepte d (out of in the
SBs raised issued droppe Sr. no. 2
d by cases at propose
Audite (includes d (out Auditee Sr No 5) propose d SCNs
d cases of Sr. (out of (In d for at Sr No
where No. 2) Sr. No. Lakhs) issue of 7
consultativ 2 SCNs (In
e letter not Lakhs)
issued)
(1) (2) (3) (4) (5) (6) (7) (8) (9)
PART-B
Shipping Bills
Sl. No. of SBs given LEO No. of SBs selected % selection No. of SBs No. of SBs pending
No. during the month for TBA for the audited during for audit at the end
month the month of the month
(1) (2) (3) (4) (5) (6)
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5.4.1 The Commissioner (Audit) shall send a Monthly Report of TBA showing the
total performance for the Commissionerate, in the similar format as mentioned
above in para 5.3 (Part-A and B), to the Chief Commissioner in charge. On detection
of discrepancy during TBA, an all India report shall also be generated from ICES 1.5
by the Commissionerate to initiate steps for recovery of duty not levied or short
levied. The report after the perusal of the Chief Commissioner shall be forwarded to
all Commissionerates for recovery of duties, short levied or non-levied.
(ii) list of referrals, with a brief on the issues, forwarded to other Commissionerates,
RMCC etc.,
(iv) any recommendation or suggestion made for TBA or ThBA or PBA or any other
issue to be placed before the Committee of Chief Commissioners.
5.4.2 Chief Commissioner shall send a monthly report on TBA to the Customs PAC
section of CBIC till the time a nodal Directorate is appointed to oversee the
functioning of the Audit Commissionerates. 5.5 Feedback mechanism to Risk
Management Centre for Customs
All copies of minutes of MCM in case of TBA should be sent to Risk Management
Centre for Customs for feedback and review of risk parameters. In case of important
detections having implications on other jurisdictions, Risk Management Centre for
Customs may be informed at the time of detection.
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7. If irregularity noticed:
9. Issue ‘minutes’ of the meeting, showing outstanding objections with action proposed
and those that have been accepted/ dropped.
10. Take further action for issue of show cause notices or advisories, wherever required.
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SECTION - II
PREMISES BASED AUDIT
CHAPTER –6
INTRODUCTION TO PBA
6.1 Scope and Purpose
6.2.1 There shall be, at least 3 audit Circles in each of Audit Commissionerate
[B1,B2,B3] which will be responsible for conduct of “Premises Based Audit
(PBA)”. If required, Customs Audit Commissionerates can take the help of
jurisdictional Customs Commissionerates for conducting/ enhancing the scope
of PBA, especially in locations other than Nhava Sheva, Mumbai, Delhi and
Chennai. Board has already decided to expand the scope of PBA beyond AEOs.
The selection of auditee for PBA will be based on risk parameters. Board vide
Circular No. 33/2016-Customs, dated 22.07.2016 introduced a 3 tier AEO
programme for importers and exporters (AEO-T1, AEO-T2, and AEO-T3), wherein it
has been provided that onsite PCA will be conducted once in two years/ three years/
five years for AEOs of T-1, T-2 & T-3 respectively, on the basis of risk parameters.
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6.2.2 The PBA of Multi Locational Units (MLUs) shall be the responsibility of the
Audit Commissionerates having jurisdiction over the Registered Office/ Head Office
of the auditee. However, such Audit Commissionerate may co-ordinate and take the
assistance of other Audit Commissionerates or Jurisdictional Customs
Commissionerate, wherever necessary. The audit may include a visit to the
Registered Office/ Head Office or any other premises of the auditee, where the
records are kept as well as the place where imported/ export/ dutiable goods are
stored/ kept, if their verification is considered necessary. It is clarified that for audit
of MLUs, it is not mandatory that every unit/ premises/ location of a MLUs is to be
visited. The visit strategy may be decided while formulating the audit plan. Further,
co-ordination among the audit teams is more important rather than simultaneity of
the visits.
6.3.1 On the basis of the availability of manpower, number of man days required to
conduct PBA (depending on the size of unit), overall risk and various other factors,
the Commissioner (Audit) will tentatively workout the number of units, which can be
audited by his Audit Commissionerates. Each PBA Circle will conduct at least 3 audits
in a month. Therefore, initially, each Audit Commissionerate would be able to
conduct at least 100 audits (PBA) in a year. It is also important to factor the time
required by Audit circles for other activities for e.g. preparation of audit report,
preparation of SCN, MCM meeting work, administrative work, training etc., while
planning the Annual Audit Schedule. Depending upon the facilitation policy and the
result of risk management interventions, number of audit circles may be increased /
decreased, as may be reviewed and recommended by the Committee of Chief
Commissioners.
While the Committee draws up the annual list of auditees, they should factor in a
certain percentage or number of auditees, which will be selected by the Audit
Commissionerate based on local inputs including referrals received from TBA Circles
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and other risk indicators. Further, while drawing up such annual list of auditees,
apart from the importers and exporters, auditees can also be selected from other
categories such as Customs Brokers, Custodians, Custom Bonded warehouses,
Shipping lines and agents, Inward and Outwards Processing Zones, Airlines,
Transporters etc. depending on risk assessment.
6.4.2 It is important to note that for actual PBA to begin in the financial year
starting April, the Committee should submit the list of auditees to Audit
Commissionerates by 7th January under intimation to Customs-PAC section of CBIC.
For this, DGARM should commence preparatory work sufficiently in advance.
6.4.3 The Commissioner (Audit) shall allocate the auditees among various audit
circles by end of January so as to give audit circles sufficient time to draw their
monthly audit schedule and make preparation (including preparation of master file,
desk review and preparation of audit plan), so that they are in the position to
conduct actual audit verification from 1st April. While allocating auditees, the
Commissioner (Audit) shall consider various factors such as size of units, availability
of auditors, expertise available in an audit circle, complexities involved etc. As soon
as the selection of auditees is finalized, the auditees shall be assigned to the specific
audit circles by the Planning & Coordination Cell of audit Commissionerate before the
end of January for the ensuing financial year. Thereafter, each audit circle shall draw
up a monthly schedule of audit by 15th February. An Audit Planning Register shall be
maintained as per the details given in para 13.1.
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CHAPTER –7
AUDIT PROCEDURE FOR PBA
7.2.1 Once the Annual Audit Schedule is ready for the purpose of PBA, the auditors
should collect the master file from the “Planning & Co-ordination Cell” of the
Commissionerate, if already prepared and available, for updation. In case the
auditee is being selected for the first time, the concerned audit circle shall prepare a
Master File of the auditee. Such a master file should also be maintained in electronic
form (by putting all relevant documents in a folder). If required, the concerned Audit
Commissionerate may make use of a reliable “Document Management System”
service provider in this regard. The auditees should be arranged and kept in
alphabetic order for easy access. Aforesaid electronic database should be suitably
secured. The Master File should contain all relevant information (statistical and
narrative) about the auditee from various sources, arranged in a systematic manner
and updated periodically. The preparation of a Master File, which is a comprehensive
data base of an auditee is essential for conducting an effective audit as well as for
undertaking Desk Review. It will also aid in selection of entity to be audited in the
coming years, besides serving as a ready reckoner for other purposes, such as
generating Management Information System (MIS) reports etc.
7.2.2 Each new Master File shall be allotted a unique serial number after due entry
in the file opening register of the Audit Circle. Till the full-fledged electronic
document management system is in place, Master File shall be in two forms i.e. (a)
hard copy and (b) electronic format in a computer folder. The format of a Master File
is given in Annexure-1.
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7.2.3 Any information required from the auditee should be called for ideally with a
lead time of 15 days. A standard format as per Annexure-1B is prescribed for
calling for required information/ documents. A substantial amount of data required
for the Master File may already be available in the various sections of the
Commissionerate/ ICES database/ EDW (Electronic Data Warehouse). Where ever
such data can be retrieved from available sources, the auditee should not be
burdened with furnishing such data. In cases felt necessary an auditor should
augment such information with reports from relevant authorities.
7.2.4 At the same time as the information/ documents are awaited from the
auditee, the Deputy/ Assistant Commissioner in charge of Audit shall request for
the available electronic data pertaining to the auditee through official e-mail from
the Nodal Officer, Directorate General of Systems. Before requesting for data from
the Systems Directorate, availability of data/ details in the “electronic data
warehouse” (EDW) and ICES should be checked and only those details should be
sought, which cannot be obtained / extracted from EDW or ICES, but may be
available with the Directorate General of Systems. The Nodal Officer shall send this
data electronically to the Deputy or Assistant Commissioner (Audit). GST returns
should be called for from the nodal officer in ARM or GSTN.
i. 7.2.5 Auditor shall also obtain the following information from the concerned
jurisdictional Customs Commissionerate: Central Revenue Audit (CRA)
objections, if any, along with present status for last 3 years.
ii. Departmental investigation pending/ completed including details of Show
Cause Notices issued in the last 5 years, if any (information can be extracted
from DIGIT application).
iii. Details of adjudication/ litigation/ Court matters, if any (information can be
extracted from LIMBS, web based application).
iv. Details of pending arrears of revenue, if any.
v. Details of Special Valuation Branch (SVB) orders or pending SVB
investigation, if any.
7.2.6 An important element of the Master File would be the valuation data for the
commodities imported or exported. For this purpose, the Audit officer must have
access to the website of the Directorate of Valuation and the National Imports Data
Base (NIDB). Information for the relevant periods from trade journals such as Public
Ledger, London Metal Exchange (LME), PLATT journal, ICIS etc. must also be kept.
The valuation bulletins regularly issued by Directorate of valuation must also be
referred to for the relevant period.
Custody of master file maintained in manual and electronic format. They are also
required to take sufficient precautions to ensure safe and secure maintenance of
electronic records. It will be the responsibility of an auditor to submit updated
Master Files along with audit reports and working papers after completion of audit to
“Planning & Co-ordination Section”. Further, “Planning & Co-ordination Section”
shall ensure that updated Master File along with audit reports and working papers
are received or collected from auditors within 15 days of completion of audit.
The electronic data should be kept in a secured format so that it can be accessed
and altered or modified only by a duly authorized officer of the Audit Cell. The
Committee of Chief Commissioner should ensure that, on the basis of the inputs
received from the Audit Commissioners and the Directorate General of Systems, an
adequate and uniform Standard Operating Procedure (SOP) for data security has
been framed and put in place by all Audit Commissionerates.
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CHAPTER-8
DESK REVIEW AND PREPARATORY INTERVIEW
8.2.1 Desk Review involves reviewing all the information available about the
auditee, its operations/ activities, reason for selection for audit etc with a view to
identifying potential audit issues and areas of risk, which have to be carefully looked
into at the time of audit.
8.2.2 The Desk Review would be based upon the Master file and should inter alia
involve an examination of the following aspects:
During the desk review, the following issues may be kept in focus.
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ii. valuation.
iii. tariff classification/ description.
iv. anti-dumping duty/ Safeguard duty/ CVD.
v. imports of goods from Preferential Areas/ Countries at concessional rate of
duty.
vi. import of goods at concessional rate for manufacture of specified goods.
vii. imports against Export Promotion Schemes and Export Obligation thereof.
viii. export benefits, duty drawback, ROSL or any other incentives.
8.2.4 Revenue Risk Analysis: This method helps to identify potential revenue risk
areas by making use of methodologies such as:
For example, Customs duty payment shown in the declarations can be reconciled
with that shown in the financial accounts. Further, from the reconciled figure of
Customs duty payment, assessable value of the import can be worked out. This can
then be compared with the foreign remittance details shown in financial records and
the difference, if any, analyzed. Other payments made and reflected in financial
records having inter-linkages with import or export activity, for eg. royalty, drawings,
moulds may be examined. This method would give an idea whether the valuation
and duty calculation system of the auditee is a high or medium or low risk area.
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8.3.1 Following are some of the checks that can be performed at the stage of desk
review.
(i) Abnormal variations or results noticed during trend analysis will indicate risk
areas.
(ii) From the Importer’s Master File, Trial Balance and Annual Financial Statements
(Profit & Loss Account and Balance Sheet) important financial ratios can be worked
out. These ratios should be compared with those of earlier years and wherever
significant variation is noticed, these areas may be selected for audit verification. It
may however be kept in mind that an adverse ratio is only an indicator for
verification of a particular area and there may be valid reasons for the same.
(iii) Check unit values of imported items on average basis against the NIDB data as
well as the price data in trade journals (PLATT, Public ledger, LME, ICIS etc.)
(iv) Whether the importer has imported goods leviable to anti-dumping duty/
Safeguard duty/ CVD without payment of the same from the neighboring
countries to anti-dumping duty countries/ Safeguard duty countries? For this
critical analysis of the shipping and contract documents would be required on site.
(v) If imports are made under Duty Free Import Authorization (DFIAs)/ Advance
Authorizations/ Export Promotion Capital Goods Scheme (EPCG) Licenses/ Project
Imports - Whether conditions thereof are fulfilled?
(vi) Whether substantial amounts have been paid towards royalty, license fees etc.
and its impact on value?
(vii) Whether the violations or pending investigations under different laws have a
bearing on violations under Customs Act, 1962?
8.3.2 On the basis of Desk Review, an auditor shall verify different aspects afore-
mentioned and ascertain the risk factors that need to be verified at the time of audit.
Basically the Desk Review should enable the auditors to crystallize the issues which
have revenue and/ or compliance implications, so that during the verification phase,
they can gather evidences of short payment of Customs duty or other infringements
without loss of time.
8.3.3 To assist in systematic Desk Review and verification, a set of Check Lists is
given at Annexure-2.
8.3.4 The summary results of Desk Review, along with the working papers,
should be submitted to Deputy Commissioner / Assistant Commissioner (Audit) for
further examination and approval, so that all important points are covered.
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8.4.1 Before start of audit, the auditor should have a working knowledge of the
various functional areas in the premises of the auditee, like purchase/ imports,
stores, accounts and foreign exchange transactions. If required, such information
can be gathered by sending a questionnaire to an auditee (through email). A sample
questionnaire is given in Annexure-3. The Auditor may add more questions
depending upon the nature of the auditee. However, if a response is not received
within a reasonable period, the auditor may arrange for a brief preparatory interview
with the auditee or his authorized representative at the office of auditor. The auditor
should also go through the Working Papers prepared in the last audit in order to get
acquainted with the broad procedures followed by various functional sections. For
this purpose, the auditor may also consult the previous auditors to ascertain the
various procedures adopted by them.
8.4.2 In case, the auditee is not forthcoming with the required information, even on
persuasion, ADG ARM should be informed [with the approval of Commissioner
(Audit)], so that the facilitation level of the auditee is suitably modified. In such
cases the Auditor should himself fill up the relevant papers for desk review on the
basis of information obtained from departmental sources. A general review of all
documents maintained, such as number of accounts and returns filed with other
departments would also give the auditors a broad view of the auditee’s activities.
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CHAPTER - 9
AUDIT PLAN
9.1 Audit Plan
9.1.1 An Audit Plan is the end result that emerges from a desk review and other
preparatory steps like gathering of information through questionnaire or interview
and review of internal controls of the auditee. Therefore, it is important that all
these steps are completed and the relevant Working Papers of each of the steps
filled up before commencing to prepare the Audit Plan. By now, an auditor should
be in a position to take a reasonable view regarding the vulnerable areas, the weak
points in the systems, abnormal trends and unusual occurrences that warrant
detailed verification. Certain unanswered or inadequately answered queries about
the affairs of the auditee may also be added to this list.
(b) Specific Issues: Specific issues pertaining to the subject to be verified. For
example, abnormal discounts received from supplier, royalties paid etc.
(e) Period of coverage: Normally, the coverage will be for the whole of the audit
period. However, an Auditor may cover a specific shorter or extended past period,
after recording reasons and obtaining permission from his Additional or Joint
Commissioner (Audit).
(f) Sampling Criteria: In case, the volume of documents for verification is very
large, an auditor may adopt a sample verification method after recording reasons for
the same. In such a case, the sample selection techniques should be spelt out in the
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Working Papers. The sample should be chosen in such a way that it is a true
representative of the whole.
9.1.3 An illustrative example for filling an Audit Plan is given as per Annexure-4.
9.2.1 The auditor should discuss the Audit Plan with the Deputy Commissioner/
Assistant Commissioner (Audit) and it should be finalized after approval by the
Additional/ Joint Commissioner (Audit). The concerned Commissioners should ensure
that auditors complete the Desk Review and prepare draft Audit Plans at least three
weeks prior to the verification date.
9.2.2 In case of audit of MLUs, the consolidated Balance Sheet, Profit and Loss
Statement and other financial documents of the company should be obtained for
scrutiny from the Registered Office/ Head Office. Information contained in the
company’s response to the questionnaire or during the interview should be used to
understand the role played by the Registered Office/ Head Office in the conduct of
business by individual units, the strength of internal controls, the availability of
records at the Registered Office/ Head Office. On this basis, the draft Audit Plan
should be prepared for the auditee’s premises selected for the actual visit and
verification. In the case of MLUs it is not mandatory to visit all its units/ factories/
trading premises etc. Further, the pre-requisite for an effective audit is coordinated
audit and not simultaneous audit.
i. appoint a team leader while allocating the auditees, who shall be overall
responsible for conduct of audit
ii. decide the period of onsite verification depending on size and complexities of
audit
iii. ensure that Master File and Audit Plan has been prepared sufficiently in
advance
iv. allocate specific tasks as per the Audit Plan to specific members of the Audit
Circle.
9.4.1 In terms of the Customs Audit Regulations, 2018, the auditee shall be
informed in writing about the proposed audit at least 15 days in advance by the
Deputy/Assistant Commissioner of Audit r who has been assigned the work of
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auditing the said unit. The said letter/ e-mail shall contain the following information;
The audit team may also submit an advance questionnaire to be kept ready by the
auditee at the time of audit.
9.4.2 Normally, the audit schedule should be strictly adhered to. In exceptional
circumstances, in case the date of visits is to be changed, the same may be done
with the prior approval of Additional or Joint Commissioner (Audit), who shall also
ensure the audit is re-scheduled in consultation with auditee in a manner that the
total scheduled number of audits are not reduced.
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CHAPTER – 10
AUDIT VERIFICATION
10.1.1 Audit Verification at the premises of an auditee is done on the lines proposed
in the Audit Plan. An auditor’s approach should be to verify all relevant documents
including financial records, production records, stores records, information filed with
other departments etc. For example, in-house test report used for production or for
sale of the auditee’s goods to customer can be used to verify declared description,
detailed import contract can be verified to confirm valuation of the goods, end use
condition of imported goods can be verified from production records, and Goods
Receipt Note (GRN) can be used to check and confirm the quantity of goods
imported.
Entry Conference is the initial meeting held between the auditor’s team and the
auditee’s representatives. The meeting can be used to ensure a high level of
cooperation during the audit. Following aspects should normally be covered during
the entry conference: -
1. mutual introductions
2. explaining to the auditee the objective, scope and period of the audit
3. understanding the basic structure, business and Customs processes of the
auditee
4. the information which shall be required during the course of audit
5. the names and designations of the persons of the auditee, who have been
assigned the task of supplying that information, and if they have been given
suitable instructions
6. the nodal officer from the auditee who shall be responsible for coordination
7. logistics arrangements of work space at the premises.
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10.3.2 While conducting Audit Verification, utmost care should be taken to see that
all the points discussed in the Audit Plan are examined. To ensure this, the check list
of points prepared in the audit plan, should be used. If any additional point, not
included in the Audit Plan, emerges during verification, it should be recorded and
examined. During audit, a separate sheet should be prepared for points taken up for
verification other than points discussed in the audit plan. This should also form a
part of the audit report, even where no inconsistencies are noticed.
10.3.3 During Audit Verification, the Auditors should try to understand the business
processes of the auditee, and ascertain weaknesses in the internal control system of
the importer and whether it has led to any loss of revenue/ legal compliance issues.
A weak internal control system is an indicator of high risk and hence requires closer
scrutiny by the Auditors. Any procedural infraction should also be identified, and
recorded.
10.3.4 The auditors should perform walkthrough tests to verify the processes,
various transactions and the controls in place. Compliance tests should be done to
ascertain whether adequate systems are in place to ensure payment of correct
amount of duty and compliance with other laws governing import/ exports. The
auditors shall verify the correctness of transactions, using representative sampling,
or any other methodology identified during the audit plan. The sample size and the
extent of verification can vary depending on the identified risk factors noticed during
desk review and assessment of the internal control system. The cross verification of
details and facts reflected in documents/ records maintained for the purpose of
Customs must be done with all other relevant records like private records, returns
filed with other Government Agencies, financial institutions, Banks etc., to obtain a
proper audit evidence.
10.4.1 It is a known fact that in any field of activity, a large amount of data is
generated and all data is not equally important. In order to filter out the irrelevant or
relatively insignificant data, various techniques are applied. ABC Analysis is one of
such data management technique. In ABC analysis the whole data population is
classified into three categories based on the importance. ‘A’ category is the class of
data that is most important from the point of view of managing and controlling the
same. ‘B’ category is the class of data, which should invariably be controlled, but the
degree of control is not as intense as for ‘A’ category. ‘C’ category is the class of
data, which has much less revenue-implications and can be controlled by suitable
test-checks.
10.4.2 The auditor can apply ABC analysis in case the quantum of data/ information
to be analyzed is voluminous and classify the same according to potential risk into
‘A’, ‘B’ and ‘C’ categories. For example, Bills of Entry having assessable value greater
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than Rs.50 lakhs may be in category ‘A’, between Rs. 20 to 50 lakhs in category ‘B’
and the balance in category ‘C’. The cut-off points will depend on the particular
importer and the amount of data involved. Likewise, commodities imported/
exported can also be categorized depending on their value or duty rate. The criteria
for categorizing as ‘A’, ‘B’ and ‘C’ thus depends on several factors such as type of
goods imported/ exported, rate of duty, importability under Foreign Trade Policy,
levy of anti-dumping duty/ safeguard duty/ CVD, import under Export Promotion
Schemes etc.
List of documents and the nature of verifications that can be done based thereon is
indicated at Annexure-5.
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The verification paper on completion of each step in Audit Plan shall be completed in
the format given at Annexure-6.
10.8.1 The auditors may tour the premises/ plant to familiarize themselves with
activities relating to imports/ exports/ accounting system and collect information
having a bearing on payment of duties of Customs, misuse of export promotion
schemes, infringements of Foreign Trade Policy or other laws. For example, if
imports are made under EPCG License, the auditor shall verify that such capital
goods are actually installed and are being used in the manufacture of export goods.
Similarly, if goods are imported at concessional rate of duty for the manufacture of
specified goods, the auditor shall verify as to whether plant and machinery of
adequate capacity is available to manufacture the specified goods. Similarly, if
inputs are imported for manufacture of export goods, the auditor shall verify that
these are actually being so used. They should also familiarize themselves in a
preliminary way, with the accounting system used by the auditee. As an illustration:
10.8.2 The tour of different sections of the premises may be done to verify the
documents being maintained for different purposes. For example, if it is to be
verified as to whether the goods imported at concessional rate of duty with end use
conditions or under DFIA have been actually used or not, the auditor should visit the
stores section and ascertain the type of documents maintained for receipt and issue
of inputs viz. Goods Receipt Note (GRN)/ Merchant Receipt Note (MRN)/ Inspection
cum Receipt Report (ICRR), Gate Security Register etc. and check as to whether
such imported goods have been shown as received or not. If there is a balance of
such imported goods, if necessary, the Audit officers may verify the physical
existence of such goods in the inventory [bin card or similar other documents] and
whether the same match the description as per import documents. Similarly,
description, quality and specifications of export goods, if available in the factory/
premises may also be verified.
10.8.3 The tour of the premises and its different sections shall be done on the basis
of risk factors and points to be verified as per the Audit Plan. This will ensure that
tour of the premises will target the key areas.
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10.9.1 The auditor shall evaluate the internal controls of the auditee to ascertain as
to whether the internal control systems and the accounting system followed by the
auditee is reliable or not. For this purpose, the information relating to internal
controls may be ascertained as per format at Annexure-3.
10.9.2 In order to evaluate Internal Control, the auditor may examine the following:
10.9.3 If the auditee maintains data in computers, the auditor shall ascertain the
software used, different codes used for different types of entries especially payments
to the foreign suppliers, transporters of imported goods, payments of royalties,
License fee and other payments and receipt of export proceeds, if any. Aforesaid
details in respect of different import / export activity should be noted / copied, so as
to verify that in respect of imports, the amounts sent to foreign suppliers match with
the amounts declared in purchase invoices / Bills of Entry while in case of exports,
the receipt of export proceeds match with the amounts given in the Shipping Bills.
Working Papers are a synopsis of audit operations conducted by the Audit officers,
reflecting each step taken during the process of audit. A format of the Working
Papers to be completed is given at Annexure-6. The auditor must indicate the
findings at the end of each heading in the Working Paper. The reasons for not
conducting verification of any point mentioned in the Audit Plan shall also be
recorded. The objections raised must be supported by material available on record.
10.11 Collection of documents: During the audit process, the auditors should,
where ever required, obtain certified copies of documents, samples etc. which are
required to establish the trail of audit and substantiate any infringement on the part
of the auditee. These documents would be required to be enclosed with the audit
report and also for the issue of show cause notices, if any.
10.12.1 It is essential that the auditors discuss all the objections with the auditee
before preparing a Draft Audit Report. Such discussion would offer an opportunity to
the auditee to present his view and offer clarifications with supporting documents to
any audit point sought to be raised. This would lead to avoidance of unnecessary
objections/ litigation and would encourage voluntary payment/ compliance. Before
leaving the premises, the Audit Team must discuss future compliance issues with the
senior management of the auditee.
10.12.2 In cases, where auditee agrees with the short-levy of duty or of any other
undue benefit availed, the auditor shall encourage him to pay the duty/ amount
promptly along with applicable interest, and penalty, if any. The auditee may be
informed of the benefit available under Section 28(2) and 28(5) of the Customs Act,
1962. The importer / exporter may be advised to seek the said benefit vide letter as
per format at Annexure-10.
The Deputy or Assistant Commissioner (Audit) in charge of Circle shall guide and
supervise the conduct of audit. He shall remain in regular contact with the Audit
Circle and may also visit the site of audit, where he considers it necessary. He is also
required to visit the unit during the audit verification stage in case of large auditees
or where complex issues are involved, as decided by the concerned Commissioner
(Audit).
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CHAPTER – 11
PREPARATION OF AUDIT REPORT AND FOLLOW-UP
11.1 Draft Audit Report
11.1 The Draft Audit Report shall be prepared and finalized by the Audit Team,
within 15 days of the completion of PBA. The Draft Audit Report shall be precise, to
the point, and self-explanatory. It should invariably quote the relevant authority if
objection raised is based on clarification / Circular by Board, Court Judgment /
Tribunal decision etc. All objections should be sequentially numbered. The following
documents shall be enclosed along with the Draft Audit Report.
i. Completed Working Papers of all steps prior to Audit Plan with summary
report.
ii. Copy of Audit Plan.
iii. Copies of all documents/ evidences relied upon for raising objection.
iv. Copy of verification paper (as per proforma given at Annexure-6).
11.1.2 The audit report shall be in the format given at Annexure-7. The Draft
Audit Report should be properly indexed and each page should be numbered. Each
Draft Audit Report should be given a unique Serial Number, as follows:
“D.A.R. No. / Audit Circle No./ Name of Commissionerate / Financial year” (D.A.R.
No. is a running serial number to be given Financial Year-wise to all such reports
including ‘Nil’ Draft Audit Reports). [Eg., DAR 25/B2/Chennai/ 2018-19 (Indicating
25thDraft Audit Report of B2 Audit Circle of Chennai Audit Commissionerate for the
financial year 2018-19)]. After, finalization of the Audit Report, the Sr. No of the
Audit Report will bear the same Sr. No in the following format.
The unique serial number of the Draft Audit Report and corresponding Audit Report
No shall be obtained from “Planning & Coordination Cell”. This Cell shall maintain a
centralized register for granting Sr. Nos. The register shall be in the following format
11.1.3 The Draft Audit Report, after vetting by the Assistant Commissioner/
Deputy Commissioner shall be furnished to the “Planning & Coordination Cell” for
placing before the “Monitoring Committee Meeting (MCM).
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11.2.1 The Planning & Coordination Cell shall organize Monitoring Committee
meetings for examination of each of the audit objections to ascertain its
sustainability and suggest further suitable action. The Monitoring Committee shall be
chaired by the concerned Commissioner (Audit). For prompt and speedy decision on
the audit points, the officer from the concerned jurisdictional Commissionerate of
Customs should also attend such meetings to offer their views on the spot. To
facilitate the jurisdictional Commissionerate of Customs in examining the audit point
in advance before coming to the meeting, the Draft Audit Report shall be circulated
to the concerned Commissionerates at least seven days prior to the MCM by the
Planning & Coordination cell. The minutes of the meeting, recording decision taken
on each audit objection discussed, shall be drawn and circulated to all the concerned
officers including Jurisdictional Commissioner of Customs within seven days of the
meeting.
11.2.2 Based on the decisions taken by the Monitoring Committee, the Draft Audit
Report shall be finalized by the concerned Audit Circle within 15 days from the date
of meeting. A copy of the audit report, duly signed by the Deputy or Assistant
Commissioner (Audit) should be forwarded to the jurisdictional Customs
Commissioner.
11.3.1 Upon preparation of the Audit Report, the Audit Commissionerate shall
ensure that the following follow up action is taken:
(i) The Audit Report including ‘Nil’ Audit Report should be provided by the
concerned Audit Circle to the auditee, within 7 days of the finalization of the audit
report and he should be asked to furnish his response or comments, if any, within
15 days of receipt of Audit Report. The Audit Report in respect of AEO’s shall also be
sent to the AEO program manager.
(ii) In case, the auditee does not respond satisfactorily within the stipulated period,
the Audit Circle, where ever required shall take necessary steps to get a show cause
notice issued by the appropriate authority. Wherever, a show cause notice under
section 28(1) is contemplated, the pre-notice consultation as prescribed under Pre-
Notice Consultation Regulations, 2018 may be followed. The responsibility for getting
a proper show cause notice approved and issued by the competent authority in a
timely manner shall be that of the AC/ DC in charge of the Audit Circle who
conducted the audit.
(iii) The show cause notice along with documents/ evidences relied upon, and proof
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of receipt of show cause notice by the Noticees are required to be forwarded by the
Audit Circle to the appropriate adjudicating authority in the jurisdictional Customs
Commissionerate for adjudication. If any case needs detailed investigation by SIIB of
the concerned Customs House, or DRI, a specific recommendation should be made
by the Customs Audit commissioner to jurisdictional Customs Commissioner or the
DRI as the case may be. Considering the facts of each case, Commissioner (Audit)
shall also bring any serious infringements under any other law to the notice of
concerned Authority to take remedial measures.
(iv) The Monitoring Committee shall evaluate the working of Auditors/ Audit Group in
respect of each Audit. The scoring of Audit Report shall be carried out by the
Commissioner and Additional / Joint Commissioner with a view to evaluate the
standard of audit conducted. While scoring the Audit Report, emphasis should be
placed on the quality of the ‘Audit Plan’ and ‘systematic conduct of audit’ and ‘spot
recovery’. A format of score sheet is given as Annexure-8.
(vi) On completion of above action, Audit Circle shall place the copy of Draft Audit
Report, Audit Report, working papers and all other relevant documents in the
concerned Master File and hand over the updated Master File to the Planning & Co-
ordination Cell.
(vii) The Planning & Co-ordination Cell shall maintain one “Electronic Central
Archive” with all serially numbered audit reports. Hard bound audit reports may also
be kept for future reference.
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All copies of minutes of MCM and copies of Audit Reports (PBA) should also be sent
to Risk Management Centre for Customs for feedback and review of risk parameters.
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SECTION - III
THEME BASED AUDIT (ThBA)
CHAPTER – 12
THEME BASED AUDIT (PROCEDURE)
12.1 Scope and purpose
12.2.1 ThBA at an all India level would be conducted by the concerned Customs
Audit Commissionerates in co-ordination with other Customs Commissionerates in a
coordinated manner.
12.3.2 The theme would be selected based on a systematic and methodical risk
analysis of import/ export data (obtained from ACES and EDW etc.), economic
indicators, third party information from tax and other regulatory authorities and
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other relevant sources of data. The Committee may also consult trade and industry,
sector specialists and any other person, wherever necessary.
12.3.3 Under Thematic audit, the Committee shall notify such number of themes, as
decided by Committee of Chief Commissioner, at an interval of six months, preferably
in the last week of January and July. For each theme, one of the Customs Audit
Commissionerate would be the lead Commissionerate. The other “Customs Audit
Commissionerates” will complement the lead Commissionerate by co-coordinating with
the audit wings of the jurisdictional Customs Commissionerates in their regions. The
lead Commissionerate, and the theme to be assigned to it, will be decided by the
Committee.
Industrial Sector
12.4.1 An industry sector may be classified as high risk and chosen for thematic
audit based on following factors:
Specific Commodity
12.4.2 A general study of the commercial/ industrial sector or goods involved will
help the auditor in targeting the specific commodity carrying high risk. The use of
specific sector studies is a reliable source for collecting information in the field. For
example, sector studies may be on specific areas such as:
Cosmetics
Industrial grade fertilisers
Luxury cars
Manmade fabrics or ready-made garments
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12.4.4 Based on the feedback from field officers and results of audit, certain issues
may also be chosen for thematic audit. For eg.
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12.7.2 The main factor to be looked into is whether the issue identified in the
theme can be verified based on documents submitted at the time of filing of import /
export declaration or by calling for documents from the auditee at the Customs
office. If verification of issue necessitates scrutiny of business records or stores
records (end use) or physical inspection of goods, then ThBA has to be conducted by
visiting the premises of the auditee.
The results of theme based audit should be reported to different Customs Audit
Commissionerates and all Customs Commissionerates. Based on such
communication the field formations should take necessary corrective action.
The New Section 99A does not limit audit to importers and exporters. Depending on
risk assessment, audit can be carried out of Customs Brokers, Custodians, Custom
Bonded warehouses, Shipping lines and agents, Inward and Outwards Processing
Zones etc. During audit of such entities, apart from the revenue risk, it also has to
be ensured that the relevant regulations which have to be complied with by these
entities is being done. The methodology for auditing these entities can be through
ThBA or through PBA depending on the subject. It is proposed that the Committee
headed by DG, ARM or the Committee of Chief Commissioners also choose at least
some of the entities to reflect the intention of Section 99A and to measure the
compliance level.
The ThBA audit reports should also be sent to the DGARM for further risk evaluation.
CHAPTER - 13
RECORDS AND REPORTS
13.1.1 An Audit Planning Register for PBA shall be maintained in the Planning &
Coordination Cell of the Audit Commissionerate in the format given below. This
Register will facilitate in ensuring, (a) all auditees allotted to an Audit Group have
been audited (b) scheduling of any audit that is missed, in the subsequent quarters,
and (c) Audit Reports are issued in time.
13.1.3. On the basis of aforesaid annual audit plan, the concerned audit circle shall
issue the letter containing the prescribed details, to the auditees for conducting
Audit for each of the subsequent quarter. Such letters should be preferably issued
one month prior to the beginning of the quarter.
13.2.1 Each Audit Circle shall submit a monthly PBA Performance Report by the 5th
of each month as per the prescribed format in Annexure-9 and submit the same to
the “Planning & Coordination Cell”.
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13.3.1. In the 1st week of every month, the Planning & Coordination Cell shall put up
an abstract of the Monthly PBA Performance Report for all Audit Circles to the
Commissioner (Audit) through the Joint / Addl. Commissioner (Audit) in the format
given below:
Abstract of Monthly PBA Performance
Note:
1. Audit is treated to be completed only when an Audit Report has been issued.
2. Amount in Columns 7 and 8 should be entered only after Audit Reports have been
approved in MCM.
13.3.2 This report will also be used for discussion during the monthly meeting of
Audit Officers to evaluate the performance of each Audit Circles.
13.4.1 The details of Audit Reports discussed by Monthly Monitoring Committee, the
decisions taken in its meetings and the further follow up action should be entered in
the PBA Follow Up Register, as soon as the Audit Report is approved. The PBA
Follow Up Register shall be maintained in the format given below.
Note: Reasons for post MCM closure should be indicated in the remarks column in
(11).
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13.5.2 The monthly status report received from the audit circles shall be used by
the Planning & Coordination Cell for updating the “Audit Follow Up Register”.
13.6.1 The Commissioner (Audit) shall send a Monthly Report showing the total
performance and the no. of audit for the Commissionerate, in the similar format as
mentioned in para 13.3.1 and 13.4.2, to the Chief Commissioner in charge.
(ii) list of referrals, with a brief on the issues, forwarded to other Commissionerates,
RMCC etc.,
(iv) any recommendation or suggestion made for ThBA or any other issue to be
placed before the Committee of Chief Commissioners.
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Annexure – 10 -- Draft letter under Section 28(2) of the Customs Act, 1962
***
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ANNEXURE-1
MASTER FILE
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B. Importer/Exporter Profile
(Performa should be sent to the importer / exporter for completion and thereafter
certified by the Departmental Auditor)
1…………………………………………………………………………
2…………………………………………………………………………
3. Please indicate the total import and export from various Customs Houses /
Ports / Air Cargo Complexes / Inland Container Depot / Container Freight
Station (based on previous financial year):
(Rs in lakhs)
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4. Please give details of top 10 items imported by you during past one
year and in the current year.
(Rs in lakhs)
S. Description Tariff Exemption Total Total Total
No of Item Item Notfn. No. Quantity Value of Duty
and with S. Imported Imports Paid
Import No.
License
5. Please give details of top 10 items exported by you during past one
year and in the current year.
(Rs. in lakhs)
S. No. Description of Tariff Item Total Total Value of
the Item Quantity Exports
Exported
(1) (2) (3) (4) (5)
i). Details of Export Promotion Capital Goods Scheme licenses issued during the
preceding 6 years / 8 years / years, as the case may be.
(Rs. In lakhs)
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ii. Details of Duty Free Import Authorizations issued during preceding three
years and current year:
(Rs. In lakhs)
iii. Details of Advanced Authorizations issued during preceding three years and
current year:
(Rs. In lakhs)
10. Are you registered with Special Valuation Branch (SVB)? If yes,
please give relevant details (including Customs House. where registered).
11. Please give details of Show Cause Notice received, if any, during last
five years and Current year with respect to import or export of goods:
(Rs. in lakhs)
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Rs. in lakhs)
14. Please give a list of Bonds pending with Customs and the reason why
executed:
1. Total Import duty paid in past three years along with total CIF (Cost
Insurance Freight) value of imports and FOB (Free on Board) value of
exports.
2. Copies of Balance Sheet, Profit and Loss Account, Trial Balance [along with
Grouping for preparation of Balance Sheet and P & L A/ C (Profit and Loss
Account)] and Annual Report for the past three years.
3. Copy of Income Tax Audit Report (Form 3 CD) for the past three years.
4. Cost Audit Reports, wherever applicable for the past three years.
8. Quarterly/Annual Returns filed by EOU /EHTP /STP /BTP units as per Hand
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10. Auditor's Reports for previous year under the provisions of Companies Act,
1956.
11. Journal vouchers through which adjustment entries and/or rectification entries
are passed.
13. Details of bankers with whom Importer is having the account for import/export
transactions.
Signature
Date
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ANNEXURE – 2
CHECK LISTS
(Points for verification, either at Desk Review stage or at the time of
verification stage)
7 Whether imported goods are Free Goods as per Import Policy Yes/No
8 Whether goods imported require a specific Import License / Permit / Yes/No
Authorisation.
Valuation is the most important aspect and hence the check list shall be filled
carefully in respect of all types of goods imported. If the required documents are not
available during Desk Review, same shall be obtained during preparation visit.
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13 From the contract and payments also examine if there are other Yes/No
payments which are liable to be added under Rule 10(a) and
10(b) of Valuation Rules e.g. selling commissions, brokerages,
costs of free moulds, dies, designs, assists etc.
14 How has the transaction value been arrived in cases where no sale Yes/No
has taken place? Is the method of valuation adopted consistent
with Customs valuation Rules?
15 Check from Bill of Lading that freight paid and currency of Yes/No
such payment matches with the freight declared Bill of
16 Whether
Entry value declared in Bill of Entry matches with the Yes/No
value of contemporaneous imports of identical goods
/similar goods as per NIDB (National Import Data Base)
data
17 If unit has imported metals, whether declared value on Yes/No
average matches with the London Metal Exchange (LME)
prices of relevant date
18 If the unit has imported plastic granules, whether price Yes/No
declared matches with that declared in PLATT journal of
relevant date
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On the basis of above check list, the auditors shall ascertain the risk
factors to be verified during verification phase. If answer to any of the aforesaid
checks is "NO", same can be taken as Risk factor and included in “Audit Plan” for
detailed verifications.
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2 Check that all the importations are authorized. And all the Yes/ No
conditions of the authorization have been fulfilled.
3 Notification No. & date (used for temporary importation.) Sl. No.
& Date
4 Was the correct duty paid / drawback reversed / export Yes/ No
benefit surrendered as specified in the relevant notification.
5 Have the goods been re-exported within the specified period Yes /No
and proof submitted to the department.
6 Is there an internal control system to verify the identity of Yes/ No
goods imported and re-exported.
7 If the goods were imported under ATA carnet was the same Yes/ No
valid.
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Special attention shall be paid by the Auditors to ensure that the importer has
not avoided payment of anti-dumping duty by mis-declaring the Country of Origin.
Following checks may be conducted in this regard (similar checks may be performed
for the Safeguard Duty & CVD also):
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3. Whether goods as per table to relevant notification have only Yes /No
been imported.
4. Date of completion of imports.
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IX Check List for the goods imported against Duty Free Import
Authorizations
The Check List shall be filled separately for each DFIA License because imports and
exports under each DFIA are monitored separately.
12. If DFIA was issued to another person and was transferred in Yes/No
the name of unit being audited, check whether payment of
CVD is a condition of transfer of DFIA and if so, whether the
CVD has been paid at the time of import.
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The checks for export w.r.t classification and valuation (in accordance with
Customs Valuation (Determination of Value of Export Goods) Rules, 2007) should
be done on the same lines as mentioned in the check list for imports above. In
particular, following checks should also be carried out.
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Signature
Date
***
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ANNEXURE - 3
SAMPLE QUESTIONNAIRE FOR INTERNAL CONTROL SYSTEM
I. Imports:
2. Whether all the imports are made only by issue of purchase order and whether
different series of purchase orders are issued? Whether issuance of series of
purchase order is centralized in the purchase section? Are there any cases
where imports have been made without issue of purchase order?
3. Whether there is a system of authorized Vendor List. If not, what is the system
of approving particular vendor? Are there instances where substantial imports
have been made through unauthorized vendors? Whether the purchases are
direct from the overseas supplier? Whether the purchase is through indenting
agent/sole distributor or otherwise? Whether overseas agents are involved in
negotiation/placing of purchase order or company's officers directly negotiate
with the overseas supplier?
6. Who are your Custom House Agents / Customs Brokers (CHA / CB) for
clearance of goods? Had you changed your CHA / CB in past? If yes, why?
7. Which is your regular port of import? Have you changed your port of import in
past? If yes, why?
8. Who provide you logistic support in your business? Where are your godowns
for storing the imported goods? Who is your transporter?
10. Whether locally procured goods are also placed in the store?
11. Whether Goods Received Note (GRN) is prepared for each goods imported?
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Whether separate series of GRN is prepared for goods meant for different
section like raw material, capital goods, etc.?
12. Whether a separate code number is available for each type of goods and
whether the same is entered on the GRN so that they can be identified?
13. Whether inspection for physical quantity or technical specification is carried out
before the preparation of GRN or afterward and what is the composition of
inspection team? Whether report of inspection is documented and whether a
separate record is maintained by Inspection Department?
14. Whether rejected goods are stored separately. What is the system of entering
the rejected goods/short quantity on the GRN?
III Payments:
17. How are the details of the payments maintained? Is the system for making
payment overseas/outward remittance is centralized? The bank account
remittance details and invoice value details may be verified.
IV Others:
18. Whether any bonds are pending with customs? For examples: Any provisional
assessments, export obligations, end use bonds, re-export bonds etc., are
pending.
V Exports:
2. Whether all the exports are made only in terms of purchase order / contract
received from Importer? Are there any cases where exports have been made
without receiving any purchase order / contract?
3. Whether the exports have been made directly to overseas buyer? Whether any
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4. Whether the overseas buyer is any way related to the company? What are the
documents related to negotiation of the sale of goods for export?
6. Who is your Customs Brokers (CB) for clearance of goods? Had you changed
your CB in past? If yes, why?
7. Which is your regular port of export? Have you changed your port of export in
past? If yes, why?
8. Who provide you logistic support in your business? Where are your godowns
for storing the export goods? Who is your transporter?
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ANNEXURE — 4
ILLUSTRATIVE AUDIT PLAN
4. Details of
goods traded
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4.Sales contract
6. EPCG Completion EPCG Shipping Bills for Licenses All
of export Licenses export under issued 6 Shipping
Obligation EPCG years Bills for
for each before exports
block Audit under EP
CG
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11 temporary Whether Bills of Entry Shipping bills for Entire audit All
importation importations exports of the period temporary
are temporary importation
authorized imports
and
conditions of
authorization
are fulfilled
3. BRCs
submitted
or not
Guidelines for Audit Plan:
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ANNEXURE - 5
DOCUMENTS' VERIFICATION
ii. Scrutiny of Balance Sheet may be done for any remittances which are not
made against any particular Bill of Entry or export proceeds not realized
against any particular shipping bill.
ii. Terms of invoice whether C.I.F. or F.O.B. If the goods are invoiced as
F.O.B. (in case of import) then the actual freight and insurance incurred
should be verified.
iii. Contracts and purchase orders may be verified for any additional costs that
may have to be paid by the importer (in case of import) or any payment
made by overseas buyer to any party on behalf of exporter (in case of
export).
iv. Insurance policy may be verified if the value declared for the purpose of
insurance is more than the invoice value.
v. To verify whether the goods attract Retail Sale Price based assessment for
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vii. Comparison of prices declared with that of London Metal Exchange prices
for metals, PLATT journal prices for plastics, Public Ledger for spices
ix. Sale invoices for the imported goods sold as such (Import)
1.22 The relevance of each aspect mentioned above has been explained more
elaborately below. These aspects are to be verified during on site Verification. If
any discrepancy is noticed then relevant rule under Customs Valuation Rules, 2007
may be invoked and value would be required to be re-determined for the purpose
of assessment.
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With reference to the Customs Valuation Rules, 2007, the areas indicated below
are considered to be revenue risk areas under the WTO Valuation Agreement.
(a) Branch office importing from head office: In order to use the
transaction value method, there must be a sale for export. In circumstances
where the ownership of the goods does not change, e.g. the exporter is
shipping goods to his own employee or a branch office which has no
authority to contract on its own behalf, depending on the national legislation,
a sale cannot be said to have occurred.
- the third party, paid by the buyer or the seller, participates in the sales
contract concluded between buyer and seller. Such an agent acts as an
intermediary in the contract, and has the role of representing the buyer or
the seller in the conclusion of a contract of sale. A selling agent's commission
is to be included in the Customs value;
- the third party buys the goods from the seller and resells them to the
buyer. Thus two transactions take place. The buyer-reseller's margin is
reflected in the resale value of the goods.
II Selling Commissions
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Deposits or earlier payments by instalment, cash, cheques, etc., may not be reflected
in the invoices produced. Invoice notations such as the following may indicate the
existence of such situations:
These practices are common with capital goods and/or importations for large-
scale projects, etc. Examples of such payments could be:
Exchange rates may also be contracted in phased, part or split payment situations.
The contract of sale may show the details. Check the financial records of the
importer if necessary.
V Deferred Payments
These payments are sometimes not invoiced but may be identified by reference to
the financial records of the importer. Deferred payments may be involved with
large cost items (e.g. capital equipment for large-scale projects, etc.), which are
often covered by written contract.
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Price escalation charges are a provision for price adjustments over the life of a
contract or agreement. A price escalation clause is a normal part of a contract
involving the importation of capital equipment or large project goods with long lead
times during which the cost of production might be changed. When dealing with
importation involving capital equipment for large-scale projects (e.g. factories,
assembly plants, power stations), a copy of the relevant contract should be requested
to examine how the price escalation charges are to be paid.
VII Discounts
Cash discounts or quantity discounts are allowed under the Agreement. Such
discounts may be due to the following reasons and may not be deductible:
- The buyer undertakes certain activities for or on behalf of the seller as part of
the payment under the contract of sale;
- The buyer provides other goods/services to a third party for or on behalf of
the seller as a condition of sale of the imported goods;
- a party's relationship affects the price;
- the price of the imported goods has received credits made in respect of earlier
transactions.
Invoices marked "for Customs purposes only (or some similar notation) may indicate:
IX Package Deals
The total price for the goods may be split among two or more invoices so that
high duty goods are allocated low prices and goods attracting low duty rates are
allocated high unit values. Noting the fact that a case of price manipulation of the
kind described above is a matter for the Customs enforcement authorities, this
offsetting arrangements can, for Customs valuation purposes, be considered to
represent a condition or consideration for which a value cannot be determined
with respect to the goods being valued. Therefore, the provisions of Article 1.1 (b)
of the GATT Valuation Agreement apply and valuation cannot be based on the
transaction value of the imported goods. Such cases need to be looked into.
X Price Averaging
In this type of situation, the total invoice price of the imported goods has been
averaged across a range of different goods included in the same consignment.
Suitable price breakdowns must be applied.
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The price has been only provisionally fixed and will be adjusted either up or down,
depending on the profit margin realized on the resale of the goods. In this case,
the transaction value of the imported goods must be the total final price actually
paid or payable.
In many cases, the contract of sale for the goods does not explicitly mention that
a payment for royalties or licence fees has been made for the goods. Rather a
separate agreement is made for patents, licence or technology supply, etc. Goods
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often involving royalties or licence fees are musical recordings, trademark goods,
patented machines or processes.
Tooling costs are often supplied by the buyer in transactions involving electrical
appliances and others, where the supplier's products have to be specially modified
to suit the standards or design specifications of the country of importation.
If the buyer is to share with the seller the profit on resale of the imported goods,
the seller's share must be added to the price actually paid or, payable.
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Note: If some documents are not available, their samples shall be obtained
during preparatory interview or verified in verification phase in the premises of
the unit.
2 Goods Receipt Notes (i) GRNs /MRNs contain the details of goods
(GRN) / Material as per invoices, goods actually received and
Receipt Notes (MRN) short receipt of goods whereas ICRRs
and Inspection cum contain the quantity of goods accepted,
Receipt Report (ICRR) rejected and reasons for rejection.
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3 Store Ledgers, Goods (i) Whether the imported goods were received
Receipt Notes (GRN) / in the unit of DFIA holder.
Material Receipt Notes
(MRN) and Inspection (ii) Whether full quantity as per Bills of Entry
cum Receipt Report (I was received or short quantity was received or
CRR) some quantity was rejected.
4 Shipping Bills (i) Check that Shipping Bills for export of goods
indicate export is under DFIA.
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i. Account books and records are not necessarily recording the complete
business activities and financial positions. Despite the Generally Accepted
Accounting Principles (GAAP) and business-related laws and regulations,
transactions might be omitted due to wrong accounting practice and/or
intention.
iii. Accounting practice. For instance, credit entries of purchase account, which
usually has a lot of debit entries, indicate the possibility that a transaction
price was discounted or offset after the price was fixed.
iv. Missing pages and disorder of dates often indicate fraud and/or errors.
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ANNEXURE – 6
WORKING PAPERS
(To be filled up/ completed stages of audit)
2. The completed Working Papers must be submitted by the Audit Team along
with the Draft Audit Report.
4. Working Papers form the basis of an audit objection. They also show the
detailed steps undertaken by the Auditor for the preparation for and conduct
of the audit. Therefore, they should be filled carefully, giving observations
and conclusions of the Auditor duly supported by evidences/documents,
wherever required.
6. Some of the entries appearing in the others Annexure may appear to overlap
with the entries of Working Papers. It must be kept in mind Annexures are
only for reference and guidance of the Auditors.
7. Before the conduct of audit Verification, Audit Plan should be approved and
signed by senior officer not below the rank of Additional/Joint Commissioner
i/c Audit. During the Verification, if any issue arises or is noticed, the same
may be verified after obtaining prior approval of the said senior officer.
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A. Details of Audit:
1. Date of Audit:
2. Date of Submission of Audit Report:
3. Draft Audit Report No.:
4. Details of Audit Team:
1. Brief description of the main products imported in the proforma given below:
2. Brief description of the main products exported in the proforma given below:
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C. Desk Review:
3. Obtain and study other documents and conduct examinations. List out the
documents studied.
4. Work out some of the important financial ratios. Mention the important
indicators, which are required to be included in Audit Plan.
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5. Mention changes in the law and rates of duty pertaining to the products
imported since previous audit.
………………………………
………………………………
6. Mention details of duty evasion cases booked in recent past or which are in
progress and past audit objections, which have not been settled so far because of
lack of importer's acceptance, adjudication, appeals etc.
…………………………………………………………………………………………………………………………
……………………………………………………………………………………………
............................................................................................................................
............................................................................................................................
8. Revenue Risk Analysis (This should cover a period of at least two years.
Compare total Customs duty based on import figures in the Profit & Loss account
with total Custom duty paid in the previous years. Mention results indicating possible
problems areas and mention issues to be included in Audit Plan.)
Date of Preparation………………………
Date of Preparation……………………….
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Date of Preparation…………………………………………
…………………………………………………………………………………………………………………………
……………………………………………………………………………………
(a) Overseas purchases are direct from the overseas supplier or through
indenting agent/sole distributor or otherwise?
(b) The sanctioning authorities for purchase, placing an order for purchase
and signatory of the purchase order?
(e) Whether goods are imported under Letter of Credit (L/ C) or Direct
Payment (DP) or otherwise?
(3) Whether the importer/exporter has submitted list of all documents maintained
in respect of items mentioned for the purpose of maintaining master file and
importer /exporter profile?
…………………………………………………………………………………………………………………………
………………………………………………………………………………………
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D a te o f Pre p a ra t io n … … … … … … … … . . .
(1) Obtain audited Balance Sheet and Profit and Loss Account and Trial Balance.
Review any notes in the Balance Sheet / Profit and Loss Account. If importer /
exporter is a division of a company, check if internal financial statements are
prepared for it before consolidation with other related units. Work out ratio of “value
of imports to sales value of goods” (import) or “value of exports to purchase value of
goods” (merchant exports) . Obtain a copy of last two reports. Mention issues to be
included in the Audit Plan.
…………………………………………………………………………………………………………………………
……………………………………………………………………………………
(2) Identify all business activities like importation, sale of manufactured goods,
sale of trading goods, non-manufacturing activity like repair, service activities and
major sources of 'Other Income'. Mention issues to be included in the Audit Plan.
…………………………………………………………………………………………………………………………
……………………………………………………………………………………………
A. Sales Information (in case of imported goods sold and not consumed by
importer for further processing / manufacturing):
Date of Preparation………………………….
(2) Whether provisions of Valuation Rules, 2007 has been applied by the
importer during the self-assessment at the time of import? The Valuation
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(3) Identify any special situations such as sales to related units; trading
activities, commissions, volume discounts exchanges or trade-ins and
imposition of MRP based value for duty. Mention issues to be included in
Audit Plan.
………………………………………………………………………………………………………………
………………………………………………………………………………………………………
B. Purchase Information:
Date of Preparation………………………….
(1) List major suppliers, goods purchased and indicate annual volume
in quantity and value(Rupees). Whether there are purchases from related
supplier? Mention issues to be included in Audit Plan.
………………………………………………………………………………………………………………
………………………………………………………………………………………………………
(2) Whether the importer avails any end use based Customs duty
exemptions on imported purchases. Mention issues to be included in Audit
Plan.
………………………………………………………………………………………………………………
………………………………………………………………………………………………………
(3) Study the purchase details of major capital goods acquired and put to
use since last audit. Mention issues to be included in Audit Plan.
………………………………………………………………………………………………………………
………………………………………………………………………………………………………
C. Other Information:
Date of Preparation………………………
(1) Study whether any imported goods are cleared for inter unit transfer,
intermediates sent for job work or received for job work. Study the cases with
respect to policy provisions i.e. diversion of imported goods etc. In such cases
Mention issues to be included in Audit Plan.
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………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
(2) Any other relevant information gathered by the auditor during the
course of gathering information about importer, and systems followed by him
and study of financial documents. Mention issues to be included in Audit Plan.
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
(3) Observations of the Auditor on any other issue emerging during Desk
Review, which are to be included in Audit Plan, with reasons thereof.
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
12. Audit Plan (Must be based on the issues identified in the previous steps as
to be verified during the conduct of audit and must be specific in the following
format):
Date of Preparation………………………………….
Date of Preparation……………………………………….
Tour the plant, accompanied by the appropriate officer of the importer / exporter.
Include receipt, storage and other relevant areas of the unit in your tour. Observe
operations to confirm information received to date and to note areas that may be
vulnerable to non-compliance.
…………………………………………………………………………………………………………………………
……………………………………………………………………………………………
(1) Mention if there are new facts not disclosed earlier, noticed during the tour,
which may have relevance to revenue or to the level of tax compliance.
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…………………………………………………………………………………………………………………………
……………………………………………………………………………………………
(2) Gather information about the Internal Control System by interviewing the
section in-charges. Mention issues to be verified during conduct of audit.
…………………………………………………………………………………………………………
………………………………………………………………………………………………………………
(3) Any other relevant information gathered by the auditor during the course of
Tour of the premises. Mention issues to be included in Audit Plan and verified during
conduct of audit.
…………………………………………………………………………………………………………
……………………………………………………………………………………………………………
D a te o f Pre p a ra t io n … … … … … … … … … … … .
(1) Perform a walkthrough for the Records maintained for Customs. Trace
a sample of all transactions including those on Credit from source documents
through Custom Duty account to final destination of the imported goods. Mention
any new area need to be included in Audit Plan or whether the extent of verification
of the issue already identified in Audit Plan needs to be modified.
………………………………………………………………………………………………………………………..
……………………………………………………………………………………………………………
(2) Perform a walkthrough of the purchase system including capital assets. Trace
a sample of transactions, of all types, including Credits, from source documents
through the Custom duty account to the final destination of imported goods.
Examine specifically system for purchase, etc. Mention any new area needed to be
included in Audit Plan or whether the extent of verification of the issue already
identified in Audit Plan needs to be modified
……………………………………………………………………………………………………………
…………………………………………………………………………………………………………
(3) Perform a walkthrough of any other system (e.g. Stores Journal Entries, etc.).
Trace a sample of transactions of all types from source documents through to the
Customs Duty Account to final destiny of the imported goods. Mention any new area
need to be included in Audit Plan or whether the extent of verification of the issue
already identified in Audit Plan needs to be modified.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
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(4) Conduct ABC analysis in the following areas and evaluate the soundness of
level of Internal Control of each such area and grade them as good, acceptable or
poor in the following format:
(5) Any other relevant information gathered by the Auditor during the course of
Evaluation of Internal Control. Mention any new area need to be included in Audit
Plan or whether the extent of verification of the issue already identified in Audit Plan
needs to be modified.
…………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………..
15. Verification:
Date of Preparation……………………………
(1) Carry out verification as per Audit Plan. The result of verification of each of
the issues should be mentioned, whether or not there is any detection of
discrepancy/audit point. The issues verified which was not part of original Audit Plan
but verified later should be mentioned at the end.
…………………………………………………………………………………………………………
……………………………………………………………………………………………………………
Proforma of Verification Paper
1. Date of verification:
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5. Documents verified:
9. Any other contravention noticed (restriction / prohibition under any law etc.):
………………………………………………..
……………………………………….
Date:
Supervisor’s remarks:
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
Supervisor’s name, signature
……………………………………….
Date:
Date of Preparation……………………
(1) Once the verification, as per Audit Plan, is complete, all the findings with
auditee's agreement / disagreement must be consolidated in the Draft Audit Report
format and these Working Papers for presentation to and discussions with the
superiors and the auditee. The details of spot recovery made during the conduct of
audit should also be mentioned in the relevant column of these Working Papers.
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(2) All important findings specially those pertaining to non/short payment of duty
should be discussed with the auditee and explanation / clarification with supporting
material, if any, should be duly taken into consideration before taking a definitive
view. The details in this behalf should be recorded here.
…………………………………………………………………………………………………………
……………………………………………………………………………………………………………
(3) Indicate information provided and specific actions suggested to the auditee to
improve future compliance. Where the auditee is in agreement with the suggestions,
request a commitment in writing and include it in the Audit Report. If the auditee is
unwilling to give a written undertaking, obtain a verbal commitment. Mention
results.
……………………………………………………………………………………………………………
…………………………………………………………………………………………………………
(Rs. in 1000)
S. Description CTH Audit Records / Auditee’s Amount Amount
No. of No. Points Document Acceptance of of
Commodity (Y/N) Detection Recovery
(2) Provide details Sr. No. of Working Paper and particulars of source document
and back-up document in the Column No (4).
(Auditor)
Name/Designation
Place: ………………………
Date: ………………………
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ANNEXURE-7
AUDIT REPORT FORMAT
PART-1
1. Name of the auditee:
2. IEC No:
Part-II
Date…………………………………
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ANNEXURE — 8
SCOR1NG SYSTEM FOR PBA
PART A
1 Name of the auditee:
PART B
Total: 100
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ANNEXURE-9
MONTHLY REPORT ON PBA PERFORMANCE
Dated: …………………..
Names of the auditees for which audit was conducted during the month …………….
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ANNEXURE — 10
DRAFT LETTER UNDER SECT1ON 28(2) OF THE CUSTOMS ACT, 1962
(To be written by the importer/exporter for waiver of Show Cause
Notice)
Dated............................
To
The Commissioner of Customs
…………………………………
..
Sir,
Subject: Letter given under Section 28 (2) of the Customs Act, 1962 for non-
issuance of show cause notice — reg.
2. As per Section 28(2) of the Customs Act, 1962, where any duty has not been
levied or has been short-levied or erroneously refunded, or any interest payable has
not been paid, part paid or erroneously refunded, for any reason other than the
reasons of collusion or any wilful mis-statement or suppression of facts, is paid under
Section 28(1)(b) of the Customs Act, 1962, along with the interest payable thereon,
before service of notice under Section 28(1)(a) of the Customs Act, 1962, by the
person chargeable with such duty and/ or interest who informs the proper officer of
such payment in writing, then such proper officer shall not serve any notice under
Section 28(1)(a) of the Customs Act, 1962 in respect of the duty or interest so paid
or any penalty leviable under the provisions of the Customs Act, 1962 or the rules
made thereunder in respect of such duty or interest.
3. In the instant case the due duty / interest has been paid by us. Thus, in
terms of the aforementioned provisions of Section 28(2) of the Customs Act,
1962, we request that a show cause notice should not be issued to us in this case
and no penalty may be imposed on us as the above short levy / short payment /
non levy / non-payment was unintentional and not by reasons of collusion or any
willful mis-statement or suppression of facts on our part. We also request that the
above issues may be treated as closed.
Yours sincerely,
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Dated............................
To
The Commissioner of Customs
…………………………………
..
Sir,
Subject: Letter given under Section 28 (5) of the Customs Act, 1962 for non-
issuance of show cause notice — reg.
3. In the instant case the due duty, interest and penalty equal to fifteen
percent of the duty specified in the notice issued to us / accepted by us has
been paid by us within thirty days of the receipt of the said notice. Therefore, we
request that proceedings in respect of the subject audit objection / show cause
notice should be concluded in terms of clause (i) to sub –section (6) of section 28
of the Customs Act
Yours sincerely,
(Authorised Signatory)
M/s ........................
Place......................................
Copy To:
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ANNEXURE - 11
GLOSSARY OF TERMS AND ABBREVIATIONS
11. CVD duty as levied under Section 9 of Customs Tariff Act, 1975
12. Board Board as defined under Section2 (6) of Customs Act, 1962
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18. Multi Locational A single manufacturer / trader having more than one
Units manufacturing / trading unit on the same PAN number is
called a Multi-Location Unit (MLU).
23. proper officer “Proper officer” as defined under Section 2(34) of Customs
Act, 1962
26. Risk Assessment Overall process of risk identification, risk analysis, risk
evaluation and prioritization
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34. Transaction based An audit method which focuses on each import / export
audit (TBA) declaration.
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