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New audit norms for central excise, service tax assessees
July, 11th 2006

The Finance Ministry has changed the criterion of selection of central excise assessees for the purpose of audit. It has also revised the threshold norms for frequency of audit of central excise and service tax assessees.

With payment of duty through cenvat credit gaining currency in many industries, the Finance Ministry is of the view that a more representative selection of central excise assessees for audit could be achieved by using total duty payment (cash and cenvat credit taken together) as the criterion of selection. Currently, cash payments are the only basis of selection of central excise assessees for audit.

Excise duty

For excise duty, the revised audit frequency norms specify that units making annual payments (in cash plus cenvat credit) of more than Rs 3 crore should be audited every year. Hitherto, units paying duty of more than Rs 1 crore a year in cash were subjected to audit every year.

In the case of units making annual payments between Rs 1 crore and Rs 3 crore, the revised norms stipulate the frequency of audit at "once every two years."

For units paying between Rs 50 lakh and Rs 1 crore, the audit frequency has now been specified at "once every five years." In the case of units paying below Rs 50 lakh, 10 per cent of the units would be audited every year.

Service tax

For service tax, the revised norms require taxpayers making annual payment (cash plus cenvat credit) of more than Rs 50 lakh to be audited every year.

In the case of service tax assessees paying between Rs 25 lakh and Rs 50 lakh, the audit frequency would be "once in two years."

For taxpayers paying between Rs 10 lakh and Rs 25 lakh, the audit frequency would be "once in five years."

For those paying service tax of less than Rs 10 lakh, about 2 per cent of the total number would be brought under audit every year.

As regards export-oriented units (EOU), the Central Board of Excise and Customs has decided that about 500 EOUs should be audited mandatorily all over the country.

The selection of these units would be made as per the criteria circulated by Director-General (Audit). EOUs manufacturing non-excisable goods (such as primary produce or software) need not be audited mandatorily.

Hitherto, all EOUs were required to be audited mandatorily every year.

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