Audit by officers of Central Excise

Doubts have been raised in cer­tain quar­ters regard­ing pow­ers of a Cen­tral Excise offi­cer to con­duct audit, in the back­ground of a recent judg­ment of Hon’ble High Court of Del­hi dat­ed 04.08.2014 in case of M/s Trav­elite (India) [2014-TIOL-1304-HC-DEL-ST] where­in the Hon’ble court has held that the pow­ers to con­duct audit as envis­aged in rule 5A (2) of the Ser­vice Tax Rules, 1994, does not have appro­pri­ate statu­to­ry back­ing and there­fore quashed the rule.

2. It may be not­ed that the judg­ment did not deal with the issue of audit in Cen­tral Excise. It is fur­ther clar­i­fied that in Cen­tral Excise there is ade­quate statu­to­ry back­ing for audit by the Cen­tral Excise Offi­cers. The statu­to­ry pro­vi­sions rel­e­vant for audit is clause (x) of Sec­tion 37(2) and rule 22 of the Cen­tral Excise Rules, 2002. For ease of ref­er­ence, Sec­tion 37(2)(x) is repro­duced below :-

Sec­tion 37: Pow­er of the Cen­tral Gov­ern­ment to make rules-

“37(2)(x) : impose on per­sons engaged in the pro­duc­tion or man­u­fac­ture, stor­age or sale (whether on their own account or as bro­kers or com­mis­sion agents) of salt, and, so far as such impo­si­tion is essen­tial for the prop­er levy and col­lec­tion of the duties imposed by this Act, of any oth­er excis­able goods, the duty of fur­nish­ing infor­ma­tion, keep­ing records and mak­ing returns, and pre­scribe the nature of such infor­ma­tion and the form of such records and returns , the par­tic­u­lars to be con­tained there­in, and the man­ner in which they shall be ver­i­fied;”

3. Rule 22 of the Cen­tral Excise Rules, 2002 pro­vides that the Com­mis­sion­er may empow­er an Offi­cer or depute an audit par­ty for car­ry­ing out scruti­ny or ver­i­fi­ca­tion of records of the assessee. The rule also oblig­es an assessee to make avail­able records for such scrutiny.

4. The statu­to­ry back­ing for rule 22 thus flows from clause (x) of sec­tion 37(2) and the gen­er­al rule mak­ing pow­ers under sec­tion 37(1) of the Cen­tral Excise Act, 1944. Clause (x) of sec­tion 37(2) empow­ers the Cen­tral Gov­ern­ment to make rules for ver­i­fi­ca­tion of records and returns to check the cor­rect­ness of levy and col­lec­tion of duty which in the present regime of self-assess­ment would mean ver­i­fi­ca­tion of cor­rect­ness of self-assess­ment and pay­ment of duty by the assessee. It may be not­ed that the expres­sion “ver­i­fi­ca­tion” used in the sec­tion is of wide import and would include with­in its scope, audit by the Depart­men­tal offi­cers, as the pro­ce­dure pre­scribed for audit is essen­tial­ly a pro­ce­dure for ver­i­fi­ca­tion man­dat­ed in the statute.

5. It is there­fore clar­i­fied that offi­cers of Cen­tral Excise shall con­tin­ue to con­duct audit, as pro­vid­ed in the statute. This clar­i­fi­ca­tion may be brought to the notice of the field for­ma­tions. Hin­di ver­sion will fol­low. Dif­fi­cul­ty, if any, in the imple­men­ta­tion of the instruc­tion may be brought to the notice of the Board.