Manual for the Scrutiny of Central Excise Returns 2008

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Chapter 4: Guidelines for the ManualScrutiny of Assessments4A The Manual for the Scrutiny of Central Excise Returns owes its origin to the BusinessProcess Re-engineering exercise initiated in July 2000 under the CIDA-assisted CapacityDevelopment Project as a prelude to computerization of business processes in CentralExcise. The exercise identified returns scrutiny as one of the key business processes in view ofthe introduction of self-assessment in October 1996. Working Groups were formed for eachbusiness process like Registration, Export Procedure, Dispute Resolution and Returns’ Scrutiny.One of the major recommendations made by the group on Returns’ Scrutiny was thatthere should be a two-stage returns’ scrutiny.4B It was suggested that a distinction be made between preliminary scrutiny, which wouldcover all the returns, and detailed scrutiny, which would cover only selected returns. It wasrecommended that preliminary scrutiny be a stage at which all the returns would be checkedfor correctness (arithmetical accuracy of duty computation), completeness (of information),and timeliness (timely submission of return and timely payment of duty). A small portion ofreturns would then be selected for a detailed scrutiny of assessment on the basis of riskparameters. Under the Automation (ACES) project, preliminary scrutiny will be done onlineand will cover core checks like submission of critical information, date of payment of duty,date of furnishing of the return, and correct computation of the duty payable. The automationof preliminary scrutiny is already built into the ACES project which has been explainedin Chapter 3 of this Manual. It is visualized that while preliminary scrutiny will be done inthe Divisions, the Ranges will do the detailed manual scrutiny, and that this activity willconstitute one of their core functions. The detailed scrutiny of assessment exercise would bedesigned to ensure correctness of assessment (i.e. correctness of classification, valuation, andavailment of CENVAT credit).4C Chapter 1 of the Manual outlines the returns scrutiny process covering statutoryreturns, that is, ER1, ER2, and ER3. In addition, it also covers the scrutiny of declarationssubmitted by registered dealers who transfer CENVAT credit from one manufacturer toanother. Chapter 2 discusses the Board’s guidelines for the manual preliminary scrutinyof all returns. The process will be automated once the ACES system is introduced. Thedetailed contours of the returns scrutiny module in the ACES application software areMANUAL FOR THE SCRUTINY OF CENTRAL EXCISE RETURNS 2008 29
discussed in Chapter 3. Chapter 4 lays down the guidelines for the detailed scrutiny ofselected returns, which would necessarily be done manually.The diagrammatic representation of the scheme of returns scrutiny is presented belowBefore introduction of self assessmentAfter introduction of self assessmentER-1 ER-2 ER-3 ER-1 ER-2 ER-3Scrutiny ProcessScrutiny ProcessDepartmental AssessmentClearance of GoodsPreliminary Scrutiny ofreturns Covering all thereturns filed: to be automatedDetailed manual scrutinyto ensure correctness of theassessment coveringselected returns picked upon the basis of certainparameters: Selection tobe automatedA detailed scrutiny programme is part of the Risk Management Policy of many internationaltax administrations. It performs two important functions:(a)(b)A detailed scrutiny programme typically supplements the Audit programmewhich normally targets assessees who demonstrate high risk of non compliance.They require more time for completion (as they are conducted on site) and entailhigher skill requirements on the part of auditors. On the other hand, a detailedscrutiny programme typically addresses lower risk cases, helps to cover largernumber of units (conducted in office), requires lower skill levels, and enablesassessment in a timely and cost effective manner;A detailed scrutiny programme also serves in ‘work load development’ by initiatingreferrals for audit/anti-evasion.The recommendation of introducing a two-stage scrutiny was accepted and ratified by theBoard. The Board issued directions vide circular No.818/15/2005-CX dated 15 July 2005.The circular interalia identified a list of risk parameters which could be used, for selectingreturns for detailed scrutiny of assessment. The legislative backing to the returns’ scrutinyprocess was given by incorporating Rule 12(3) of the Central Excise Rules 2002, whichinteralia provides for the relevant officer to ‘scrutinize the correctness of the duty assessed bythe assessee on the goods removed.’4D The checklists contained in this chapter have been prepared on the basis of interactionwith field officers during which the feasibility of carrying out these checks was established.Pilot tests were also carried out in selected Commissionerates to validate these checks.30 MANUAL FOR THE SCRUTINY OF CENTRAL EXCISE RETURNS 2008
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Page 5: 3.1.3 When is a Return Marked for R
Page 8 and 9: Chapter 1: Introduction tothe Retur
Page 10 and 11: Select units could be chosen depend
Page 12 and 13: Chapter 2: Policy Guidelines2A In t
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Manual for the Scrutiny of Central Excise Returns 2008

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