manual for customs post clearance audit
TRANSCRIPT
PCA MANUAL
1
For Departmental Use
Manual For
Customs
Post Clearance Audit
Central Board of Indirect Taxes &
Customs (CBIC)
Department of Revenue
Ministry of Finance
PCA MANUAL
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TABLE OF CONTENTS
Section /
Chapter No.
Para
No.
Topic Page
No
Chapter 1 Introduction to Transaction based Audit (TBA),
Premises based Audit (PBA) and Theme based
Audit (ThBA)
1.1 Introduction 9-10
1.2 Legislative framework for Post Clearance Audit
and Customs Audit Regulations, 2018
10-11
1.3 International perspective 11-12
1.4 Types of Post Clearance Audit in Indian
Customs Administration
12-14
1.5 Organizational Structure for conducting
Customs Audit
14-15
1.6 Responsibility of Committee of Chief
Commissioners
15-16
1.7 Responsibility of the Chief Commissioner of
Customs (in-charge of Audit Commissionerate)
16
1.8 Training and skill development 17-18
1.9 Ethical Standards for Auditors 18-19
1.10 Dealing with the Auditee 19-20
1.11 Glossary and disclaimer 20
SECTION –I TRANSACTION BASED AUDIT (TBA)
Chapter 2 Introduction to TRANSACTION BASED AUDIT
2.1 Scope and Purpose 21
2.2 Constitution of Audit Circles 21
2.3 Risk Based Selection of Transactions for TBA 21-22
Chapter 3 Audit Steps
3.1 Steps for conducting TBA 23-24
3.2 Details about the steps 24
A Import TBA
A1 Check compliance of RMCC Instructions, PCA
Instructions etc.
24-25
A2 Check Examination order and Examination
report
25
A3 Check lists (Ready Reckoner) 25-26
A4 Check the Classification of goods 26-27
A5 Check the Valuation of goods 27-29
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A6 Check the eligibility of benefit of exemption
claimed under any Notification (BCD/CVD/SAD/
IGST/Cess)
29
A7 Check for applicability of RSP based CVD [Prior
to 01.07.2017]
29
A8 Check for applicability of ADD 29-30
A9 Check for applicability of Safeguard duty (SD)
and CVD
30
A10 Check for correctness of Tariff values (Goods
subject to valuation under Section 14(2) of
Customs Act)
30
A11 Verify “Unique Quantity Code (UQC)” & check
complete & proper description of goods
30
A12 Check admissibility of concessional rate of
duty on the basis of imports from Preferential
Areas/Countries
31-32
A13 Compliance of other legal requirements 32-33
A14 Check eligibility of exemption from payment of
duty in respect of imports against Export
Promotion Schemes:
33-34
A15 General Checklist (Restrictions / Prohibitions) 34-35
A16 Import of goods under the category of re-
import and temporary imports of Goods
35
A17 Audit in case of warehousing and ex-bond
bills of entry
35-36
B Export PCA
B1 Restrictions and Prohibition 36-37
B2 Classification of export goods 37
B3 Admissibility and applicability of correct rate of
duty drawback
37-38
B4 Valuation of export goods 38
B5 Duty or Cess payable on export goods 38
B6 Issues related to Trade Based Money
Laundering (TBML)
38
B7 Exports IGST Refund Audit 38
Chapter 4 Audit Procedure for TBA
4.1 Procedure 39
4.2 Consultative letter 39-40
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Section /
Chapter No.
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4.3 Issue of advisories 40-41
4.4 Proceedings of monthly “Monitoring Committee
Meeting” (MCM)
41
Chapter 5 Preparation of Audit Report and Follow up
5.1 Register of Audit consultative letters: 42
5.2 Monthly Circle Report 42-43
5.3 Monthly Commissionerate Report 44-45
5.4 Report to the Chief Commissioner 45
5.5 Feedback mechanism to Risk Management
Centre for Customs
45-46
SECTION-II PREMISES BASED AUDIT (PBA)
Chapter 6 Introduction to PBA
6.1 Scope and Purpose 47
6.2 Constitution of Audit Circles for PBA 47-48
6.3 Annual Audit (PBA) Schedule 48
6.4 Selection of Auditees for PBA 48-49
Chapter 7 Audit Procedure for PBA
7.1 Steps for conducting PBA 50
7.2 Importer/ Exporter Master File 50-52
7.3 Data Security 52
Chapter 8 Desk Review and Preparatory Interview
8.1 Objectives of Desk Review 53
8.2 Conduct of Desk Review 53-54
8.3 Checks to be performed during Desk Review 55
8.4 Preparatory questionnaire or interview 56
Chapter 9 Audit Plan
9.1 Audit Plan 57-58
9.2 Approval of Audit Plan 58
9.3 Requirements before audit verification 58
9.4 Notification of audit 58-59
Chapter 10 Audit Verification
10.1 Importance of Audit Verification 60
10.2 Entry conference 60
10.3 Guidelines for Audit Verification 60-61
10.4 ABC Analysis 61-62
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10.5 Documents to be verified 62
10.6 Document Verification 62
10.7 Completing Verification paper 62-63
10.8 Tour of Premises / Plant 63
10.9 Evaluation of Internal Controls 64
10.10 Preparation of Working Papers 65
10.11 Collection of documents 65
10.12 Exit conference 65
10.13 Role of Deputy or Assistant Commissioner
(Audit)
65
10.14 Role of Additional or Joint Commissioner
(Audit)
65-66
Chapter 11 Preparation of Audit Report and Follow-up
11.1 Draft Audit Report 67
11.2 Audit Report 67-68
11.3 Follow up action on Audit Report 68-69
11.4 Administrative arrangement at Jurisdictional
Customs Houses for PBA
69
11.5 Feedback mechanism to Risk Management
Centre for Customs
70
SECTION-
III
THEME BASED AUDIT (ThBA)
Chapter 12 Theme Based Audit (Procedure)
12.1 Scope and purpose 71
12.2 Constitution of ThBA Circles 71
12.3 Selection / identification of Theme 71-72
12.4 Types/ Categories/ Subjects of Theme 72-73
12.5 Factors affecting selection of theme 73
12.6 Preparation for ThBA 73
12.7 Methodology for ThBA 74
12.8 Results of ThBA, Communication 74
12.9 Audit of Entities other than Importers and
Exporters
74
12.10 Audit follow up, Audit Report 74
12.11 Sharing of Information 74
Chapter 13 Records and Reports
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13.1 Audit Planning Register (APR) 75
13.2 Monthly PBA Performance Report 75
13.3 Abstract of Monthly PBA Performance Report 76
13.4 PBA Follow Up Register 76
13.5 Abstract of PBA Follow Up 77
13.6 Report for Chief Commissioner 77
13.7 Annexures of Formats of Reports/ Registers 78-
145
***
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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.
----sd-------
(Pranab Kumar Das)
Member (Customs), CBIC
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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:
(k) the manner of conducting audit;
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 International perspective
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
6.6. Standard - Customs control systems shall include audit-based controls.
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.”
In order to implement these International Conventions to which India is a signatory/
party, it is necessary that these audit based controls are laid down systematically
with proper authority of the law.1
1.3.3 The WTO Trade Facilitation Agreement, under ARTICLE 7 states as
follows:
“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.
5.2. Each Member shall select a person or a consignment for post-clearance
audit in a risk-based manner, which may include appropriate selectivity
criteria. Each Member shall conduct post-clearance audits in a transparent
manner. Where the person is involved in the audit process and conclusive
results have been achieved the Member shall, without delay, notify the person
whose record is audited of the results, the person's rights and obligations and
the reasons for the results.
5.3. Members acknowledge that the information obtained in post-clearance
audit may be used in further administrative or judicial proceedings.
5.4. Members shall, wherever practicable, use the result of post-clearance
audit in applying risk management.”
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.
1.4 Types of Post clearance audit in Indian Customs Administration,
1.4.1 There shall be three types of post clearance audit.
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(i) Transaction based audit (TBA)
(ii) Premises based Audit (PBA)
(iii) Theme based audit (ThBA).
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.
1.4.6 Audit of Entities other than importer/exporter: The definition of
‘Auditee’ in Section 99A is not limited to importers and exporters. Other entities can
be audited either through PBA or ThBA, as detailed in para 12.9.
1.5 Organizational Structure for conducting Customs Audit:
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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Commissionerates which have been assigned to them, while reporting to the
Commissioner (Audit).
1.5.3 If required, Audit Commissionerates can take the help of Jurisdictional
Customs Commissionerate for conducting PBA or ThBA. 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 has 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 T-1, T-2
& T-3 respectively.
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.
1.5.6 Concerned Chief Commissioners in charge of Customs formations (except
those in Chennai, Delhi, Mumbai-I ) will identify officers from their jurisdiction having
reasonable experience of work in ICDs / Custom Houses / Air Cargo Complexes /
Land Customs Stations etc. for working as Audit officers for a minimum period of 2
years within their jurisdiction. In case of Chennai, Delhi and Mumbai-I Zones also,
the tenure of Audit officers will be for a minimum period of 2 years.
1.5.7 In order to further improve effectiveness, Audit Commissionerates may utilize
the services of professionals like Chartered Accountants, Cost Accountant and IT
experts as provided for under the Customs Audit Regulations, 2018 as and when
required.
1.6 Responsibility of Committee of Chief Commissioners
There shall be a Committee of Chief Commissioners consisting of the Chief
Commissioners of Customs of Chennai, DelhiMumbai–I and Mumbai-II . As and
when any new Customs Audit Commissionerates are notified by the Board, the
respective Chief Commissioner in charge of the new Audit Commissionerate would
form part of the aforesaid Committee. The said Committee of Chief Commissioners
shall guide the working of the Audit Commissionerates. They shall meet at least
twice a year, preferably in the months of February and August, so that they can
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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:
i. a systemic review of the conduct of audit including the number of audit
circles required to ensure effective audit and to ensure trade compliance
with Customs requirement.
ii. decide the areas / themes for ThBA, based on the inputs from DGARM,
DGRI, jurisdictional Customs Commissionerates, Audit Commissionerates
etc. and forward the selected themes to Customs-PAC section of CBIC for
approval by the Board.
iii. examine the percentage of transactions selected for TBA and advise
suitably.
iv. make suggestions for improvement of the audit process to the Member
Customs (CBIC) based on the experience / feed-back from PCA
Commissionerates, Directorate General of Analytics & Risk Management
(DGARM), Customs Houses, importers & exporters and other stakeholders
etc.
v. ensure that the Audit Manual is periodically reviewed and recommendations
made to the Board for its updation.
vi. 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.
1.7 Responsibility of the Chief Commissioner of Customs (in charge of
Audit Commissionerate)
The Chief Commissioner of Customs (in charge of Audit Commissionerate) is
expected to ensure that there is synergy between audit and assessment
Commissionerates towards the overall objective of increasing compliance and
facilitation in the zone. This calls for a free flow of information and sharing of risk
parameters between field and audit formations. The Chief Commissioner shall put
in place a suitable monitoring arrangement to review the progress and
performance of audit. For the purpose of enhancing the effectiveness of audit the
Chief Commissioner shall examine on a selective basis 5% of the Audit Reports
(selected on random basis based on the quarterly reports submitted by Audit
Commissionerate (s) to ensure whether audit has been conducted as per the
prescribed procedure.
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1.8 Training and skill development
1.8.1 A combination of skills, knowledge and experience is required to carry out
audit effectively. With the increased use of electronic record keeping and the
complexity and diversity of global trade, the need for higher standards of training
becomes increasingly important. Audit Commissionerate should take measures so as
to equip its officers (auditors) with the levels of training necessary to prepare them
to perform their audit duties. NACIN and internal training division of Audit
Commissionerate have an important part to play in ensuring that officers acquire the
required skills to conduct an audit.
1.8.2 All auditors need a range of general skills relevant to the task of auditing.
These skills include:
knowledge of Customs laws, rules, regulations, procedures, other allied laws
[specially about Customs Valuation, Rules of Origin, Tariff Classification,
exemption notifications, Foreign Trade Policy, allied acts etc.].
basic knowledge about use of Computers along with accounting techniques
and principles, based on Generally Accepted Accounting Principles (GAAP).
knowledge of auditing standards and procedures.
knowledge of computer-based accounting and ERP systems.
awareness and knowledge of business strategies in international trade.
soft skills for professional interaction with the auditees.
1.8.3 It is also recommended that some officers working in audit should develop
special skills or knowledge in technical areas, such as:
Harmonized System of Nomenclature
Custom Valuation rules
Applicability of exemption notifications
Rules of Origin
Transfer pricing
various trade sectors (For Ex. Automobile, paper, plastic, electrical / electronic
goods etc.)
about red flags / risk indicators relevant to Trade based / transaction based
money laundering2
new payment methods, E-commerce 3
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.
1.9 Ethical standards for auditors
Auditors must maintain high professional standards and are expected to observe
the CCS (Conduct Rules), 1964, when conducting PCA. Some Dos and Don’ts are
given below:
(a) Professional competence, due care and diligence
Auditors should act diligently and in accordance with applicable technical and
professional standards.
(b) Preparedness for audit
An auditor should gather information about the entity being audited by going
through the auditee’s profile, reports of previous audit, cases registered against the
auditee (detailed steps are given in this Manual)
(c) Integrity
Auditors are expected to maintain absolute integrity while conducting the audit
along with setting high benchmark of professional competence. They should also
refer to the WCO Model Code of Ethics and Conduct as a guide. Auditors
should be extra careful not to be enticed by the auditee with gifts or discounts or
other allurements, but should be proud of their work as Customs auditors and
maintain a professional attitude.
(d) Responsibility
It is the responsibility of an Auditor to see that the objectives of audit are met. This
may require him to follow directions/guidelines/suggestions available in various
allied acts, rules, regulations, judgements of Tribunals/Courts etc. apart from the
provisions of the Customs Act, 1962, rules and regulations made there under and
directions given by the Board vide different circulars and instructions. Moreover,
where ever necessary, in connection with the audit being carried out under section
99A of the Customs Act, 1962 he should ask relevant questions required of a
prudent and competent officer, that will help in ensuring the measurement of
compliance levels effectively.
(e) Confidentiality
Auditors must maintain confidentiality when accessing and examining auditees’
records. Auditors should not disclose any business information they have acquired
during the performance of their duties, unless required by law for such disclosure
of information in specific cases.
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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.
1.10.2 An auditor should establish and maintain a good professional relationship
with the auditee by recognizing their rights including the right to impartial, uniform
and transparent application of law and the right to be treated with courtesy and
consideration. An auditor’s professionalism and quality of audit is expected to
convince auditees that they stand to gain from an audit in as much as:
(i) They will be better equipped to comply with the Customs Law and
Procedures;
(ii) Self-assessment of Customs duties and compliance of laws in future
transactions will be correct and complete;
(iii) Disputes / proceedings against them would be substantially reduced or
even eliminated; and
(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.
1.10.4 Records and documents submitted to an auditor in electronic or manual
format, should be used only for verification of assessment of Customs duty and
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compliance to relevant laws. Confidentiality must be maintained in regard to
information/documents furnished to an auditor during the course of audit.
1.11 GLOSSARY AND DISCLAIMER
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
2.1 Scope and Purpose
This part of the manual explains the procedure for conducting Transaction based
audit. TBA does not normally require the auditor to visit the premises of the
exporter/importer and the audit can be conducted at the Customs office. Although
the goods have already been released from Customs control, yet Customs has the
legal authority to collect duty that is short levied or non-levied or carry out a check
for purposes of verifying compliance to other laws and impose penalties if
irregularities are found. The scope of audit in this method shall encompass:
Import: Examination of bills of entry/bill of import/import declaration, invoice cum
packing lists, import licenses/ authorizations and other records of transaction relating
to imported goods as submitted by the importer or his authorized representative
during the process of clearance by Customs so as to check the accuracy and
correctness of assessment of duty and compliance of all legal requirements under
Customs Act or any other law.
Export: Examination of shipping bills/bill of export/export declaration, invoice cum
packing lists, licenses/ authorizations and other records of transaction relating to
export goods as submitted by the exporter or his authorized representative during
the process of clearance by Customs so as to check the accuracy and correctness of
value, duty (if applicable) and compliance of all legal requirements under Customs
Act or any other law.
2.2 Constitution of Audit Circles
Initially, in each of the Audit Commissionerates there would be three audit circles
assigned the work of TBA. To promote specialization, it would be preferable that out
of three Audit Circles, one Audit Circle may exclusively look after export TBA.
Further, depending on the workload, the Committee of jurisdictional Chief
Commissioners (herein after referred to as “Committee”) may review the number of
audit circles, required for effective audit. In order to ensure effective audit, the TBA
teams of Customs Audit Commissionerates may continue to be stationed in the
concerned Customs Commissionerates, audit of which have been assigned to them.
2.3 Risk based selection of transactions for TBA
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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-
Role of Appraiser / Superintendent (PAO Role):
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.
Then on checking the various particulars like classification, valuation,
compliance requirements, if the officers found that all the particulars are in
order, then he/she can forward the Bill of Entry to next level i.e. PAC Role by
selecting the option of ‘next bill of entry’ or by pressing “ALT + N” shortcut
key and filling “Y” in the “complete column” and then pressing enter.
If anyone of the above parameters are not in order, the Appraiser /
Superintendent can change the classification, valuation, denying of
Notification benefit, applicability of ADD Notification as the case may be by
putting a suitable comment in the EDI System. Thereafter he/she can forward
the Bill of Entry to next level i.e. PAC Role by selecting the option of ‘next bill
of entry’ or by pressing “ALT + N” shortcut key and filling “N” in the
“complete column” and filling CL/SCN in the concerned menu and then
pressing enter. Once the concerned Assistant / Deputy Commissioner
approved the objection, the concerned Appraiser / Superintendent can
generate CL/SCN from the ‘Generation of Post Audit CL/SCN’ menu in their
PAO Role.
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.
Role of Assistant / Deputy Commissioner (PAC Role):
Assistant / Deputy Commissioner (PCA) has to follow the same procedure
after selecting the Bill of Entry from his role (PAC). He / She can finalize the
audit or query raised by the Appraiser / Superintendent.
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 .
3.1.2 The ICES system generates instructions at various stages of processing of
declarations i.e. appraising instructions, Compulsory Compliance Requirements
(CCR), examination instructions, target instructions, PCA instructions, etc. Generally,
these instructions may relate to classification, valuation, prohibition / restriction,
availability of benefit under exemption notification, if claimed by importer / exporter,
levy of ADD / Safeguard duty / CVD etc. Auditors are not only expected to refer to
these specific instructions alone but are required to examine other aspects which
affect importability / exportability of goods, classification, valuation etc.
3.2 Details about the steps
Details about the steps required to be taken by an auditor entrusted with TBA has
been laid out in the paras below:
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.
A2. Check Examination order and Examination report
On reading the instructions as above, the auditor shall view the examination order
and examination report to examine whether those aspects have been scrutinized/
commented upon at the time of examination. Wherever the auditor finds a systemic
lapse in the quality of examination orders or examination reports or non-adherence
of RMS instructions, which he thinks is a risk to revenue or other regulatory
compliance, he shall flag the same in the monthly monitoring committee meeting
with specific case details, even if no revenue loss is immediately noticeable or
quantifiable, so as to take future corrective actions.
A3. Check lists (Ready Reckoner)
A3.1 Refer and verify issues from “Ready Reckoner” consisting of
i. Applicability of Anti-Dumping Duty (ADD Checklist) [CHECKLIST-1]
ii. Applicability of Safeguard Duty (SD Checklist) [CHECKLIST-2]
iii. Applicability of CVD (CVD Checklist) [CHECKLIST-3]
iv. Applicability of RSP based CVD Checklist (RSP BASED CVD Checklist)
[CHECKLIST-4]
v. Compilation of Board Circulars on classification (CL Checklist)
[CHECKLIST-5]
vi. Customs Heading wise Risk indicators (CTH wise Checklist) [CHECKLIST-
6]
vii. Checklist for certain specific commodities (Specific Commodities
Checklist) [CHECKLIST-7]
viii. Checklist for re-import & temporary import (Re-import Checklist)
[CHECKLIST-8]
A3.2 In spite of the availability of appraising instructions / PCA instructions, an
auditor shall maintain his own ready reckoner on various CTH of his Audit Group
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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.
A4. Check the classification of goods
A4.1 Assessment essentially involves proper classification of the goods imported /
exported in accordance with the customs tariff having due regard to the rules of
interpretations, chapter and sections notes etc., and determining the duty liability, if
any. Classification of goods has a bearing on rates of duties, exemption notifications,
importability / exportability of goods etc. Following checks shall be conducted to
ensure the correct classification of goods:
Sl. No. Type of Check Answer
1 Whether the description of the goods have been properly
and completely declared (without abbreviations) so as to
determine appropriate classification.
Yes / No
2 Whether goods have been correctly classified? Yes / No
3 Whether the classification of the goods tally with the classification in the suppliers invoice/documents
Yes/No
4 Whether the goods cleared are covered by valid import /
export license/ authorization, if required?
Yes / No
5 Whether the classification of goods in question has already
been clarified by CBIC? (refer Classification Checklist)
[CHECKLIST-5]
Yes / No
6 Whether the classification of goods in question has already
been settled by judicial pronouncements?
Yes / No
7 If an importer has availed exemption under a particular
notification, the Auditor shall verify whether the goods are
correctly classified and eligible for exemption on the basis of
such classification. Special attention shall be paid to the goods
imported at ‘Nil’ rates of duties/ goods having end-use based
condition.
Yes / No
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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.
A5. Check the valuation of goods
A5.1 Assessment of duty, beside classification, also involves correct determination
of value, where the goods are assessable on ad-valorem basis. The Auditor has to
take note of the invoice, contract and other declarations submitted along with the
bill of entry / shipping bill to support the valuation claim, and adjudge whether the
value declared is proper in terms of Section 14 of Customs Act, 1962. He shall also
take note of the National Imports Data Base (NIDB), contemporaneous values and
other information on valuation available with the Auditor /Custom House. The
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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.
A5.2 A quick internet search of declared description / Suppliers website /
international trading websites may yield relevant information regarding the value of
the goods in question.
A5.3 Check List for Valuation of Goods:
Sl.
No.
Type of Check Answer
1 Whether Value declared in foreign currency in “Contract / Purchase
invoices matches with the value declared in Bill of Entry / shipping
bill?
Yes / No
2 Whether currency declared in contract / purchase invoices matches
with the currency declared in Bill of Entry / shipping bill?
Yes / No
3 Check from contract whether the Royalty / License fees is a
condition for Sale of goods?
Yes / No
4 Are there any moulds, dies or other assists provided by importer to supplier free of cost?
Yes / No
5 Check from Bill of Lading whether freight paid and currency
of such payment matches with the freight declared in Bill of Entry/
shipping bill?
Yes / No
6 Whether value declared in Bill of Entry / shipping bill compares with
the value of contemporaneous imports of identical or similar goods
as per NIDB (National Imports Data Base) data?
Yes / No
7 If metal has been declared, whether the declared value on an
average compares favorably with the London Metal Exchange prices
of relevant date? (LME provides price reports for Ferrous metals,
Non Ferrous metals such as Aluminum, Aluminum Alloy, Copper,
Lead, Nickel, Tin, Zinc etc.)
Yes / No
8 If plastic granules have been imported, whether the price declared
compares with that available in the PLATT journal on the relevant
date (PLATTS is a global provider of energy, petrochemicals, metals
and agriculture pricing information. PLATT has also expanded to
cover petrochemicals, metals, shipping and other energy-related
commodities such as natural gas, electric power, coal, LNG, nuclear
and biofuels)
Yes / No
9 ICIS DATA (http://www.icis.com) (ICIS price reports provide
price reports for global petrochemical, energy and fertilizer
markets and cover more than 180 commodities)
10 Similar international databases for other commodities may also be referred for verification of value declarations
11 For valuation of second hand machinery: Refer Board Circular No
Circular No. 25 /2015 , dated 15.10.2015
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12 In case of related parties (if applicable), check whether the instructions of the Board vide Circular No.5/2016-Customs dated 9.2.2016, as amended, is complied with?
Yes / No
13 In case of goods with nil rate of duty also examine if there is a possibility of goods having been overvalued resulting in trade based money laundering?
Yes / No
14 In respect of IGST, please refer Board Instructions issued under F. No. 450/100/2017-Cus.IV dated 20.6.2017
A6. Check the eligibility of benefit of exemption claimed under any
Notification (BCD/CVD/SAD/Cess/IGST)
Auditor shall refer to the text of the exemption notification to verify its
eligibility for the goods. All such exemption notifications are available on CBIC
website.(www.cbic.gov.in). There are many notifications which require certificates
from jurisdictional authorities / GST Commissionerates under concessional rate of
duty rules, some require an end use certificate. Whether such certificates are
available and conditions of Notification has been complied with, should be checked
and verified.
A7. Check the applicability of RSP based CVD [Prior to 01.07.2017]
Refer RSP based CVD Checklist[Checklist No 4] along with Notification
No. 49/2008-C.E. (N.T.), dated 24-12-2008 as amended to verify the
applicability and correctness of import declaration.
A8. Check for applicability of ADD
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 actual
imports. ADD Checklist[CHECKLIST 1] shall be referred to ascertain the
applicability of ADD on the imported goods. Following checks may be conducted in
this regard:
Sl.No. Type of Check Answer
1 Whether such goods are leviable to anti-dumping duty? Yes/No
2 Whether goods have been imported from countries, and obtained
from manufacturer & suppliers (as specified in ADD Notification)
and whether said duty has been paid correctly?
Yes/No
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
(NADC)” or “Anti- Dumping Duty Country (ADC)”?
(ii) Whether the website of supplier shows, supplier exists in
Yes/No
Yes/No
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the Country of supply?
(iii) Whether Insurance Policy was issued by the Insurer from
the Country of export or not?
Yes/No
A9. Check for applicability of Safeguard Duty (SD)/ CVD
Special attention shall be paid by the Auditors to ensure that the importer has
not avoided payment of Safeguard Duty/ CVD by mis-declaring the country of actual
imports. SD Checklist [CHECKLIST-2] and CVD Checklist [CHECKLIST-3]shall be
referred to ascertain the applicability of safeguard duty on the imported goods.
Following checks may be conducted in this regard:
Sl.
No.
Type of Check Answer
1 Whether such goods are leviable to Safeguard Duty / CVD as per
SD Checklist / CVD Checklist?
Yes/No
2 Whether the goods have been imported from the Safeguard Duty /
CVD countries and the said duty has been paid?
Yes/No
3 If the goods are leviable to Safeguard Duty / CVD but such duty
was not paid because imported from non- Safeguard Duty Country
/ CVD Country, check the following:
(i) Whether Bill of Lading/Airway Bill shows that the goods
were loaded from the “Non-Safeguard Duty / CVD
Country” or “Safeguard Duty / CVD Country”?
(ii) Whether the website of supplier shows supplier’s
existence in the Country of supply?
(iii) Whether Insurance Policy was issued by the Insurer of
Country of export or not?
Yes/No
Yes/No
Yes/No
A10. Check the correctness of Tariff values (Goods subject to valuation
under Section 14(2) of Customs Act)
Auditors should refer to CBIC notifications issued from time to time. These
Notifications are available on CBIC website.
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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A12. Check admissibility of concessional rate of duty on the basis of
imports of goods from Preferential Areas/Countries
When goods are imported from certain Countries, tariff concessions are
available based on certain agreements and notifications. There are many such
agreements. Some of them are – Asia Pacific Trade Agreement, India-Singapore
Comprehensive Economic Co-operation Agreement, Agreement on South Asia Free
Trade (SAFTA), Indo-Sri Lanka Free Trade Agreement. Wherever the importer has
claimed benefit under such notification, the Audit Officer has to verify the eligibility
of the claimed notification and the correctness of the classification of imported goods
under the claimed CTH (rate of concession differ from one tariff heading to the
other). The Audit Officer has also to verify whether the Country of Origin Certificate
has been issued in the format prescribed under the relevant Origin Rules by the
designated authority and the signatures match with the specimen signatures
supplied by the exporting country. The Audit Officer should also critically examine
not only the format but also be vigilant to notice whether the imports are prima facie
as per origin criterion and meets the specific criterion, including the value addition
norms as per the individual FTAs / PTAs. For example, in the case of metal/natural
products like sheets, gold articles, oil etc. whether the declared country is actually a
producer of such raw material? In the case of manufactured goods whether the
components that form a bulk of the value are manufactured in the country of export
or are imported from third country’s etc. Such information if recorded during
monitoring meetings would be useful while deciding on the selection of PBA units.
Please also refer to Instruction no. 31/2016 – Customs, dated 12th
September 2016[F. No. 20000/4/2011- IC (ICD)]. The auditors should also check
if there has been a sudden change in the country of origin after imposition of ADD
(or grant of preferential duty benefits) from a country, to ascertain if the same
goods are now being routed through a third country.
Sl.No. Type of Check Answer
1 Whether the certificate of origin issued by the country for which
exemption notification is claimed?
Yes/No
2 Whether quantity and nature of goods imported matches
with the quantity and nature of goods given in Certificate of
Origin?
Yes/No
3 Whether Bill of lading/Airway bill indicated loading of
consignment from preferential country or otherwise?
Yes/No
4 If country of loading the consignment is different from
Preferential country, whether evidence for transportation of such
goods from Preferential country to such third country has been
produced?
Yes/No
5 Verify whether the Country of Origin Certificate has been issued in the format prescribed by the designated authority and the
Yes/No
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signatures match with the specimen signatures supplied by the exporting country?
6 Whether specific conditions of the notifications including value addition norms have been satisfied
Yes/No
A13. Check compliance of other legal requirements
A13.1 Requirement under Narcotic Drugs and Psychotropic Substances
Act, 1985
Import of Narcotics, Drugs & Cosmetic substances requires “No Objection
Certificate” from the appropriate authority under NDPS Act prior to their
export/import. [Please refer to “Specific Commodities Checklist“[CHECK LIST
NO 7]
A13.2 Import of Cosmetics
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
[Please refer to “Specific Commodities Checklist “ ] [CHECK LIST NO 7].
A13.3 Import of Insecticides
Verify whether “Certificate of registration” or “import permit”, as the case may be,
has been submitted. [Please refer to “Specific Commodities Checklist “][CHECK
LIST NO 7].
A13.4 Compliance of BIS requirements
For complete list of products covered under Compulsory Registration Scheme of BIS
standards, the latest list available on the BIS website should be seen for checking
compliance. [Please refer tohttp://crsbis.in/BIS/products.do].
A13.5 Import of Toys
Verify whether import of Toys are accompanied by the certificates as prescribed
by DGFT in the Notification. [Please refer to “Specific Commodities Checklist
“][CHECK LIST NO 7]
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A13.6 Import of meat and meat products
Check whether Sanitary Import Permit obtained from the Department of Animal
Husbandry, Dairying and Fisheries (DAHDF) has been submitted. [Please refer to
“Specific Commodities Checklist “][CHECKLIST-7]
A13.7 Import of Second Hand Goods other than capital foods
Check whether the authorization from DGFT as required as per Para 2.31 of FTP
2015-2020 has been submitted. [Please refer to “Specific Commodities
Checklist “][CHECK LIST NO 7]
A13.8 Import of Metallic Waste and Scraps
Check whether the requirements as per Para 2.32 of FTP 2015-2020 read with
para 2.54 of Handbook of Procedures have been met. [Please refer to “Specific
Commodities Checklist “][CHECK LIST NO 7]
A14. Check eligibility of exemption from payment of duty in respect of
imports against Export Promotion Schemes:
14.1 Import under “Advance Authorisation Scheme” [Chapter 4 of FTP
2015-20]
Advance Authorisation is issued to allow duty free import of input, which is physically
incorporated in export product (making normal allowance for wastage) with
condition of fulfilling prescribed export obligation.
Check List:
Sl.No. Type of Check Answer
1 Whether the imported goods conform to the description given in
the table of the relevant notification. [Materials imported should
correspond to the description and other specifications mentioned
in the authorization. Further, the value and quantity should be
within the limits specified in the said authorization.]
Yes/No
2 For Export of prohibited item under Advance Authorisation, please refer to Circular No. 4/2014-Cus., dated 10-2-2014 [F.No. 605/27/2013-DBK]
3 Check from Bills of Entry whether the imported goods are as per the details given in Advance Authorisation?
Yes/No
A14.2 Imports under “Export Promotion Capital Goods (EPCG)” Scheme
[Chapter 5 of FTP 2015-20]
EPCG Scheme allows import of capital goods for pre-production, production and
post-production at Zero customs duty. Second hand capital goods are not permitted
to be imported under EPCG Scheme.
Check List:
PCA MANUAL
34
S.
No.
Type of Check Answer
1 Whether the imported goods conform to the description given in the
table of the relevant notification?
Yes/No
2 Check from Bills of Entry that the imported goods are as per the
details given in EPCG Authorisation?
Yes/No
A14.3. Import under “Duty Free Import Authorisation Scheme (DFIA)”
Scheme [Chapter 4 of FTP 2015-20]
Duty Free Import Authorisation is issued to allow duty free import of inputs.
According to Para 4.40 of FTP, DFIA scheme is not available for Gems and Jewellery
sector.
Check List:
S.
No.
Type of Check Answer
1 Whether the imported goods conform to the description given in
the table of the relevant notification.
Yes/No
2 Check from Bills of Entry that the imported goods are as per the
details given in DFIA Authorisation.
Yes/No
3 Refer to Circular No. 12/2016-Customs, dated 28.03.2016on the subject “Prevention of use of non-genuine transferable duty credit scrips or DFIA (duty free import authorizations)”.
A14.4. Import of goods against Merchandise Export from India Scheme
(MEIS) / Service Export from India Scheme (SEIS) scrip:
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.
A15. General Checklist (Restrictions / Prohibitions)
A15.1 Restrictions / Prohibitions:
The item wise export and import policy has been specified in ITC (HS) published and
notified by Director General of Foreign Trade, as amended from time to time. Para
2.08 of Foreign Trade Policy (2015-2020) provides that any goods /service, the
export or import of which is ‘Restricted’ may be exported or imported only in
accordance with an Authorisation/ Permission or in accordance with the procedure
prescribed in a Notification/ Public Notice issued in this regard. Further, Prohibitions
(Country and Product Specific) as contained in Chapter 2 of FTP should be looked
into.
PCA MANUAL
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Please click here for:
• Restricted Items for Imports
• Prohibited Items for Imports
• Export Policy
A15.2 Date of reckoning of Import / Export for the purpose of restrictions:
Refer Para 2.17 of Handbook of Procedure (HOP) [Notified by DGFT in pursuance to
paragraph 1.03 of Foreign Trade Policy (FTP 2015-2020)]. Date of reckoning of
import is decided with reference to date of shipment/ dispatch of goods from
supplying country as given in Paragraph 9.11 of Handbook of Procedures and not
the date of arrival of goods at an Indian port. Auditor should check whether the
importer has presented the Master Bill of Lading (Master BL) and not the House Bill
of Lading (House BL) for this purpose.
A15.3 Validity of Authorisation/ Licence for import/export (refer Para 2.18
of HOP):
Auditor should check whether the Authorization was valid on the date of import.
A15.4 Validity of Scrips (refer Para 2.19 of FTP 2015-2020)
Auditor should check whether the scrips under Chapter 3 and 5 are valid on the date
on which actual debit of duty is made.
A16. Import of goods under the category of re-import and temporary
imports of Goods
1. Check whether all the importations are authorized and all the conditions of
the authorization have been fulfilled.
2. Was the correct duty paid / drawback reversed / export benefit
surrendered as specified in the relevant notification.
3. Whether time limit as specified in the concerned Notification has been
adhered to.
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]
A17. Audit in case of warehousing and ex-bond bills of entry.
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 Restrictions and Prohibition
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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7. National legislation to implement Article 10 of the United Nations’ Protocol
against the illicit manufacturing of and trafficking in firearms, their parts and
components and ammunition [The Protocol against the Illicit Manufacturing
and Trafficking in Firearms, Their Parts and Components and Ammunition
(Firearms Protocol) is a treaty on anti-arms trafficking including Small Arms
and Light Weapons that is supplemental to the Convention against
Transnational Organized Crime. It is one of the so-called Palermo protocols.]
8. National legislation to implement United Nations Convention against
Transnational Organized Crime (UN Firearms Protocol) Wassenaar
Arrangement;
9. Control of Biological weapons;
10. Missile Technology Control Regime;
11. Issues related to Nuclear Supply Group;
12. Implementation of UNSCR (United Nations Security Council Resolutions);
B1.2 Auditors should refer to Schedule 2 of Foreign Trade Policy, which
contains the following:
• General Notes to Export Policy – Goods under Restrictions
• Schedule 2 - Export Policy
• Appendix 1 – List of Wild Life Entries in Wild Life (Protection) Act, 1972
• Appendix 2 – List of flora included in Appendix I (Prohibited Species) &
Appendix (endangered species) II of CITES
• Appendix 3 – List of SCOMET items
• Appendix 4 – Definition of Finished Leather
B1.3 For certain commodities especially in agricultural, mining, livestock etc, DGFT
issues Public Notices, trade Notices, Notification from time to time providing for
export restrictions, which must be checked to verify compliance.
For example:
Health certificate for meat product etc.
Export restrictions, minimum export price, export quotas etc as notified by
DGFT;
B2 Classification of export goods
Auditors, during the audit of shipping bills are required to check the declared
classification in the manner similar to import. Classification is relevant not only to
decide admissibility of export incentives (drawback, IGST refund, MEIS etc.) but also
enables auditor to decide applicability of any restriction or prohibition in respect of
said goods.
B3 Admissibility and applicability of correct rate of duty drawback
Auditors, during the audit of shipping bills are required to check the following:
PCA MANUAL
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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.
B4 Valuation of export goods
Auditors, during the audit of shipping bills are required to check the declared
valuation (in accordance with Customs Valuation (Determination of Value of
Export Goods) Rules, 2007) in the manner similar to import. Valuation may be
checked to verify any overvaluation done for misuse of export incentives, especially
drawback, (where amount of export incentives is dependent on the value of goods).
B5 Duty or Cess payable on export goods
Auditors, during the audit of shipping bills are required to check whether appropriate
export duty or cess has been paid on export goods, if applicable.
B6 Issues related to Trade Based Money Laundering (TBML)
Further, overvaluation / undervaluation of export is a strong indication of Trade
Based Money Laundering (TBML). Details of such cases need to be shared by
Customs with Enforcement Directorate (ED) for investigation at their end under the
Foreign Exchange Management Act, 1999 (FEMA) or under the Prevention of Money
Laundering Act, 2002 (PMLA).
B7. Exports IGST Refund Audit
The Auditor while auditing the shipping bills should also verify the correctness of the
export IGST refund claimed in the respective shipping bill, wherever applicable.
Following factors may be considered
1. Shipping bills where IGST amount claimed or mentioned is more than 1/3rd of
the FOB amount mentioned in the shipping bill.
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).
4.1.2 After receipt of reply from the auditee, if the Appraiser/Superintendent
decides that the objection raised in the BE/SB does not survive, then he will mark the
BE/SB to AC/DC (Audit) for acceptance of the BE/SB. If AC/DC (Audit) also concurs,
then the BE/SB will be sent to history in the ICES. If the AC/DC (Audit) finds it
necessary to revisit the BE/ SB, he may send it back to the Appraiser/Superintendent
concerned with his comments.
4.1.3 On the contrary if the Appraiser/Superintendent/Assistant/Deputy
Commissioner detects any irregularity/ audit point, he should ascertain the short/
excess payment and issue an “Audit consultative letter (ACL)” to the Auditee with the
approval of the AC/DC and mark the BE to the AC/DC (Audit). 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. In such
cases, there may not be a need to issue separate Consultative letters under Pre-
Notice Consultation Regulations, 2018.
4.2 Consultative letter
i. An ACL is a mechanism to promote the culture of voluntary compliance by the
Auditee. AO / Superintendent can issue ACL to the auditee with approval of
the AC /DC (Audit). The consultative letters referred to in this manual, refer to
both ACL issued by AO/Superintendent or a letter issued as per Pre-Notice
Consultation Regulations (PCL) by the proper officer.
ii. All consultative letters (both ACL and PCL) issued during the month shall be
placed before the “Monthly Monitoring Committee”. However, if there is any
possibility of demand getting time barred, then the show cause notice can be
issued by the proper officer, if felt necessary, without waiting for the MCM.
iii. The consultative letter should have a running serial number taken from a
Central Audit Numbering Register (to be maintained by the Planning & Co-
PCA MANUAL
40
ordination Section) of the Commissionerate for a calendar year.
[Commissionerate Id./ Sl. No./ Circle Id./ Calendar Year Eg ND/6/Audit Circle
3/2018 (6th letter of the Calendar Year by Audit Circle No 3 of Chennai Audit
Commissionerate)]
iv. On receipt of the Consultative Letter the Auditee is expected to reply to the
letter within 15 days of its receipt.
v. If the auditee agrees to pay the amount indicated in the consultative letter,
and shows proof of payment and no case of fraud etc. is involved the
objection gets closed.
vi. The auditor after obtaining the proof of payment shall make necessary
comments (departmental comments column) in the bill of entry, including the
challan number, date and the details of the consultative letter.
vii. Where an objection is closed subsequent to payment of duty, interest,
penalty, if any, a communication needs to be sent to concerned
Commissionerate with a copy to auditee.
viii. After this stage, the bill of entry/shipping bill should be forwarded to AC/DC,
for finalising the audit.
ix. If the Auditee does not agree with the consultative letter, or does not respond
within the stipulated period, and the audit objection / point has been accepted
in the “Monthly Monitoring Committee”, further action for issue of show cause
notice may be initiated.
x. Before issue of show cause notice the procedure specified in Pre-Notice
Consultation Regulations 2018, has to be followed, wherever applicable.
xi. The proper officer in audit shall issue the show cause notice answerable to the
adjudicating authority in the jurisdictional Customs Commissionerate. The
facts and details of the show cause notice should also be entered in the
departmental comments of the BE/SB, by the auditor, before forwarding the
BE/SB to the AC/DC (Audit).
xii. The jurisdictional adjudicating officer shall endorse a copy of the adjudication
order to the audit Commissionerate. (Jurisdictional adjudication officer shall
enter the details of order in the ICES system, as and when such option is
made available).
4.3 Issue of advisories
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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iv. An advisory to an auditee will be processed in a manner similar to a query and
will be issued only after approval by AC/DC (Audit).
v. The key difference between a query and an advisory is that while a query is a
request for information/ documents from the importer, no reply is envisaged
for an advisory.
vi. The facility for issue of advisories through the ICES will be enabled in the full
version. Pending the same, the advisories can be issued manually from the
audit files.
4.4. Proceedings of Monthly “Monitoring Committee Meeting” (MCM)
4.4.1 Monitoring Committee should examine audit objections as contained in each
Circle Report with a view to:
i. Decide if audit objection needs to be approved or dropped
ii. Identifying issues fit for issue of “Modus Operandi Circular”
iii. Where considered necessary, recommend the audit objection for further
investigation by SIIB/ CIU/ DRI/ other investigating agency.
iv. Considering the facts of each case, Commissionerate may direct the
concerned Audit Circle to bring serious infringements to the notice of
concerned Licensing Authority (DGFT, MOEF, Central Insecticide Board (CIB)
etc.,) to take remedial measures.
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
5.1 Register of consultative letters:
Each Commissionerate shall maintain a centralized Audit Numbering Register for
issue of consultative letter as mentioned in Para 4.2 above. The said register shall be
in the proforma as below:
REGISTER OF CONSULTATIVE LETTERS
[FROM: …/…/201… OF …………..AUDIT COMMISSIONERATE]
Sr.
No.
Consultative
Letter No.
Importer
/
Exporter
Name
(IEC No.)
BE /
SB No.
/ Date
Brief of
Audit
Objection
/ Para
Duty /
export
incentive
Involved
(Rs.)
Duty /
export
incentive
recovered
(out of Sr
No 6)
(Rs.)
Remark
(indicate
interest, etc.)
(1) (2) (3) (4) (5) (6) (7) (8)
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).
5.2 Monthly Circle Report
Each Audit circle shall prepare a “Monthly Circle Report“ containing details of
detection made during the month, as indicated in the format below, within 7 days of
the end of the month. Individual objections mentioned in the report will be discussed
during the “Monitoring Committee Meeting”. Monthly Circle Report shall be precise,
to the point, and self-explanatory. It should invariably quote the relevant authority, if
an objection raised is based on a clarification / Circular by Board, Court Judgment /
Tribunal decision etc. Copies of all documents / evidences relied upon for raising
objection shall be enclosed along with the Monthly Circle Report. All objections
should be sequentially numbered.
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MONTHLY CIRCLE REPORT
[FOR THE MONTH OF….,201… OF CIRCLE NO ……]
PART-A
Sr.
No.
Consultative
Letter No. &
date
Importer/
Exporter
Name
(IEC No.)
BE/
SB
No.
/
Date
Brief of
PCA
Objection
/ Para
Duty/
export
incentive
Involved
(Rs.)
Duty
recovered/
export
incentive
recovered
(out of Sr
No 6)
(Rs.)
Action taken/
Remark (details of
SCN’s/ objections
closed)
(1) (2) (3) (4) (5) (6) (7) (8)
Part. I. Current Month
TOTAL OF COLUMN.7
Part. II. Outstanding from previous months
TOTAL OF COLUMN.7
Note1. The outstanding consultative letters should be brought forward in every monthly report, till the time these are finally disposed of either by issue of SCN or on closure or recovery of the amount. Note 2. If one consultative letter is with reference to number of BEs/SBs, then details of all such BEs / SBs should be entered in Column (4). Note 3. For filling details in column (5), separate sheets may be used, if found necessary.
PART-B
Bill of Entry Sl.
No.
No. of BEs given OOC
during the month
No. of BEs selected
for TBA for the
month
% selection No. of BEs
audited during
the month
No. of BEs pending
for audit at the end
of the month
(1) (2) (3) (4) (5) (6)
Shipping Bills Sl.
No.
No. of SBs given LEO
during the month
No. of SBs selected
for TBA for the
month
% selection No. of SBs
audited during
the month
No. of SBs pending
for audit at the end
of the month
(1) (2) (3) (4) (5) (6)
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5.3 Monthly Commissionerate Report
5.3.1The Audit Commissionerate will compile the report received from Audit Circles
and prepare a “Monthly Commissionerate Report” in the Format given below.
MONTHLY COMMISSIONERATE REPORT
[FOR THE MONTH OF….,201… OF ………. AUDIT COMMISSIONERATE]
PART-A
Total
no. of
BEs/
SBs
Audite
d
Total no. of
Audit
Objections
raised
(includes
cases
where
consultativ
e letter not
issued)
Total no. of
Consultativ
e Letters
issued
Total
no. of
cases
droppe
d (out
of Sr.
No. 2)
Total
no. of cases
accepted by
Auditee
(out of Sr. No.
2
Total
duty recovere
d (out of cases at
Sr No 5)
(In Lakhs)
No. of
cases
out of
Sr. no. 2
propose
d for
issue of
SCNs
Total
duty involved
in the propose
d SCNs
at Sr No 7
(In Lakhs)
Remar
k
(1) (2) (3) (4) (5) (6) (7) (8) (9)
PART-B
MONTHLY COMMISSIONERATE REPORT OF TOTAL B.E./S.B. PROCESSED AND %
[FOR THE MONTH OF….,201… OF ……….AU
DIT COMMISSIONERATE]
Bill of Entry Sl.
No.
No. of BEs given OOC
during the month
No. of BEs selected
for TBA for the
month
% selection No. of BEs
audited during
the month
No. of BEs pending
for audit at the end
of the month
(1) (2) (3) (4) (5) (6)
Shipping Bills Sl.
No.
No. of SBs given LEO
during the month
No. of SBs selected
for TBA for the
month
% selection No. of SBs
audited during
the month
No. of SBs pending
for audit at the end
of the month
(1) (2) (3) (4) (5) (6)
5.3.2. The Coordination Cell of the Commissionerate shall organize a “Monitoring
Committee Meeting (MCM)” on monthly basis preferably in the third week of the
succeeding month, to monitor the audit performance. The Monitoring Committee
shall be chaired by the Commissioner concerned and should be attended by ADC/JC
(Audit), Audit Circles. ADC/JC of the jurisdictional Commissionerate, shall also be
PCA MANUAL
45
invited by the Commissioner. The important audit objections to be discussed in the
meeting should be circulated 7 days in advance as a part of the meeting agenda.
5.4 Report for Chief Commissioner
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.
In addition, the report shall contain the following:
(i) gist of important audit objections noticed during the month
(ii) list of referrals, with a brief on the issues, forwarded to other Commissionerates,
RMCC etc.,
(iii) modus operandi circulars issued, if any
(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.
5.5 SUMMARY OF AUDIT PROCESS: 1. ADC/JC (audit) or DC/AC (audit) shall brief the auditors about important issues to be
looked into on weekly basis. (based on Board Circular / recent feedback from DRI / executive Commissionerates / DG (Valuation), RMCC, C&AG or any other sources).
2. ICES System routes shipping bill (SB)/ bills of entry (BE) to auditor’s screen (group wise / chapter wise)
3. Audit of BE/ SB by Auditors 4. If no irregularities are found, the BE/ SB should be forwarded to DC/ AC (Audit) for
acceptance
5. If more documents are needed to be scrutinized before arriving at a conclusion, call
for documents with the concurrence of AC/ DC (audit)
6. If no irregularities are found after examination of additional documents, the BE/ SB
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46
should be forwarded to DC/AC (Audit) for acceptance
7. If irregularity noticed:
a. Nature of irregularities is only relating to procedure/ internal control, etc, issue advisory
b. If relating to short payment of duty/ excess export incentives/ violation of any restriction/ prohibition, issue consultative letter
c. If irregularities pertain to contraventions other than the Customs Act, refer issue to jurisdictional Commissionerates for initiating necessary action.
8. Discuss issue in the monitoring committee meeting for accepting or dropping an objection or to resolve any difference in opinion between a Jurisdictional Commissionerate and the Audit Commissionerates.
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
Transaction based audit as explained in Section-I verifies compliance based on the
documents available for a particular transaction. TBA has the limitation that it does
not give the comprehensive profile of the auditee because of limited number of
documents submitted during clearance and paucity of time. PBA on the other hand,
is aimed at verifying the compliance level of the auditee as a whole, by examining, if
the internal control systems of the auditee are robust enough to prevent systemic
risk to revenue or other compliances. During PBA, the procedure for verification
covers inspection of goods, all transactions as a whole and extends to examination
of bills of entry, bills of import, import declaration, import licence or authorization,
shipping bills, bills of export, export declaration, export licence or authorization, bills
of lading, country of origin certificates, invoice, packing lists, sales contracts, other
financial or non-financial documents or records and the accounting system of the
auditee, whether kept in the written or printed or electronic form. This gives the
auditors a holistic picture of the auditee’s business by checking internal consistencies
between records, business transactions and internal procedures, so as to assess the
level of compliance. Issues that may not be identified at the transaction level due to
complexities of business can be better discovered or ascertained once the business
structure and records are verified in totality.
6.2 Constitution of Audit Circles for PBA
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 Annual Audit (PBA) Schedule
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.
6.4 Selection of Auditees for PBA
6.4.1 Identification of auditees for PBA to be audited in a year would be done by a
Committee chaired by DG (ARM). The identification will be done in a risk based
manner factoring in the inputs received from DGARM, DGRI, jurisdictional Customs
Commissionerates, Audit Commissionerates, DGSTI and other sources.
The Committee shall consist of the following officers:
1. All Commissioners of Audit Commissionerates;
2. Representative from DRI Headquarter;
3. ADG in-charge of Customs vertical in DGARM
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
7.1 Steps for conducting PBA
An Audit officer is expected to conduct PBA in a systematic manner on sound
auditing principles to assess the degree of compliance of an auditee with the
provisions of this Act or any other law for the time being in force. In this direction
the auditor shall follow the following steps sequentially.
i. prepare a Master File of the auditee.
ii. conduct Desk Review and preparatory interview to gather information about
the auditee and for a review of his internal system.
iii. prepare an Audit Plan.
iv. undertake Audit Verification of the auditee, including tour of premises,
evaluation of internal controls, and preparation of Working Papers.
v. preparation of Audit Reports and follow up.
vi. feedback
7.2 Importer/ Exporter Master File
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.
7.2.7 “Planning & Co-ordination Section” of the Audit Commissionerate will be
responsible for maintaining the Master Files. They are required to ensure Safe
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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.
7.2.8 The Master File should be updated periodically by concerned Audit
Commissionerate. At the initial stages, most of the information would be available in
the form of hard copies and the updating has to be done manually.
Progressively, the information should be maintained in an electronic format with
automated data transfer through a secured networking system.
7.3 Data Security
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
8.1 Objectives of Desk Review
The objective of Desk Review is to gather as much relevant information about the
auditee as possible and to be prepared before visiting an auditee’s premises for PBA.
A good Desk Review is critical to the drawing up of a good Audit Plan.
8.2 Conduct of Desk Review
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:
i. important commodities imported and exported.
ii. exemption notification availed and conditions thereof
iii. nature of expenses on account of remittance of foreign exchange and its
effect on the valuation of imported goods
iv. foreign Currency Transactions given as part of “Notes to Account” in the
Balance Sheet and Profit and Loss Accounts
v. related party transaction as reported in “Notes to Accounts” given in the
Balance Sheet and Profit and Loss Accounts
vi. study of Form 3CEB (Transfer Pricing) and Form 3CD (Income Tax Audit
Report)
vii. audit Objections raised at different Customs Stations.
viii. assessment practice at different Customs Stations for the same product.
ix. export Promotion Schemes availed.
x. show cause notices issued by different Customs Stations.
xi. court cases.
xii. data from NIDB, PLATT, LME, ICIS etc.
xiii. reasons for execution of Bond.
xiv. relevant returns filed with other Government agencies (GST, Income Tax etc).
xv. information available at the website of an auditee.
xvi. other information available on internet / open sources
8.2.3 Focus areas for Desk Review
During the desk review, the following issues may be kept in focus.
i. licensing Provisions/ Restrictions / Prohibitions.
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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:
i. Reconciling various specific financial data and comparing it with
different business accounts/ documents
ii. Deriving certain data and comparing them with the actual figures in
the financial document, and
iii. Comparing the key data figures of the auditee with the average all
industry figure of a similar kind (if available).
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.
8.2.5 Trend Analysis: Trend analysis is a type of computational support needed
for the analysis preparatory to planning, by analyzing historical data and working out
future projections. Historical data is analyzed to discover patterns or relations. For
audit purposes, either absolute values or certain ratios are studied over a period of
time to see the trend and the extent of deviation from the average values during any
particular period. For this purpose, EDW data should be used effectively. Besides
various MIS reports that can be generated, specific information relating to an issue
can also be obtained from EDW. Important ratios could be:
Ratio of total Import duty payment to value of goods imported, compared
with the effective rate of duty.
Ratio of total Import duty payment to Remittances sent abroad for goods
imported, compared with the effective rate of duty.
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8.3 Checks to be performed during Desk Review
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 Preparatory questionnaire or interview
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.
9.1.2 An Audit Plan should be a detailed plan of action, preferably in a standard
format. It should be consistent with the complexity of the audit and the reasons for
selection of specific issues for audit. Audit Plan must specify, -
(a) Subject: For example, availment of exemption from duty, valuation,
classification, applicability of anti-dumping duty etc.
(b) Specific Issues: Specific issues pertaining to the subject to be verified. For
example, abnormal discounts received from supplier, royalties paid etc.
(c) Source Document/ Information: Documents/ information reflecting or having
a bearing on payment of Customs duty/ other compliance issues to be verified. For
example, the source document for valuation may be the import declaration and
Customs invoice submitted along with it.
(d) Back-up Document: The documents to be examined to check the correctness
of the information contained in the source document. The method of examination
may also be specified. For example, while the source document for valuation may be
the import declaration and Customs invoice submitted along with it, the backup
document may be a contract, payment ledger or remittance details.
(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 Approval of Audit Plan
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.
9.3 Requirements before audit verification
The audit verification is required to be completed within a reasonable time period.
The concerned Deputy or Assistant Commissioner (Audit) in charge of respective
Circle shall:
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 Notification of audit:
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;
a. Legal authority to conduct the audit
b. Proposed period to be audited
c. Proposed commencement and end date of the audit
d. Name of team leader and other officers, e-mail details and phone
number of the team leader
e. Assurance of confidentiality
f. List of Relevant documents, books and records relating to the audit
period required by the auditors.
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 Importance of 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.
10.1.2 Besides verification of relevant documents, the process of Audit Verification
would entail tour of premises/ evaluation of internal controls/ ABC analysis and
preparation of Working Papers.
10.2 Entry conference
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.
10.3 Guidelines for Audit Verification
10.3.1 Audit verification involves verification of data and documents submitted
during Desk Review, points/ issues identified in the Audit Plan, Walk Through,
evaluation of internal controls etc. It may also involve inspection of goods, if
available.
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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 ABC Analysis
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.
10.5 Documents to be verified:
The following documents related to import/ export and those detailed in
Annexure-1 need to be verified during the course of Audit Verification.
i. Bills of Entries / Shipping Bills pertaining to the period under audit.
ii. Purchase/ sale invoices/ GST invoices of receipt and supply.
iii. Packing list.
iv. Airway Bill/ Bill of Lading.
v. Insurance documents.
vi. Test Reports.
vii. Catalogues.
viii. Other documents relating to freight.
ix. Price List.
x. Bond records.
xi. Duty paying documents.
xii. Contracts/ purchase orders.
xiii. Creditors’ ledger for foreign suppliers.
xiv. Creditors’ ledger for transporters and insurer.
xv. Sales invoices of imported goods sold as such.
xvi. Import / Export licenses / authorizations.
xvii. NOCs/ Import permit etc. as required under the Foreign Trade Policy
xviii. Certificates of country of origin
xix. GST returns
xx. Refunds and drawbacks claimed
xxi. Details of bank realisations for all foreign remittances towards supplies
10.6 Document Verification:
List of documents and the nature of verifications that can be done based thereon is
indicated at Annexure-5.
10.7 Completing Verification paper
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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 Tour of Premises / Plant
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:
Does the system calculate all duty related requirements?
Does the accounting system track stock, work in progress, orders?
Does the system track separate financial records for each department within
the company?
Which is the software or ERP Package being used?
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 Evaluation of Internal Controls
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:
i. In case of manual records, hold discussion with persons handling the
records to ascertain allocation of responsibilities at different levels, see
whether there is a system for serial numbering of records and whether
there is scope for alteration/ replacement of records.
ii. In case of computerized records, verify the accounting software used,
stages of data entry, data security and scope for human
intervention/ manipulation and audit trail of the transactions.
iii. Independence of the auditee’s internal Audit officer, reporting
mechanism for internal Audit officers and action taken by the company
on the basis of findings of the internal Audit officer.
iv. Whether any system audit is done to check the reliability of accounting
systems.
v. Whether prompt action is taken on the findings of statutory audit
officers.
vi. Whether any system audit is done to check the reliability of the
accounting systems.
vii. Whether Cost Audit is conducted, if mandated, and whether prompt
action is taken on such reports.
viii. The number, extent and frequency of violations noticed by various
regulatory agencies, and the subsequent corrective actions taken by
the auditee.
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.
10.9.4 In case of audit of multi-location units, while conducting verification, the
individual Audit Teams should remain in contact with the nodal audit Commissioner
so that any new issue that is detected can be quickly conveyed to the other Audit
Teams. Also see para 12.11 for details.
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10.10 Preparation of Working Papers
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 Exit conference
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.
10.13 Role of Deputy or Assistant Commissioner (Audit)
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).
10.14 Role of Additional or Joint Commissioner (Audit)
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The Additional/Joint Commissioner in addition to their supervisory role of audit and
the functions mentioned above, shall also be responsible for:
(i) preparation of annual audit schedule and assigning of the auditees
among the audit circles
(ii) approval of the audit plan
(iii) any rescheduling of the audit program
(iv) examination of draft audit report before its submission to the
Commissioner (Audit)
(v) timely conduct of Monthly Monitoring Committee Meetings
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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.
AR 25/ B2 / Chennai/ 2018-19 (Indicating 25thAudit Report of B2 Audit Circle
of ChennaiAudit Commissionerate for the financial year 2018-19.
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
Running Serial No
Audit Circle, to whom assigned
Date on which Sr. No assigned
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).
11.2 Audit Report
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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.
11.2.3 The Audit Report should be prepared in a standard proforma as given at
Annexure-7.
11.3 Follow up action on Audit Report
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.
(v) Based on outcome of the Monthly Monitoring Committee meetings,
Commissioner (Audit) may identify audit objections fit for issue of modus operandi
circulars. Such circulars on important/ crucial cases shall be issued under intimation
to DG, ARM.
(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.
11.4 Administrative arrangement at Jurisdictional Customs Houses for
PBA
Each Customs House/ Commissionerate will put in place a suitable monitoring
arrangement in the form of a Post Audit Compliance Cell (PCAC). The Additional/
Joint Commissioner in charge of PCAC shall coordinate the finalization of the audit
objections with the Audit Commissionerate. He shall ensure that MCM meetings are
attended by the officers of the Commissionerate and suitable assistance is provided,
wherever required for supply of any documents for issue of show cause notice by
the Audit Commissionerate. PCAC shall ensure that minutes of MCM and Audit
Reports received are circulated amongst the assessing officers for improving further
compliance. This cell shall also monitor the status of various show cause notices
which have arisen as a result of the audit objections.
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11.5 Feedback mechanism to Risk Management Centre for Customs
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
Purpose of Themes-based audit reporting is to conduct “focused audit” instead of a
“comprehensive audit”, so that limited resources are directed to check/ verify
compliance of important issues or sectors. The results obtained from ThBA assists
the policy makers to check compliance level of a particular industrial or trade sectors
or areas so that compliant sectors may be extended greater facilitations. It is a
value-adding approach that helps the Auditors to determine, consolidate and report
high-level insights in the business transactions and practices prevalent in a particular
industry/ sector. ThBA may have both compliance and performance audit objectives.
The objectives of such audits are to focus on a particular audit objective across
sectors or entities. To illustrate, if there is surge in import of gold and the reasons
and its impact on the economy is to be studied, then thematic audit would be the
best method of audit for such evaluation. Similarly, if a particular duty exemption
benefit extended across various importers of a particular industry has to be studied,
then such an approach may be adopted.
12.2 Constitution of ThBA Circles
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.
12.2.2 Considering the importance of this method of audit and to provide
appropriate resources, it has been recommended that in each of the Audit
Commissionerates, out of the total 9 audit circles proposed to be assigned with the
work of audit, 3 such audit circles are expected to undertake the work of ThBA.
Common numerical code i.e. C1, C2 &C3 shall be assigned for ThBA Circles .
12.3. Selection / identification of Theme
12.3.1 Committee of Chief Commissioners (in-charge of Audit Commissionerates)
will be responsible to decide the theme/ issue/ subject for ThBA, based on the inputs
received from DGARM, DGRI, jurisdictional Customs Commissionerates, Audit
Commissionerates etc.
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.
12.4 Types/ Categories/ Subjects of Theme
Industrial Sector
12.4.1 An industry sector may be classified as high risk and chosen for thematic
audit based on following factors:
i. revenue leakage due to a particular practice that has come to stay in an
industry
ii. strategic importance of the industry, as a whole to the national interest
iii. impact of any particular trade agreement
iv. public health and safety considerations
v. intellectual property rights
vi. economic and environmental impact of imports / exports
vii. emerging technologies – product and technology.
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
12.4.3 The sector may be targeted according to criteria such as:
Share of volume or value of a commodity in import or export trade
sensitivity of industry to illegal activity, etc.
repeated discrepancies or violations noticed involving the commodity
country of origin
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whether any special regulations or programs apply to this type of
import/ export (such as quotas/ restrictions)
shift in supply source and its impact on compliance such as anti-
dumping non compliance
Issue based selection
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.
o Anti-dumping duty on a particular commodity
o Country of origin verification
o SCOMET
o Compliance of a particular export scheme
12.5 Factors affecting selection of theme
Factors which could increase the level of risk in any of the above mentioned types
of theme selection are
Referral information from other Customs units / any other government
agency including taxation authorities
Risk of revenue loss
Government priorities
Specific intelligence
Risk to Trade based money laundering
12.6 Preparation for ThBA
12.6.1 Once the theme is chosen, information must be defined and collected by
the lead Commissionerate on the various components, at both macroeconomic
(sector size, production, consumption, etc.) and microeconomic levels (the number
of firms / companies involved, their technological capacity, structure, the type of
suspected irregularities etc.). This information may be compiled and maintained in
a secured database or other electronic format.
12.6.2 The lead Commissionerate will draw either a list of declarations or entities,
which are required to be audited or covered, after a detailed analysis of the national
data on imports/ exports in respect of the select theme. The transactions or entity so
identified for the select theme, needs to be segregated and distributed among other
Audit Commissionerates or Customs Commissionerates for the purpose to audit or
verification. While undertaking such distribution, the lead Commissioner (Audit)
should consult other Audit Commissioners to factor in the availability of manpower
and themes already assigned to individual Audit Commissionerates. It may be kept
in mind that the purpose of ThBA is not to audit the entity as a whole but to limit the
audit or verification to the specified theme.
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12.7 Methodology for ThBA.
12.7.1 Once a particular theme is communicated to the Audit Commissionerates,
depending on the issue involved, size/ volume of transaction and various other
factors, then ThBA circle of such Audit Commissionerate may conduct ThBA in office
(like TBA) or through the desk audit in the Customs office by calling for desired
information from the auditee. In case, the ThBA cannot be successfully conducted
through the above methods and if a need is felt by the Audit Commissioner for
onsite audit or verification, the concerned ThBA circles, may do so.
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.
12.8 Results of ThBA, Communication:
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.
12.9 Audit of Entities other than Importers and Exporters
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.
12.10 Audit follow up, Audit Report
The ThBA audit reports should also be sent to the DGARM for further risk evaluation.
12.11 Sharing of Information
Sharing of information amongst the Audit Commissionerates and with field
formations is the key to the success of audit. A group shall be created on “Antarang”
so that information is being shared immediately in each kind of audit for replication
in all locations.
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CHAPTER - 13
RECORDS AND REPORTS
13.1 Audit Planning Register (APR)
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.
Audit Planning Register
APR
No.
Name of auditee selected
for PBA
Name of Audit
Circle to which PBA
is assigned
Proposed Month and year
of Audit
Proposed dates for conductin
g Audit
Actual period when
audit was conducte
d
Audit Report No. and date of
issue
Remark
s
(1) (2) (3) (4) (5) (6) (7) (8)
13.1.2 As soon as the selection of auditees is finalized, the details in respect of
column (1) to (3) of APR shall be filled by the Planning & Coordination Cell of audit
Commissionerate by the end of January for the ensuing financial year. Each audit
circle shall draw up a monthly schedule of audit for filling up the columns (4) & (5)
of the APR by 15th February. Details in column (6) to (8) shall also be entered by the
Planning & Coordination Cell on receipt of the monthly Audit Performance Report.
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 Monthly PBA Performance Report
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. Abstract of Monthly PBA Performance
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 Audit Circle No.
No. of audits to
be conducted during the
month
Audit reports issued
Backlog of audits Total duty/ export
incentive involved
in audit objections
Amount of spot
recovery
Remarks
Within 3 months
3-6 months
More than 6 months
In Rs. In Rs.
(1) (2) (3) (4) (5) (6) (7) (8) (9)
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 PBA Follow Up Register
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.
PBA Follow Up Register
Audit Report No.
& date
Name of the audite
e & IEC
Audit
para sl. No.
Gist of
audit
para
Duty /incenti
ve involve
d
Jurisdictional Commissioner
ate
Disposal of audit para Date of
final closur
e of para
Remarks, if any
In Rs. By Spot recovery, if any
SCN No., date and
amount
Post MCM
closure
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Note: Reasons for post MCM closure should be indicated in the remarks column in (11).
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13. 5 Monthly Abstract of PBA Follow-up
13.5.1. The following abstract should be put up by the Planning &
Coordination Cell to the Commissioner (Audit) through the Joint/ Additional
Commissioner (Audit) by the 10th of the following month.
Abstract of Monthly PBA Follow up Audit Circle No.
Opening Balance of audit paras
Receipt of audit paras during the
month
Closure of audit para during the
month
Closing Balance of audit paras
No. of paras
Amount No. of paras
Amount No. of paras
Amount No. of paras
Amount
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Backlog of audit paras Amount of
spot recovery SCNs issued
Within 3 months
3-6 months More than 6 months
No. Amount No. Amount No. Amount No. Amount
(10) (11) (12) (13) (14) (15) (16) (17) (18)
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 Report for Chief Commissioner
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.
In addition, the report shall contain the following:
(i) gist of important audit objections noticed during the month
(ii) list of referrals, with a brief on the issues, forwarded to other Commissionerates,
RMCC etc.,
(iii) modus operandi circulars issued, if any
(iv) any recommendation or suggestion made for ThBA or any other issue to be
placed before the Committee of Chief Commissioners.
13.6.2 Chief Commissioner shall send a monthly report on PBA to Directorate
General of Audit (DG, Audit), in the same format. DG, Audit shall compile quarterly
audit bulletins for circulation to all field formation.
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13.7 Annexure Of Format Of Reports/Registers
Annexure – 1 -- Master File
Annexure - 2 -- Check Lists
Annexure - 3 -- Sample Questionnaire for Internal Control System
Annexure – 4 -- Illustrative Audit Plan
Annexure - 5 -- Documents’ Verification
Annexure - 6 -- Working Papers
Annexure – 7 -- Audit Report Format
Annexure – 8 -- Scoring System for PBA
Annexure – 9 -- Monthly Report on PBA Performance
Annexure – 10 -- Draft letter under Section 28(2) of the Customs Act, 1962
Annexure – 11 – Glossary of Terms and Abbreviations
***
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ANNEXURE-1
MASTER FILE
A. Documents listed below shall be maintained in electronic form (along with in hard copy form during transitional period) in Master File
Sr. No
Documents / Declarations / Returns / information
Source of Documents
1 Organizational chart of the auditee with
names, designations, email address & contact details
of the key persons i.e. Managing Director / Directors /
Partners / Proprietor. / Company Secretary /
Chartered Accountant / Authorised Signatory, Officer
handling import and export / Customs Broker
Importer /Exporter
2 Cost Audit / Tax Audit reports of past three years Importer /Exporter
3 Customs Audit Reports for previous three years Importer /Exporter
4 Copies of Annual Report of the Company or Balance
Sheet, Profit & Loss Account for the past three years
Importer /Exporter
5 Copies of Trial Balance for the current year and for the
past two Years
Importer /Exporter
6 Import Export Code (IEC) No. & GST Identification
No (GSTIN)
Importer /Exporter
7 Audit points raised by “Central Revenue Audit” in the
past three audits
Customs Houses
8 Details of cases under investigation including Show
Cause Notices issued
Customs Houses
9 Details of pending Arrears of Revenue Customs Houses
10 List of notices, Court cases, pending investigations
under other law related to taxes or duties (For eg.
Income Tax, SEBI, GST, Enforcement Directorate
etc.)
11 Any other document considered relevant by the Audit
Circle
Audit Party
Note: After first audit, documents / declarations / reports / information of subsequent years should only be asked for.
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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)
Name of Importer / Exporter: Address (Registered office / Head Office): Import-Export Code (IEC)No.: GST Identification No (GSTIN):
1. Please indicate your business with details of main goods manufactured, traded and services provided (based on previous financial year):
Business Main Item / Services Address
Manufacture 1.
2.
3.
Trading 1.
2.
3.
Services 1.
2.
3.
2. Addresses of other offices of Importer / Exporter including overseas offices:
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)
Custom Houses/ Ports/ Airports/ 1CD/ CFS
Total Imports Total Exports
(1) (2) (3)
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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. No
Description of Item
Tariff Item and
Import License
Exemption Notfn. No.
with S. No.
Total Quantity Imported
Total Value of Imports
Total Duty Paid
(1) (2) (3) (4) (5) (6) (7)
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 the Item
Tariff Item Total Quantity Exported
Total Value of Exports
(1) (2) (3) (4) (5)
6. Whether goods are imported by you under Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules,1996 or Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016 or Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017. If yes, please specify names of such product.
7. Please indicate the Export Promotions schemes such as Export Promotion Capital Goods Scheme, Duty Free Import Authorization, Advance Authorization, etc. availed by you.
8. Please give details of various licenses / authorisations.
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)
Sr No
EPCG License No
Date Value of capital goods
Description of major capital goods
Description of export goods
Value of export obligation to be fulfilled
Total value of export
(1) (2) (3) (4) (5) (6) (7) (8)
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ii. Details of Duty Free Import Authorizations issued during preceding three years and current year:
(Rs. In lakhs)
Sr No
DFIA No
Date Value of import
Description of major goods imported
Description of export goods
Export obligation period
Qty Value
Qty Value
(1) (2) (3) (4) (5) (6) (7) (8) (9)
iii. Details of Advanced Authorizations issued during preceding three years and current year:
(Rs. In lakhs)
Sr No
Advanced Authorization No
Date Value of import
Description of major goods imported
Description of export goods
Export obligation period
Qty Value Qty Value
(1) (2) (3) (4) (5) (6) (7) (8) (9)
9. Please give a list of your major foreign suppliers in respect of top 10 imported goods and foreign buyer in respect of top 10 export goods.
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)
Sr No Issue in brief Period of demand
Duty involved Show cause notice No & date
(1) (2) (3) (4) (5)
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12. Details of litigations (Appeals, Court Cases etc.) pending:
Rs. in lakhs)
Sr. No. Issue in brief
Total amount involved Appellate forum, where
pending
Period involved Duty Fine Penalty
(1) (2) (3) (4) (5)
13. Are the goods imported or exported by you requires NOC or authorization / license / permit from other agencies enforcing allied laws e.g. Food Safety and Standards Authority of India (FSSAI), Drug Controller, Plant Quarantine, Central Pollution Control Board (CPCB), Central Insecticide Board, Narcotics Commissioner, DGFT etc.? If yes, please specify the agency(s) and the items subject thereto:
14. Please give a list of Bonds pending with Customs and the reason why executed:
15. Please furnish the following documents/information:
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.
5. Disclosure of Foreign Currency Transaction in the format as desired under Indian Accounting Standards
6. Statement or Returns filed as per requirement of Foreign Exchange Management Act and Reserve Bank of India Guidelines regarding remittance and receipts of foreign exchange.
7. Names of other Government agencies with whom any return/statements are filed with reference to imported goods or goods manufactured out of imported goods (For Eg. RFCL, Narcotics Commissioner, Central Insecticide Board etc.).
8. Quarterly/Annual Returns filed by EOU /EHTP /STP /BTP units as per Hand
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Book of Procedure 2009 — 2014 / 2015---2020
9. Chartered Accountant Report in Form No. 3 CEB (Report on International and specified domestic Transactions) (Transfer Pricing).
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.
12. Accounts maintained by the manufacturer importer in terms of Customs (Import of Goods at Concessional rate of duty for manufacture of excisable goods) Rules as amended.
13. Details of bankers with whom Importer is having the account for import/export transactions.
14. Any other relevant documents relating to receipt, purchase, manufacture, consumption, storage, sale, delivery or payment, as the case may be in regard to imported goods / exported goods or any other relevant information.
I certify that the documents/information given by me is correct and true and to the best of my knowledge.
Authorized Signatory of the auditee
Signature
Name
Designation
Contact No
Address of auditee (Registered office address / Head office)
Official seal of the importer/exporter
Superintendent / AO of Audit Team
Deputy / Assistant Commissioner of Customs, (Audit)
Name
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)
I. Check List during Desk Review:
S.No
.
Type of imports
1 Whether goods imported from Preferential Areas / Countries at concessional
rate of duty
Yes/No
2 Whether goods imported at Concessional rate of duty for manufacture of
specified goods
Yes/No
3 Whether on the goods imported, anti-dumping duty/Safe Guard duty /CVD
is leviable
Yes/No
4 Whether Capital goods have been imported under Export Promotion Capital
Goods Scheme (EPCG) License
Yes/No
5 Whether goods have been imported under DFIAs (Duty free import
authorization)/ Licences.
Yes/No
6 Whether goods have been imported under Advance Authorization.
7 Whether imported goods are Free Goods as per Import Policy Yes/No
8 Whether goods imported require a specific Import License / Permit /
Authorisation.
Yes/No
II Check List for Valuation of goods(import):
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.
S.No. Type of Check Answer
1 Does the importer have sufficient knowledge Customs Valuation
Rules?
Yes/No
2 Do the accounting system and internal control mechanism
ensure that all payment made in relation to imported goods are
properly recorded?
Yes/No
3 Whether Value declared in foreign currency in contract / purchase
invoices matches with the value declared in Bill of Entry?
Yes/No
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4 Whether currency declared in contract / purchase invoices
matches with the currency declared in Bill of Entry?
Yes/No
5 Whether INCO terms of invoices matches with the terms give in
the bill of entry?
Yes/No
6 Are the buyers and suppliers are related and examine from
contracts, if relationship has influenced assessable value.
Yes/No
7 Please check there are any discount which appear to be
abnormally high as per the business practice. The reasons may be
examined.
Yes/No
8 Whether advance payments, if any, have been included in the
assessable value?
Yes/No
9 Check from Balance Sheet whether any Royalty / License fees paid
to the foreign supplier(s). Is the payment a condition of sale of
imported goods and liable for addition in the declared assessable
value?
Yes/No
10 If foreign exchange remitted exceeds the value of import, reasons
to be examined?
Yes/No
11 Has any payment to the supplier been routed through third party
and correctly included in the assessable value?
Yes/No
12 Whether contract provides for payments to foreign supplier or 3rd
party on account of resale, use or disposal of imported goods?
Yes/No
13 From the contract and payments also examine if there are other
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.
Yes/No
14 How has the transaction value been arrived in cases where no sale
has taken place? Is the method of valuation adopted consistent
with Customs valuation Rules?
Yes/No
15 Check from Bill of Lading that freight paid and currency of
such payment matches with the freight declared Bill of
Entry
Yes/No
16 Whether value declared in Bill of Entry matches with the
value of contemporaneous imports of identical goods
/similar goods as per NIDB (National Import Data Base)
data
Yes/No
17 If unit has imported metals, whether declared value on
average matches with the London Metal Exchange (LME)
prices of relevant date
Yes/No
18 If the unit has imported plastic granules, whether price
declared matches with that declared in PLATT journal of
relevant date
Yes/No
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19 Check, from the Bills of Entry, if the declared assessable
value was not accepted and enhanced during assessment
by the proper officer. If value was enhanced did the
importer declared the higher value on Bills of Entry
facilitated without appraisement through RMS (Risk
Management System).
Yes/No
20 Check value justification in the cases of import of goods
attracting Nil/Zero rate of duty, to examine any attempt of
over valuation to transfer money.
Yes/No
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.
III Check List for Classification of Goods (import):
Classification of goods has bearing on rates of duties, exemption
notifications, importability of goods etc. Following checks shall be conducted in
respect of Classification of goods after going through the Bills of Entry and on the
basis of answers to these checks, the Auditors shall find out the risk factors in
Classification and exemption Notifications.
S. No. Type of Check Answer
1 Whether description of goods is general or vague or has
been properly and completely declared on the Bill of Entry.
2 Whether goods have been correctly classified upto 8 digit
level. Any classification under “Others” may be specifically
examined for correct classification.
Yes/No
3 Has the importer during last five years changed the
classification? The reasons may be examined.
Yes/No
4
Is there a classification decision already available through
some Court decision, Board Circular or an earlier
adjudication
Yes/No
5 Check close resembling entries which may be used to avoid
restriction / ADD / Safe Guard duty / CVD or claim a
preferential rate of duty.
Yes/No
6 If unit has purchased identical goods indigenously and also
imported the same goods, whether the tariff headings of
both are same?
Yes/No
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7 Whether the tariff heading declared in Bills of Entry by
Customs after
review of assessment and examination, matches with the
tariff heading declared in Bills of Entry cleared through
RMS (Risk Management System) without appraisement?
Yes/No
8 If Customs has changed tariff heading, whether the Bills of
Entry cleared through RMS (Risk Management System)
contain changed
heading or not?
Yes/No
9 Whether the conditions of exemption notifications, claimed
if any, have been fulfilled and required certificates
produced by the importer?
Yes/No
10 Whether the end use of the import product is consistent
with the description and classification of the product. Does
this match with the importers line of business?
Yes/No
11 Are there any test reports, technical literatures, catalogues
brochures, pamphlets etc. available? Do they support the
declared classification?
Yes/No
IV. Check list for exemption Notification availed.
S.
No.
Type of Check Answer
1 The details of exemption notifications claimed by the
importer
Sl. No. and
date
2 Does the classification and description of goods match with
the exemption notification and if the conditions to the said
notification have been fulfilled?
Yes/ No
3 In case it is an end use notifications check the end use
during walk through the premises.
Yes/ No
4 Check the internal control system to verify trail of receipt,
stock account, productions, waste etc. to justify proper end
use of the imported goods.
Yes/ No
5 Is there already a Court decision, Board Circular modus-
operandi Circular etc. concerning claimed exemption.
Yes/ No
V. Check list for temporary importation
S.
No.
Type of Check Answer
1 Check for temporary imports made, if any.
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2 Check that all the importations are authorized. And all the
conditions of the authorization have been fulfilled.
Yes/ No
3 Notification No. & date (used for temporary importation.) Sl. No.
& Date
4 Was the correct duty paid / drawback reversed / export
benefit surrendered as specified in the relevant notification.
Yes/ No
5 Have the goods been re-exported within the specified period
and proof submitted to the department.
Yes /No
6 Is there an internal control system to verify the identity of
goods imported and re-exported.
Yes/ No
7 If the goods were imported under ATA carnet was the same
valid.
Yes/ No
VI Check list for imports from Preferential Areas/Countries:
S.
No.
Type of Check Answer
1. Exemption Notification No. and Preferential Area/Country
2. Whether the Certificate of Origin (COO) matches with the
Country for which exemption notification is claimed and COO
certificate is as per Performa specified in preferential agreement
and issued by the competent authority.
Yes/No
3. Whether quantity and nature of goods imported matches with the
quantity and nature of goods given in certificate of origin.
Yes/No
4. Whether the country of loading of consignment as per Bill of
lading/Airway Bill matches with the country as per Certificate of
Origin.
Yes/No
5 Is the declared “Country of Origin” is geographically closed to
countries for which anti-dumping duty (ADD) / Safeguard duty /
CVD has been imposed.
6. If country of loading the consignment is different form
preferential country, whether evidence for transportation of such
goods from preferential country to such third country produced.
Yes/No
7. Whether prior to issue of Notification for concessional rate of
duty, the importer was importing identical goods form the same
supplier of same country.
Yes/No
8. If importer was importing same goods form same supplier of
different country, verify form website of the suppliers about its
Exists/D
oes not
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existence in the preferential country. Exist
9. If answer to 7 above is “Does not exist”, whether Bill of landing
/Airway bill shows loading of consignment form preferential
country or other country
Prefere
ntial /
Other
10 Has the country of origin declared suddenly changed? Yes/No
11 From the sources, it may be checked / ascertained whether the
country of origin has any such manufacturing facility of the
declared product or not.
Yes/No
12 In the accounting books, is the declared supplier entered as the
creditor?
Yes/No
13 Is the payment being made to a party or a country which is
different than the party / country declared as origin?
Yes/No
14 If the goods are available the labels, printing, packaging,
language on the boxes, may be seen to confirm the actual
origin.?
Yes/No
VII Check list for the goods leviable to Anti-dumping Duty /
Safeguard duty / CVD:
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):
S. No. Type of Check Answer
1. Major goods imported during the period of Audit and from
which country.
1 . (Country)
2 . (Country)
3 . (Country)
2. Whether such goods are leviable to anti-dumping duty
(Please refer to ADD Checklist and Notifications available
on CBIC website)
1. Yes/No
2. Yes/No
3. Yes/No
3. If answer to Check at Sr No.2 is yes, whether goods have
been imported from anti-dumping duty countries and said
duty has been paid.
1. Yes/No
2. Yes/No
3. Yes/No
4. If there are different rates of anti-dumping duty for the
same class of goods, check if the correct rate is applied
even where anti-dumping duty was paid.
1. Yes/No
2. Yes/No
3. Yes/No
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5. If goods are leviable to anti-dumping duty but such duty
not paid because imported from non-anti-dumping duty
country, check the following:
(i) Whether Bill of Lading/Airway Bill shows that the goods
were loaded from the Non-Anti-Dumping Country (NADC)
or Anti-Dumping Duty Country (ADC).
(ii) If loaded from ADC or a third country, whether
transport documents from Country of import to Country of
loading produced.
(iii) The website of supplier shows its existence in the
Country of supply.
(iv) Payments have been transmitted to the supplier in
Country of supply.
(v) Payments of freight for transportation have been made
to the transporter of Country of export.
(vi) Whether Insurance Policy was issued by the Insurer
of Country of export or not.
Yes/No
Yes/No
Yes/No
Yes/No
Yes/No
6 Check whether before imposition of anti-dumping duty,
same goods were being imported. If yes, whether then
these were imported from same supplier of ADCs while
after imposition of said duty, these are being imported
from same supplier of NADC.
Yes/No
7 If reply to check at S. No. 5 is Yes, verify whether:
(i) As per website, supplier has office in non-anti-dumping
duty country.
(ii) Payments have been made to supplier of NADC.
(iii) Transport documents show loading of goods from
NADC.
(iv) Insurer is from NADC and insurance premium has
been remitted to such country.
Yes/No
Yes/No
Yes/No
Yes/No
8 Whether after imposition of anti-dumping duty, the
description of goods and tariff classification up to 8 digit
has been changed.
Yes/No
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9 If changed, whether now goods are correctly classified
and if not, whether the change in classification was done
only to avoid anti-dumping duty.
Yes/No
VIII Check List if Capital Goods Imported Under Export Promotion
Capital Goods Scheme License:
The Check List shall be filled separately for each EPCG License because export
obligation for each License has to be ascertained separately.
S.
No.
Type of Check Answer
1. Licence No. /Date of issue and Port of Registration.
2. Amount of duty saved and Export Obligation period viz.,
3. Whether goods as per table to relevant notification have only
been imported.
Yes /No
4. Date of completion of imports.
5. Dates of imports of spares for maintenance.
6. Goods to be exported and Free on Board value of exports.
7. If imports were completed 6 months before the date of audit,
whether installation certificate submitted
Yes/No
8. If spares for maintenance were imported 3 years before date of
audit, whether installation certificate obtained.
Yes/No
9. Whether unit has obtained / applied extension of Export
Obligation period from Licensing Authority / Regional Licensing
Authority.
Yes/No
10 Whether any show cause notice issued by DGFT office under
Foreign Trade (Development and Regulation) Act, 1992 [FTDR]
in regards to non fulfilment of export obligation or any other
issue.
Yes/No
11 Whether any OIO passed / issued by DGFT office under
Foreign Trade (Development and Regulation) Act, 1992 [FTDR]
against Licensee.
Yes/No
12 Whether Licensee has been put under Denied Entity List (DEL)
by DGFT office under Foreign Trade (Development and
Regulation) Act, 1992 [FTDR]
Yes/No
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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.
Type of Check Answer
1 DFIA No. and date of issue.
2 Port of Registration.
3 Description, quantity and value of import goods.
4 Export goods, Free on Board value and period of export.
5 Whether description of goods as per Bills of Entry matches
with DFIA.
Yes/No
6 Whether import of sensitive items allowed. Yes/No
7 If yes, whether specifications, technical characteristics and
quality of sensitive items in Bills of Entry matches with the
DFIA.
Yes/No
8 Whether the DFIA holder imported goods before exports or
after exports.
Before/After
9 If goods were imported after exports and indigenous inputs
were used in the manufacture of exports goods, whether
DFIA holder availed Cenvat Credit / Input Tax Credit or
rebate of duty paid on such indigenous inputs.
Yes/No
10. If answer to 9 above is 'Yes' and DFIA holder himself
imported the goods, check whether he used the same in the
manufacture of goods in his factory and submitted evidence
in this regard within 6 months from date of import.
Yes/No
11. If answer to 9 above is 'Yes' and DFIA was transferred by
Regional Licensing Authority, check whether the condition of
transfer is that the transferee at the time of import shall pay
CVD/IGST as applicable.
Yes/No
12. If DFIA was issued to another person and was transferred in
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.
Yes/No
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13 In case of transferred DFIAs in the name of importer, check
from website of DGFT whether such license is genuine or
not.
Yes/No
14 In case of pre-imports, whether the export obligation has
been completed or not.
Yes/No
15 If export obligation period has expired, whether Export
obligation Discharge Certificate has been issued by Regional
Licensing Authority.
Yes/No
Note:
1. If a particular Check List is not applicable the same shall be mentioned.
2. The duly filled Check lists shall be signed by the Superintendent In-charge of
the Audit Team and approved by Deputy / Assistant Commissioner i/c Audit.
3. Audit Plan shall be prepared on the basis of risk factors ascertained during
Desk Review.
X. Check list for Export
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.
S.No. Type of Check Answer
1 Are there any export restrictions on the goods exported /
are they dual use items?
Yes / No
2 Does the exporter have required authorization / license /
permit for restricted for dual use goods?
Yes / No
3 Does the exporter have required certificate from
Participating Government Agencies (PGAs)?
[for example “health certificate” for meat product etc.]
Yes / No
4 Are the products correctly classified as per the Drawback
Schedule?
Yes / No
5 Does the exporter fulfill the necessary conditions of not
claiming the input credit while claiming higher / composite
rate of drawback?
Yes / No
6 Has the ROSL claimed at correct rate. Yes / No
7 Check the exporter’s internal control system to verify the
transaction trail from contract – order – production – sale
– dispatch – transportation – receipt of payments.
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8 Does the quantity exported match with the internal
records of purchase, manufacture and dispatch?
Yes / No
9 Is the value of goods exported unreasonably high compare
to the value of purchase or the cost of manufacture reason
may be examined?
Yes / No
10 Do the exported goods have same quality and quantity
compared to the declaration made on Shipping Bills and
Export invoice?
Yes / No
11 Are the transportation details consistent with the quantity
of the export claimed?
Yes / No
12 Check if the transport has actually taken place from the
bill of lading and lading certificates at the destination
country?
13 Has the exporters received the required BRC or similar
certificate evidencing realization of export proceeds and
submitted the same to the department?
Yes / No
14 Is the payment being received from a source which is
different from the recipient of the exported goods and if
the same is authorized as per contract and RBI guidelines?
Yes / No
15 Do the exporters accounting records match with purchase,
manufacture and export proceeds.
Yes / No
16 Whether export proceeds has been set off against
payment to be made in respect of import?
Yes / No
Superintendent / AO of Audit Team
Deputy / Assistant Commissioner of
Customs, (Audit)
Name
Signature
Date
***
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ANNEXURE - 3 SAMPLE QUESTIONNAIRE FOR INTERNAL CONTROL SYSTEM
I. Imports:
1. Whether all imports are centralized or de-centralized? If all imports are
authorized by few key persons like owner or Managing Director etc., it may
require in-depth study.
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?
4. Whether overseas supplier is manufacturer? If not whether the supplier is any
way related to the company? What are the documents related to negotiation of
the purchase?
5. Whether goods are imported under Letter of Credit or Direct Payment or
otherwise?
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?
II Stores and Production:
9. Whether separate inventory for import items is prepared?
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?
15. Whether any item supplied free of cost?
III Payments:
16. How payments are made to the supplier?
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.
19. Whether pending bonds are shown as liabilities in balance sheets?
20. What is marketing pattern? is it through agents, direct, through depot?
V Exports:
1. Whether all exports are centralized or de-centralized? If all exports are
authorized by few key persons like owner or Managing Director etc., it may
require in-depth study.
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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agents are involved in negotiation/placing of order or company's officers
directly negotiate with the overseas buyer?
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?
5. Whether goods are exported under Letter of Credit or Direct Payment or
otherwise?
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?
9. What is system of monitoring realization of export proceeds? What is the
frequency of monitoring it? What has been efforts made to realise outstanding
export proceeds (filing suits or petitions in the Court / filing write off application
before Authorised Dealer Category-I / RBI)?
10. What is co-ordination between officers dealing with correspondence between
Customs and DGFT?
I certify that the documents/information given by me is correct and
true and to the best of my knowledge.
Authorized Signatory of
the auditee
Signature
Name
Designation
Contact No
Address of auditee
(Registered office address /
Head office)
Official seal of the importer/exporter
Authorized Signatory of
the Importer / Exporter
Signature
Name
Designation
Address of Importer /
Exporter
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ANNEXURE — 4 ILLUSTRATIVE AUDIT PLAN
Sl. No.
Subject Specific Issue
Source Document
Back-up Document
Coverage Period
Sampling Criteria
(1) (2) (3) (4) (5) (6) (7)
1. Valuation Value is low vis-à-vis NIDB data for same items
Bills of Entry
I.. Invoice 2. Purchase ledger 3. Payment details
All Bills of Entry for the months of April to October
All Bills of Entry of value greater than Rs. 5 lakhs
2. Addition of Royalty paid/Technical know-how fees/Advertising fees etc.
Bills of Entry
1. Contracts 2. Creditors’ ledgers 3. Balance Sheets
Entire Audit Period
Bills of Entry of suppliers who received royalty
3. CVD on MRP basis upto 30.06.2017.
Bills of Entry going to spares part division
Goods Receipt Register Sales Ledger
Entire Audit Period
All documents for spares parts division
4. Exemption Specified end use of goods as per exemption notification
Bills of Entry
1. Stores Ledger
2.Merchant Receipt Note (MRN) / Goods Receipt Note (GRN) / Inspection cum Receipt Report (ICRR)
3.Sales data for final product
4. Details of goods traded
First half of the year
Entries on each Friday
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5. Anti- Dumping Duty
Imports from Countries which are nearby to anti-dumping duty countries (ADC)
Purchase Invoices
1.Transport documents
2.Bills of Lading
3.Certificates of Country of Origin.
4.Sales contract
One month prior to imposition of duty and one month after imposition
6. EPCG Completion of export Obligation for each block
EPCG Licenses
Shipping Bills for export under EPCG
Licenses issued 6 years before Audit
All Shipping Bills for exports under EP CG
7. DFIA Receipt of inputs used in the manufacture of export goods
Bills of Entry
1. Store Ledger. 2 Merchant Receipt Note (MRN) / Goods Receipt Note (GRN) / Inspection cum Receipt Report (ICRR)
Last 3 months of Audit
All entries on each Monday.
8. Availing double benefit
DFIAs Bills of Entry under DFIAs
Input Tax Credit (earlier Cenvat Credit) Account Rebate claims
entire Audit period
All the documents
9. Import Licensing
ITC-HS Classification specific license (if not Free Goods)
Bill of Entries of entire audit period
IT C-HS Classification List
Bills of Entry of entire Audit period
Bills of Entry of entire Audit period
10 Classification
Whether the end use of the import product is consistent with the description and classification of the product
Bills of Entry I.. Procurement and sale Invoices 2. Purchase ledger 3. Contracts
Bills of Entry of entire Audit period
Bills of Entry of entire Audit period
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Guidelines for Audit Plan:
1. Subject: For example, Valuation, goods imported for manufacture of
specified goods, correct payment of anti-dumping duty and imports under
Export Promotion Schemes.
2. Specific Issue to be verified: Under this column, the Auditor should
mention the precise issue pertaining to the subject. For example, Valuation
of contemporaneous imports, completion of export obligation under Export
Promotion Schemes etc.
3. Source Document/ Information to be verified:
Documents/information reflecting or having a bearing on payment of
Customs duty, to be verified. For example, ledger shows payment of
royalty & contract also shows such payment as condition for sale but bill of
entry does not show addition of royalty in transaction value.
11 temporary importation
Whether importations are authorized and conditions of authorization are fulfilled
Bills of Entry Shipping bills for exports of the temporary imports
Entire audit period
All temporary importation
12 Export 1. Whether transport has actually taken place or not, 2. Are the transportation details consistent with the quantity of export claimed, 3. BRCs submitted or not
Shipping Bills
1.Transport documents
2.Bills of Lading
3. BRCs 4. Foreign Currency Transactions
Entire audit period
All Shipping Bills for exports under drawback scheme
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4. Back-up Document: The documents to be examined to check the
correctness of the information contained in the source document. The
method of examination may also be specified under this column. For
example, contracts, balance sheets, creditor's ledgers show payment of
royalty, contract shows that the payment of royalty was a condition for sale
of goods but bill of entry shows that such royalty amount not included in
the transaction value.
5. Period of coverage: Period of coverage has to be decided based on
various factors such as volume of transaction, nature of suspected
irregularity, strength of internal control etc. Normally, the coverage will be
for the whole of the audit period. However, the auditor may conduct test
verification for specific periods each extending over a short duration.
6. Selection Criteria: In case, the volume of documents for verification is
large, the auditor may adopt sample verification. The sample should be
chosen in such a way that it represents the whole, uniformly.
***
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ANNEXURE - 5 DOCUMENTS' VERIFICATION
(Documents required and verifications to be conducted for checking valuation, classification, benefit of exemption notification etc.)
1.1 Valuation: Documents Required and Verifications:
On most of the items, Customs import duty is levied on ad-valorem basis, which makes correct valuation of goods critical. While assessment at the time of import /export is done transaction wise, PBA gives an opportunity to examine the valuation holistically for the entire business of the importer / exporter. The verification should therefore look at the import / export transactions in totality. The points for initial scrutiny are:
i. Tabulation of value of the particular goods, quantity imported / exported and the duty paid thereon (if applicable) will give an idea whether per unit price is being declared consistently or not.
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.
iii. Whether supplier and importer / exporter are related?
iv. Whether any post import expenses were remitted?
v. Whether any post export expenses not realized?
1.21 Important aspects to be looked into in respect of particular transactions:
i. Whether the currency declared in the invoice is reflected correctly in the bill of entry / shipping bill and the exchange rate is calculated correctly as per the periodical notifications issued by Board?
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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the purpose of levy of CVD (prior to 01.07.2017).
vi. Comparison of the value of the goods with contemporaneous imports / exports with the help of NIDB data.
vii. Comparison of prices declared with that of London Metal Exchange prices for metals, PLATT journal prices for plastics, Public Ledger for spices
viii. Scrutiny of value vis-à-vis valuation bulletins issued by DG, Valuation.
ix. Sale invoices for the imported goods sold as such (Import)
x. Purchase invoices for the goods exported, if exported as such(Export)
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.
1.3 Valuation: Import
Sr No
Document Nature of Document
Verifications required to be conducted
(1) (2) (3) (4)
1 i. Purchase Contracts / Purchase Orders
ii. Purchase Invoices for imported goods
Documents that contain the price and other conditions for purchase of goods from a foreign supplier
(i) Verification of (a) valuation (b) classification (c) Anti-Dumping Duty /Safeguard duty / CVD.
(ii) The value declared in purchase contracts/ purchase orders/ purchase invoices in foreign currency matches with the value declared in Bill of entry.
(iii) The foreign currency declared in these documents is the same as declared in Bill of Entry.
(iv) Check whether Bill of Entry was filed on the basis of proforma invoice. If so, whether value in final invoice is same or not.
(v) Whether as per contract, some extra amounts are to be paid to the suppliers. If so, verify reasons thereof from the contract. It shall be checked from the contract that such amounts
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are paid as result of resale, use or disposal of imported goods. Verify as to whether such extra payments are includible in transaction value as per Section 14 of the Customs Act, 1962 read with Customs Valuation Rules, 2007.
(vi) Check whether contract has clause for payment of royalty/license fee to the suppliers. Also verify from the contract as to whether such payments are condition for sale of goods and includible in transaction value as per rule 10(1) (c) of the Customs Valuation Rules, 2007. If includible, whether the same are included or not.
(vii) Check whether contract provides for payment by importer to foreign suppler or the third party on resale,
(viii) Please also refer to checklist on valuation as provided in Annexure-II for more details.
2. Bill of Lading / Airway Bill
Documents showing details of transportation of imported goods through Sea / Air.
(i) Verification of (a) valuation (b) classification (c) quantity (d) ADD /Safeguard duty / CVD.
(ii) The freight mentioned in these documents matches with the freight Declared in Bill of Entry.
(iii) The weight declared in Bill of Lading or Airway Bill matches with the weight declared in Bill of Entry.
3. Insurance Policy
Documents for insurance of goods from the supplier to destination.
(i) For verification of valuation.
(ii) The amount of insurance premium matches with the amount declared in Bill of Entry.
(iii) If cost of insurance is not known, whether insurance @1.125% of F.O.B value is added in transaction value.
4. National NIDB data is (i) NIDB data can be useful for
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Imports Data Base (NIDB) data
maintained by Directorate of Valuation in respect of imported goods from different countries in India.
Verification of (a) valuation (b) classification.
(ii) From NIDB data, ascertain the rates at which contemporaneous imports during same period of same quantity of identical or similar goods imported around the date of imports being audited. If the rates declared are much less than the rates given in NIDB data, there is chance of undervaluation and needs detailed scrutiny during per rule 10(1) (c) of the Customs Valuation audit.
5. Prices of relevant period as per London Metal Exchange (LME) / PLATT journal
(i) LME prices show the range of rates at which metals are sold in London Metal Exchange. These are printed twice a week.
(ii) PLATT compilation shows Rates of different virgin plastic granules.
(i)These can be useful for verification of valuation.
(ii)If the importer has imported the said items, ascertain the date(s) of contract for purchase. If contract is not available, ascertain the date(s) of purchase invoices and jot down the name of item, date of contract / purchase invoice and rate.
(iii)Verify the rate of such metal / plastics as per LME / PLATT for a date prior to the date of contract / invoice. Check whether the rate shown in Bill of Entry is equal to the minimum rate given in LME / PLATT. If not, the matter may be mentioned in the Audit report.
6. Creditors' ledgers of foreign suppliers
These documents contain details of all the transactions of suppliers and the ledgers of only foreign suppliers are relevant for Customs Audit.
(i)This can be useful for verification of valuation.
(ii)The total payments made to each foreign supplier as per ledgers shall be matched with the total amounts declared in Bills of Entry for import from each such supplier. The adjustments on account of balances at the beginning and end of the year shall be made.
(iii) If the payments made exceed the value declared in Bills of Entry for any of the supplier, reasons for such extra
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payments shall be ascertained and it shall be verified as to whether such amounts are includible in transaction value as per Customs Valuation Rules, 2007.
(iv)The ledgers of one or two major Suppliers from whom goods of substantial value have been imported shall be matched with each purchase invoice/ Bill of entry and it shall be ensured that the payments are covered by invoices for which bills of entry have been filed.
(v) Ascertain the payments made to foreign supplier on account of Royalty and license fees. It shall be ensured from the contracts as to whether such payments are a condition for sale of goods and includible in transaction value as per rule 10(1) (c) of the Customs Valuation Rules, 2007. If as per contract, any amounts were to be paid to the suppliers on account of resale, disposal or use of imported goods, ascertain the amounts so paid from the ledgers of such suppliers.
7. Creditors' ledgers of transporters and insurers of imported goods
(i)This can be useful for verification of valuation.
(ii)The payments made to transporters and insurers of imported goods match with the amounts declared in corresponding Bill of Entry.
8 Bills of Entry
Some Bills of Entry are cleared after full appraisement and examination of goods while some are cleared through RMS without any appraisement and examination.
(i)This can be useful for verification of (a) valuation (b) classification (c) Anti-Dumping Duty.
(ii)Segregate the Bills of Entry cleared without verification of self-assessment by proper officer and cleared after verification. The Bills of Entry for same goods of two categories shall be matched with respect to classification, valuation, exemption notification, rate of duties, anti-dumping duty /
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safeguard duty / CVD etc.
(iii)Verify whether in the Bills of Entry cleared through “verification of assessment (Non RMS), any Irregularity of mis-classification, valuation, payment of anti-dumping duty/ safeguard duty / CVD, licensing restriction etc. was pointed out by Customs. If so, there shall be similar irregularity in respect of similar goods cleared through RMS without appraisement and examination. Such irregularities shall be noted and importer should be asked to explain during interview or the verification phase at the premises.
9 Sale Invoices of imported goods sold as such and Input Tax Credit (ITC) Account
Sale invoices of only imported goods sold 'as such' need to be selected.
(i) This will be useful for verification of (a) valuation (b) classification (c) MRP based duty payment.
(i) In respect of imported goods, the importer is eligible for Input Tax Credit (ITC) of IGST paid on imported goods.
(ii) If imported goods are sold 'as such' at prices much higher than the landed cost, it gives an indication of under- valuation at the time of import. Efforts shall be made to prove the under-valuation during the verification phase by other documents.
10 Price Circulars of imported goods
Prior to 01.07.2017
(i) If the RSP based CVD was applicable to imported goods (prior to 1st July 2017), CVD was required to be paid as per RSP printed on the imported goods. The Audit Team shall verify the price circulars or packing / labelling of such imported goods to ensure that CVD was paid by declaring correct RSP at the time of import.
(ii) If price circulars or packing of imported goods are not produced by importer, the sale invoices may be verified to ensure that the price charged was in accordance with RSP declared in import declaration.
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1.4 Valuation: Export
Sr No
Document Nature of Document
Verifications required to be conducted
(1) (2) (3) (4)
1 Sale Contracts / Sale Orders and Sale Invoices for export goods
Documents that contain the price and other conditions for sale of goods to a foreign buyer.
(i) Verification of (a) valuation (b) classification (iii) Export incentive / benefits.
(ii) The value declared in sale contracts / sale orders/ sale invoices in foreign currency matches with the value declared in Shipping Bill.
(iii) The foreign currency declared in these documents is the same as declared in Shipping Bill.
(iv) Check whether Shipping Bill was filed on the basis of proforma invoice. If so, whether value in final invoice is same or not.
(v) Whether as per contract, some amounts are to be paid by overseas buyer to the exporter either directly or indirectly.
(vi) Check whether contract has clause for receiving payment for royalty/license fee from the buyers.
(vii) Check whether contract provides for receipt of payment (export proceeds) by exporter from foreign buyer or through the third party.
(viii) Please also refer to checklist on export as provided in Annexure-II for more details.
2. National Exports Data Base (NEDB) data
NIDB data is maintained by Directorate of Valuation in respect of export goods to different countries from India.
(i) NEDB data can be useful for Verification of (a) valuation (b) classification.
(ii) From NEDB data, ascertain the rates at which contemporaneous exports during same period of same quantity of identical or similar goods
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exported around the date of exports being audited. If the rates declared are much less than the rates given in NEDB data, there is possibility of overvaluation and needs detailed scrutiny.
3. Prices of relevant period as per London Metal Exchange (LME) / PLATT journal
(i) LME prices show the range of rates at which metals are sold in London Metal Exchange. These are printed twice a week.
(ii) PLATT compilation shows Rates of different virgin plastic granules.
(i)These can be useful for verification of valuation.
(ii)If the exporter has exported the said items, ascertain the date(s) of contract for sale / export. If contract is not available, ascertain the date(s) of sale invoices.
(iii)Verify the rate of such metal / plastics as per LME / PLATT for a date prior to the date of contract / invoice. Check whether the rate shown in Shipping Bill is broadly matches rate given in LME / PLATT. If not, the matter may be mentioned in the Audit report.
4. Debtors' ledgers of foreign buyer
These documents contain details of all the transactions of buyers and the ledgers of only foreign buyers are relevant for Customs Audit.
(i)This can be useful for verification of valuation.
(ii)The total payments received from each foreign buyer as per ledgers shall be matched with the total amounts declared in Shipping Bills for export. The adjustments on account of balances at the beginning and end of the year shall be made.
(iii) If the payments received is less than the value declared in Shipping Bills from any of the buyer, reasons for such shortfall in payments shall be ascertained and it shall be verified so as to decide entitlement to drawback and other export benefits.
(iv)The ledgers of one or two major buyers to whom goods of substantial value have been exported shall be matched with each sale invoice/ Shipping Bill and it shall be ensured that the payments are covered by invoices for
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which shipping bills have been filed.
(v) Ascertain the payments made to any person on account of instruction from foreign buyer on account of any reason.
5 Price Circulars of export goods, if also cleared in domestic market.
(i) The Audit Team shall verify the price circulars or packing of such goods to ensure that correct value was declared.
1.5 Revenue Risks Relating to Valuation:
With reference to the Customs Valuation Rules, 2007, the areas indicated below are considered to be revenue risk areas under the WTO Valuation Agreement.
I Status of Buyer and Seller
(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.
(b) Selling or buying agent: When a third party participates in a sale, it is necessary to examine his role in the transaction. Two situations may arise:
- 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
Selling Commissions or brokerage charges are sometimes not invoiced. However, when the name of a third person appears on an invoice, this may indicate the involvement of a selling agent. During the visit to the importer's premises to conduct verifications of declared values, it should be noted that Selling
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Commissions may be recorded under the item 'Commission on Sales' in the 'Marketing' or 'Selling and Distribution' account in the importer' financial/accounting records.
III Buying Commissions
The treatment of Buying Commissions for Customs valuation purposes depends upon the exact nature of the services rendered by intermediaries. Therefore, the simple appearance of "Buying Commission" on the agent's invoice would not be sufficient justification for its exclusion from the Customs value. Customs should conduct checks if the services provided by the agent are more than simply representing the buyer in the purchase of the goods, or if the amount of the commission appears to be inconsistent with the services performed.
There is also possibility that importer is actually paying “selling commission” to an agent in relation to import of goods by showing in the accounts as buying commission” in relation to sale of imported goods. Therefore, correctness of such payments should be checked.
IV Deposits / Part Payment
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:
- first or part payment only; - deposit only; - as per contract terms;
These practices are common with capital goods and/or importations for large-scale projects, etc. Examples of such payments could be:
- 1/3 paid on commencement of production of the goods to be imported; - 1/3 paid on completion of overseas production; - 1/3 paid on arrival of the imported goods in the country of importation.
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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VI Price Escalation Charges
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.
VIII Invoices for "Customs Purpose Only"
Invoices marked "for Customs purposes only (or some similar notation) may indicate:
- no sale of the goods being valued; - an actual commercial invoice for the goods concerned is not available
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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XI Price dependent on resale price
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.
XII Transfer Pricing
Transfer pricing is the practice adopted by multinational corporations in fixing the prices of goods and services traded between the corporation and its affiliates located in different countries. The multinational corporations may adjust the price of goods to enhance the profitability of the whole enterprise or to achieve other goals. In some cases, the final price is dependent on the 'amount realized in the resale in the country of importation, with the transfer price being adjusted up or down in consequence. In these circumstances, the following areas would require further examination:
a) whether the transaction in question can be regarded as a sale; b) whether or not there is an influence on the price caused, by the relationship
between the seller and the buyer; c) the existence of conditions or considerations to which the sale may be subject.
XIII Management Fees or Contributions to Research and Development
Sometimes in trade between a multinational corporation and its affiliates, a certain percentage of turnover or other amount is paid by the buyer to the seller as so-called management fees or contributions to Research and Development. In such cases, the issue of whether these payments are a condition of sale and whether they are related to the goods imported must be considered.
XIV Cost of Transport, Insurance and Related Charges
a) Cost of packing: The cost of packing for goods is normally included in the selling price. However, the cost of export packing is sometimes, not included in the selling price. Export packing is used specifically to protect goods during long-distance transportation and is specifically provided for under Article 8 as an addition on the Customs value.
b) Cost of insurance: The seller and the buyer sometimes conclude insurance package deals covering all their transactions. In that event, the insurance costs related to the transport of the imported goods should be included in the Customs value where the country bases its valuation law on the CIF system.
XV Royalties and licence fees
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.
XVI Tooling Costs (Assists)
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.
XVII Profit sharing
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.
2.1 Classification, Exemption and Import License / Authorisation: Documents Required and Verifications (Import):
Sr No Documents Verifications required to be done
(1) (2) (3)
(i) Bills of entry (ii) Exemption
Notifications claimed
(iii) Customs Tariff Act,1975
(iv) ITC-HS Classification
(i) Examine some of the major imported goods and ensure that the classification is correct and covered by valid import license / authorisation.
(ii) The Bills of entry cleared after “verification of assessment” by Customs and those cleared without “verification (RMS facilitated” shall be compared.
(iii) If classification is found to be mis-declared, the other aspects like free importability of goods or otherwise, availability of exemption notification, leviability of Anti-Dumping Duty / Safeguard duty / CVD, benefit of exemption from duty on imports from Preferential Areas/Countries etc. needs to be examined.
(iv) If importer has availed exemption under a particular notification, Auditor shall verify that the conditions thereof have been fulfilled. Special attention shall be paid to the goods imported at ‘Nil” rates of Customs duty.
(v) Please refer to checklist on classification and exemption notification as provided in Annexure-II for more details.
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2.2 Documents Required and Verifications for Classification, Exemption and Import License / Authorisation (Export):
Sr No Documents Verifications required to be done
(1) (2) (3)
i. Shipping Bills ii. Exemption
Notifications claimed, if any;
iii. Customs Tariff Act,1975
iv. ITC-HS Classification
(i) Examine some of the major exported goods and ensure that the classification is correct and covered by valid export license / authorisation.
(ii) The Shipping Bills cleared after “verification of assessment” by Customs and those cleared without “verification (RMS facilitated” shall be compared.
(iii) If classification is found to be mis-declared, the other aspects like free exportability of goods or otherwise, availability of exemption notification, etc. needs to be examined.
(iv) If importer has availed exemption under a particular notification, Auditor shall verify that the conditions thereof have been fulfilled.
(v) 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.
(vi) Are there any export restrictions on the goods exported / are they dual use items?
(vii) Does the exporter have required authorization / license / permit for restricted for dual use goods? Does the exporter have required certificate from Participating Government Agencies (PGAs), if applicable? [for example “health certificate” for meat product etc.]
(viii) Are the products correctly classified as per the Drawback Schedule?
(ix) Does the exporter fulfill the necessary conditions of not claiming the input credit while claiming higher / composite rate of drawback? Has the
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ROSL claimed at correct rate. (x) Check the exporter’s internal control
system to verify the transaction trail from contract – order – production – sale – dispatch – transportation – receipt of payments.
(xi) Does the quantity exported match with the internal records of purchase, manufacture and dispatch?
(xii) Is the value of goods exported unreasonably high compare to the value of purchase or the cost of manufacture reason may be examined?
(xiii) Do the exported goods have same quality and quantity compared to the declaration made on Shipping Bills, Export invoice and Bill of Lading?
(xiv) Has the exporters received the required BRC or similar certificate evidencing realization of export proceeds and submitted the same to the department?
(xv) Are the payment being received from a source which is different from the recipient of the exported goods and if the same is authorized as per contract and RBI guidelines?
(xvi) Whether export proceeds has been set off against payment to be made in respect of import?
(xvii) Please also refer to checklist on export as provided in Annexure-II for more details.
3. Document Verifications Required to be Done for ADD/ Safeguard duty / CVD (Import):
Sr No Documents Verifications required to be done
(1) (2) (3)
(i) Bills of Entry
(ii) List of goods on which Anti-Dumping duty is leviable (iii) Relevant
(i) Check whether Anti-Dumping duty / Safeguard duty / CVD is leviable on such goods and whether same is paid or not (check from ready reckoner) .
(ii) If on some of the goods on which Anti-Dumping Duty/ Safeguard duty / CVD is
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Notifications Certificates of country of Origin Transport documents for imported goods (iv) Debtors ledger of foreign suppliers
(v) Customs Tariff Act, 1975 ITC-HS Classification
leviable but not paid because such goods were imported from a non-Anti-Dumping Duty / Safeguard duty / CVD country, check the country of origin from which such goods were imported.
iii)Ascertain the date of imposition of anti-dumping duty on imported goods. Ascertain the name of supplier and his Country prior to imposition of Anti-Dumping Duty. If such goods have been imported from the same country in later period also, there is no need of other verifications. However, if the same supplier supplied same goods from a different country, the correctness of such suppliers may be ascertained from website of supplier, if any, transport documents, payment to supplier etc.
(iii) (iv) Check whether after imposition of Anti-Dumping Duty, the importer has changed the nomenclature and classification of the goods to avoid anti-dumping duty. This aspect needs verification in respect of Bills of Entry prior to imposition of Anti-Dumping Duty and after.
(iv) (v) Please also refer to checklist on anti-dumping duty / safeguard duty / CVD as provided in Annexure-II for more details.
4. Documents Required and Verifications for Imports from Preferential Areas/ countries (Import):
Sr No Documents Verifications required to be done
(1) (2) (3)
1 (i) Bills of Entry/ Previous imports
(i) Ascertain the names of suppliers and their country of origin for supply of one or two major imported goods. Check whether similar goods are being imported from the preferential countries as well as other countries. If so, try to ascertain that the goods cleared at concessional rate were actually imported from preferential country on the basis of other documents viz., transport documents, payments etc.
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(ii) Verify the names of suppliers from whom such goods were imported prior to issue of these notifications. If the country of supplier remained the same, no further verification is necessary. However, if the country of origin changed, efforts may be made to ensure that the goods were imported from Preferential Countries only. This may be done by verifying other documents. The website of the supplier may also be checked to ensure that the supplier is producing the goods in the Preferential Country.
2 Certificates of country of origin (COO)
i) As per Trade Agreements, the exemption in respect of Imports from Preferential Area/ Country is admissible if the goods originate from such Area/ Country. The designated officers of that Country issue Certificate of Origin on the basis of Determination of Origin Rules as per the relevant Agreement. The importer is required to furnish Certificate of Origin at the time of import to claim exemption. This can be used for verification of (a) actual description of goods (b) classification (c) country of origin (d) country of export (e) quantity of goods imported. (ii) In respect of COO ascertain the Notification No from Bill of entry and ascertain the Country for which notification pertains; verify that the COO is of the same Country as in notification, invoice and Bill of Entry; and check that nature and quantity of imported goods in COO match with these details in invoice and Bill of Entry.
3 (i) Bill of Lading/Airway Bills
(ii) Transport Documents for imported goods
Verify the transport documents viz. Bill of Lading or Airway Bill and check whether the goods were transported from the same Country of not. If transported form a third country, evidence regarding transportation from Country of Origin to such third Country shall be obtained.
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4 (i) Samples/ packing of imported goods
(i) If samples or packings of the Imported goods are available in the factory, the country of origin may be ascertained from the Bar Code or the markings in the packings.
Please also refer to checklist on “import from preferential areas / countries” as provided in Annexure-II for more details.
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. 5. Documents Required and Verifications for Imports at Concessional Rate of Duty for Manufacture of Specified Goods (Import):
Sr No Documents Verifications required to be done
(1) (2) (3)
1. Bills of Entry / Store Ledgers
(i) This contains the details about receipt of inputs or consumables, its issue for production and closing balance. It also contains details of physical verification, obsolete items, slow moving items and its write off etc. Hence, verify whether goods imported at concessional rate of duty for manufacture of specified goods have been received and issued for production of specified goods.
(ii) Verify whether any imported goods have been written off.
(iii) Verify whether any imported goods have been sold as such. If so, the unit is required to pay differential duty.
2 Goods Receipt Notes (GRN) / Material Receipt Notes (MRN) and Inspection cum Receipt Report (ICRR)
(i) GRNs /MRNs contain the details of goods as per invoices, goods actually received and short receipt of goods whereas ICRRs contain the quantity of goods accepted, rejected and reasons for rejection. (ii)Check whether the Imported Goods were short received or rejected.
3 Production Records (i) The importer is having sufficient plant and machinery to manufacture the specified goods from the imported goods.
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(ii) Efforts should be made to ascertain from the manufacturing process, final products manufactured, input-output ratio, quality of goods imported and quantity of final products manufactured that all the imported goods at concessional rate of duty were used in the manufacture of specified goods and such imported goods were not diverted.
4 Sale invoices of specified goods
(i) the landed cost of goods imported at concessional rate of duty and sale price of specified final goods shall be ascertained from the sale invoices of such specified goods. The sale price of specified manufactured goods should normally be more than the landed imported goods. (ii) The quantity of goods imported at concessional rate of duty and quantity of specified manufactured goods shall be ascertained to verify the latter is more than the former.
6. Documents Required and verification to be conducted for Imports under Export Promotion of Capital Goods (EPCG) Scheme:
Sr No Documents Verifications required to be done
(1) (2) (3)
1 EPCG License issued during last 8 years and current financial year
(i) This contains details of capital goods permitted for import, CIF value for import, Customs Notification No., rate of duty to be paid etc. It also contains the details of goods to be exported, Export obligation to be fulfilled, period of export obligation etc.
(ii) Make a list of all EPCG licenses which have not been redeemed by DGFT.
2 Bills of Entry Check from Bills of Entry that the goods imported were as per the details given in table to relevant notification.
3 Installation Certificate
(i) Verify that certificate of installation of capital goods was produced within the prescribed period.
4 Physical Verification of Capital Goods
Physically verify the capital goods as well as spares imported under EPCG, if Export Obligation Discharge Certificate from DGFT has
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not been obtained. Such goods cannot be sold or even transferred before completion of export obligation.
5 Shipping Bills (i) Check the Shipping Bills for export of goods under EPCG Scheme. Only those Shipping Bills on which EPCG License No. is mentioned are counted towards completion of Export Obligation.
(ii) Check whether the goods exported are as per the EPCG Licenses and such goods were manufactured by using imported capital goods.
(iii) Please also check whether block wise Export Obligation has been fulfilled or not. If not whether extension has been obtained from the Regional Licensing Authority. In case of failure, the importer is required to pay proportionate differential duty on the imported Capital goods plus interest.
6 Store Ledgers, Goods Receipt Notes (GRN)/ Material Receipt Notes (MRN) and Inspection cum Receipt Report (ICRR)
(i) Verify as to whether the spares imported for maintenance of capital goods were received in the factory and were issued for their maintenance. (ii) Verify whether any spares were short received or rejected or sold as such without using the same in the maintenance4 of capital goods. In such cases, the imported is required to pay the differential duties of Customs.
Please also refer to checklist on “import under EPCG Scheme” as provided in Annexure-II for more details.
7. Documents Required and Verifications for Imports under Duty Free Import Authorization (DFIA) Scheme:
Sr No Documents Verifications required to be done
(1) (2) (3)
1 DFIAs issued during past 3 years and current year
(i) DFIA allows duty free import of specified inputs for manufacture of export goods and it mentions description of import goods, quantity and value. In respect of sensitive items, the specification, technical characteristics and quality of the import goods is also mentioned. Hence confirm these elements.
(ii)There have been several cases of imports
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against forged Licenses. DGFT places a list of licenses issued by them during a month on its website. Hence, verify the genuineness of the DFIAs especially transferred DFIAs from the website.
2 Bills of Entry (i) Verify that the description of imported goods as per Bills of Entry matches with the DFIA.
(ii) Verify that the specifications, technical characteristics and quality of sensitive items declared in Bills of Entry exactly matches with that given in the DFIA.
(iii) Verify that the specifications, technical characteristics and quality of sensitive items exactly match with that contained in export goods.
(iv) Verify whether the imports have been made by the DFIA holder before completion of export obligation i.e. pre-imports or after completion of export obligation i.e. post imports.
(v) Verify whether the DFIA holder imported the goods or the DFIA was transferred and imports were made by the transferee.
3 Store Ledgers, Goods Receipt Notes (GRN) / Material Receipt Notes (MRN) and Inspection cum Receipt Report (I CRR)
(i) Whether the imported goods were received in the unit of DFIA holder.
(ii) Whether full quantity as per Bills of Entry was received or short quantity was received or some quantity was rejected.
(iii) Whether the imported goods were used in his factory, in the manufacture of export goods.
(iv) Whether any quantity was sold as such without use in the manufacture of export goods.
4 Shipping Bills (i) Check that Shipping Bills for export of goods indicate export is under DFIA.
(ii) Check whether the goods exported are as
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per DFIA scheme.
Please also refer to checklist on “import under DFIA Scheme” as provided in Annexure-II for more details.
8. Documents Required and Verifications for verifying duty liability in case of Temporary Import:
Sr No Documents Verifications required to be done
(1) (2) (3)
1
2 Bills of Entry Shipping Bill
i. Check that all the temporary imports are authorized and all the conditions of the Notification (claimed for temporary importation) and authorization have been fulfilled.
ii. Was the correct duty paid / drawback reversed / export benefit surrendered as specified in the relevant notification.
iii. Have the goods been re-exported within the specified period and proof submitted to the department.
iv. Is there an internal control system to verify the identity of goods imported and re-exported.
v. If the goods were imported under ATA carnet, was the same valid.
4 9. Documents Required and Verifications for verifying whether benefit of Notification has been claimed correctly:
Sr No Documents Verifications required to be done
(1) (2) (3)
1 Bills of Entry Shipping Bill
i. The details of exemption notifications claimed by the importer.
ii. Does the classification and description of goods match with the exemption notification and if the conditions to the said notification have been fulfilled?
iii. In case it is an end use notifications check the end use during walk through the premises.
iv. Check the internal control system to
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verify trail of receipt, stock account, productions, waste etc. to justify proper end use of the imported goods.
v. Is there already a Court decision, Board Circular modus-operandi Circular etc. concerning claimed exemption.
10. Inspection of accounts-related books and records
In inspection of accounts-related books and documents, the following points should be observed:
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.
ii. Attention should be paid to contradictions between figures and descriptions in account books and records. It is necessary to intensively examine records that have been treated in contradiction to common
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.
v. Special attention should be paid to additional description in prescribed columns and to hand-written comments or additions.
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ANNEXURE – 6
WORKING PAPERS
(To be filled up/ completed stages of audit)
Instructions for filling up Working Papers
1. Each part of Working Papers should be filled up on completion of the
relevant audit step. The date on which such part is completed and Working
Paper filled should be mentioned.
2. The completed Working Papers must be submitted by the Audit Team along
with the Draft Audit Report.
3. Copies of supporting documents/records/evidences referred to in the
Working Papers must be annexed. Each copy should be cross-referenced to
the relevant entry in the Working Paper.
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.
5. Working Papers should be filled in by the Auditors themselves and in no case
should be handed over to the importer/ exporter for filling them up.
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.
Date of Preparation…………………………. W/P
No………………………………….
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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:
S. No. Name of the Officer Designation
(1) (2) (3)
B. Nature of Business Operation of Importer: Please refer to Annexure-
I
1. Brief description of the main products imported in the proforma given below:
S.No. Description of
Goods
Imported
Customs
Tariff
Heading
Exemption
Notification
Availed on
imported
Goods
Whether
condition to
Notification
, if any,
fulfilled or
not
Rate of duty
(1) (2) (3) (4) (5) (6)
2. Brief description of the main products exported in the proforma given below:
S.No. Description of
Goods
exported
Customs
Tariff
Heading
Exemption
Notification
availed, if any
Prohibition
/
restriction
applicable,
if any
Rate of
duty, if any
(1) (2) (3) (4) (5) (6)
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3. Brief details of revenue paid for the last three years:
Year
Duty Payment (Rs. In lakhs)
Basic
Customs
Duty
Countervailing
Duty (CVD) /IGST
as applicable
Special
Additional
Duty
(SAD)upto
30.06.201
7
Anti
Dumping
Duty(ADD)
/Safeguar
d duty
Total
(1) (2) (3) (4) (5) (6)
C. Desk Review:
1. Date of Preparation : ………………
2. The Auditor should check whether the Master File is available in
Audit Cell and whether it is complete. [ If not, the Auditor should
complete the same as far as possible from the information available in the
office. Thereafter, the Auditor should examine the information available in
Master File and identify and mention (with justification), the areas or issues
that merit inclusion in Audit Plan].
3. Obtain and study other documents and conduct examinations. List out the
documents studied.
S.No. Name of the
Document/Report
From To Remarks
(1) (2) (3) (4) (5)
4. Work out some of the important financial ratios. Mention the important
indicators, which are required to be included in Audit Plan.
S.No. Issue Description Remarks
(1) (2) (3)
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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.
…………………………………………………………………………………………………………………………
……………………………………………………………………………………………
7. Give details of important areas (pertaining to goods imported /exported, rate
of duty, exemption notification) to be included in Audit Plan with reasons thereof
............................................................................................................................
............................................................................................................................
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………………………
9. Trend Analysis (Undertake analysis of trends as deemed relevant. Mention
issues to be included in Audit Plan.)
Date of Preparation……………………….
S. No. Analysis Description Results of
Analysis
Performed
Auditor's Remarks
(1) (2) (3) (4)
10. Gathering information about Importer / Exporter and the system
followed by him. (To be done during course of preparatory interview).
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Date of Preparation…………………………………………
(1) Person(s) Interviewed, their designation and dates of interview.
…………………………………………………………………………………………………………………………
……………………………………………………………………………………
(2) Give the gist of interviews especially in respect of
(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?
(c) Mode of negotiation
(d) Supplier related or otherwise; and the manner thereof.
(e) Whether goods are imported under Letter of Credit (L/ C) or Direct
Payment (DP) or otherwise?
(f) Details of Custom House Agents / Customs Brokers, Transporter,
Logistics, Warehouses. Any change of CHA in past and reason thereof
(g) Arrangement in store, inventory management vis-à-vis local
procurements and imports
(h) Details of the payments records, mode of overseas/outward remittance
(i) Pending bonds with Customs, their type and reasons
(j) Marketing pattern — through agents, direct, through depot
Mention issues to be included in Audit Plan
………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………
(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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11. Financial and Tax Accounting Information:
Date of Preparat ion……………………...
(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………………………….
(1) Indicate marketing pattern:
S.
No.
Nature of Sale / Transfer etc. Yes No If Yes,
Descript
ion
of
Product
(s)
Remarks
1 . Sale through the depot / distributors /
consignment agents / marketing
intermediaries.
2 . Sale in retail
3 . Retail Sale Price (Maximum) — Section 4A
of Central Excise Act, 1944
4 . Inter unit transfer
5 . Captive consumption
(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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section or specific Valuation Rule invoked may be indicated. Mention issues to
be included in Audit Plan.
………………………………………………………………………………………………………………
………………………………………………………………………………………………………
(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 Preparat ion………………………….
(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………………………………….
S.
No.
Subject Specific
issue
Records /
Document
Code
Coverage
Period
Selection
Criteria
(1) (2) (3) (4) (5) (6)
Aud i t P lan approved by…………………………………………….
13. Tour of the Premises:
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.
…………………………………………………………………………………………………………
……………………………………………………………………………………………………………
14. Evaluation of Internal Controls:
Date of Preparat ion…………………………….
(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:
S.
No.
Area Grade Problems Areas,
If Any Good Acceptabl
e
Poor
(1) (2) (3) (4) (5) (6)
1 Purchase
2 Tax Accounting
3 Posting to General Ledger
and Journals (specially of
high value transactions)
4 Credit / debit and their
documentation
5 Other expenditures
6 Account adjustments
7 Others
(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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2. Name of the Auditor verifying the issue:
3. Issue involved in brief:
4. Ref. No. of Audit Plan:
5. Documents verified:
6. Brief account of the process and extent of verification:
7. Auditor's observation and conclusion in brief:
8. Quantification of revenue involved, if any (also give the calculation sheet):
9. Any other contravention noticed (restriction / prohibition under any law etc.):
10. Documents relied upon to support the conclusion:
………………………………………………..
(Name and Signature of the Auditor)
……………………………………….
Date:
Supervisor’s remarks:
……………………………………………………………………………………………………………
……………………………………………………………………………………………………………
Supervisor’s name, signature
……………………………………….
Date:
16. Post Verification:
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.
……………………………………………………………………………………………………………
…………………………………………………………………………………………………………
17. Summary of Audit Results:
(1) Provide an outline in the format blow of all objections involving short/non
levy of duty, amounts and non-payment of interest due. Details of objections of
technical/procedural in nature without involving revenue / credit / interests/amounts
should also be mentioned. Indicate whether the auditee has agreed to the objections
and if so, has made spot payment (if so details thereof).
(Rs. in 1000)
S.
No.
Description
of
Commodity
CTH
No.
Audit
Points
Records /
Document
Auditee’s
Acceptance
(Y/N)
Amount
of
Detection
Amount
of
Recovery
(1) (2) (3) (4) (5) (6) (7) (8)
(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:
3. GSTIN & PAN
4. GST Commissionerate / Division / Range in which
it is located:
5. Customs Houses / Commissionerate concerned:
6. Main Product imported / exported along with CTH
(Broadly):
7. Date of last audit:
8. Period for which current audit undertaken:
9. Dates on which audit undertaken:
10 Name and designation of auditors
Part-II
1. Summary of major audit objections from the Working Paper:
S.No. Gist of
objection
Revenue
implication,
if any (Rs.
In lakhs)
Assessee Agreement
Yes/No
Department’s
Conclusions
with reasons
Yes No If No,
reasons for
disagreement
(1) (2) (3) (4) (5) (6) (7)
2. Suggestions for better compliance including systemic improvements and
modifications in the accounts and internal controls:
………………………………………………………………………………………
……………………………………………………………………………………….
Name & Signature of Assistant/Deputy Commissioner (Audit)
Date…………………………………
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ANNEXURE — 8 SCOR1NG SYSTEM FOR PBA
PART A
1 Name of the auditee:
2 Jurisdictional Audit Commissionerate:
3 Constitution of the Audit Party (with Names and Designation of Officers):
4 Audit Report Number:
5 Total Score (out of 100)
PART B
S. No. Areas Maximum Points
Points given
1 Quality of Desk Review and Audit Plan 20
2 Systematic conduct of Audit 20
3 Revenue Points flowing from finalization of Audit 15
4 Spot Recovery by the Audit Team 20
5 Suggestions for better compliance including systematic improvements 10
6 Timely completion of Audit 15
Total: 100
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ANNEXURE-9 MONTHLY REPORT ON PBA PERFORMANCE
(To be prepared by 10th of each month by each Audit Circle of the Jurisdictional /PCA Commissionerate conducting PBA)
Report for the month of……………….
Dated: …………………..
Names of the auditees for which audit was conducted during the month …………….
Audit
Circle No
Opening
Balance of
Audit Objections
Confirmed (not
closed) in Audit
Reports
No. of
Importers/
Exporters Audited
During the Month
No. of
Audit
Objections accepted
During the Month
No. of
Audit
Objections Closed
During the Month
(Audit Reports)
Total
Duty
Involved In the
Objections During
the Month
Amount
recovered
(prior to issue of
SCN During the Month)
Closing
Balance of
Audit Objections
of Audit Reports
(1) (2) (3) (4) (5) (6) (7) (8)
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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.
I/We M/s ..............................................(IEC No........ & GSTIN ------) state
that during the course of verification / scrutiny of our records / returns, by the Audit Team from the office of Customs Audit Commissionerate ......., it is observed that there is non-levy/ short levy/ erroneous refund of Customs duty and/or non-payment of interest payable on account of issue / issues mentioned as per the Annexure hereto. We have agreed to the points raised during verification / scrutiny and have paid the said amounts of duty / interest vide ….......(payment particulars). 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,
Place (Authorised Signatory) Date M/s ........................
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DRAFT LETTER UNDER SECT1ON 28(5) OF THE CUSTOMS ACT, 1962
(To be written by the importer/exporter for conclusion of proceedings under Section 28(5) of the Customs Act, 1962)
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.
I/We M/s ...............................................................(IEC No........ & GSTIN --
----) state that during the course of verification / scrutiny of our records / returns, by the Audit Team from the office of Customs PCA Commissionerate ......., it is observed that there is non-levy/ short levy/ erroneous refund of Customs duty and/or non-payment of interest payable on account of issue / issues mentioned as per the Annexure hereto. We have agreed to the points raised during verification / scrutiny and have paid the said amounts of duty along with applicable interest and 15 % penalty as per provisions of Section 28(5) of the Act. Calculation chart and payment particulars are given in the Annexure enclosed. 2. As per Section 28(5) of the Customs Act, 1962,
“Where any duty has not been levied or has been short-levied or the interest has not been charged or has been part-paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by the importer or the exporter or the agent or the employee of the importer or the exporter to whom a notice has been served under sub-section (4) by the proper officer, such person may pay the duty in full or in part, as may be accepted by him, and the interest payable thereon under section 28AA and the penalty equal to fifteen percent of the duty specified in the notice or the duty so accepted by that person, within thirty days of the receipt of the notice and inform the proper officer of such payment in writing.”
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
Sr
No
Term / phrase /
word Meaning / definition
1. AC/DC Assistant Commissioner or Deputy Commissioner of
Customs
2. ADC/JC Additional Commissioner or Joint Commissioner of
Customs
3. ADD Anti-dumping duty as levied under section 9A of Customs
Tariff Act, 1975
4. AEO Authorized Economic Operator
5. Audit Measures by which the Customs satisfy themselves as to
the accuracy and authenticity of declarations through the
examination of the relevant books, records, goods,
business systems and commercial data held by persons
concerned.
6. Audit Circle In each of the Audit Commissionerates there would be
audit circles, which will be assigned the work to
conduct TBA, ThBA & PBA.
7. Auditee Entity as defined under Section 99A of the Customs Act
8. Auditor in relation to any audit functions to be performed under
Customs Act, 1962 means the “proper officer”, who is
assigned functions under section 99A, of the Customs Act,
by the Board.
9. CBIC Central Board of Indirect Taxes and Customs
10. Customs Act The Customs Act, 1962 (Act 52 of 1962)
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
13. DGARM Directorate General of Analytics and Risk Management
14. DGFT Directorate General of Foreign Trade
15. DGOV Directorate General of Valuation
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Sr
No
Term / phrase /
word Meaning / definition
16. ICES Indian Customs and EDI System
17. IGST Integrated Goods and Service Tax
18. Multi Locational
Units
A single manufacturer / trader having more than one
manufacturing / trading unit on the same PAN number is
called a Multi-Location Unit (MLU).
19. NACIN National Academy of Customs, Indirect Taxes & Narcotics
20. NIDB National Import Data Base
21. Premises based
Audit (PBA)
Audit conducted in the premises of importer, exporter,
Customs Brokers or other persons as defined under
Section 99A.
22. PCA Post Clearance Audit
23. proper officer “Proper officer” as defined under Section 2(34) of Customs
Act, 1962
24. Regulations Post Clearance Audit Regulations, 2018
25. Risk Management Coordinated activities by administrations to direct and
control risk
26. Risk Assessment Overall process of risk identification, risk analysis, risk
evaluation and prioritization
27. RMCC Risk Management Centre for Customs
28. ROSL Refund of State Levies
29. SAD Additional duty leviable under Section 3(5) of Customs
Tariff Act, 1975 (Special Additional Duty )
30. SD duty as levied under Section 8B & 8C of Customs Tariff
Act, 1975
31. Targeting The selection for examination/audit of a certain
consignment, passenger, means of transport, transaction or
entity based on risk analysis, profiling, document review,
observation and questioning techniques.
32. Theme based An audit method which focuses on an issue or sector or
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Sr
No
Term / phrase /
word Meaning / definition
audit (ThBA) number of issues or sectors.
33. Trader An importer, exporter, one who engages in transit or the
like, who has a relationship with Customs, excluding
forwarders, etc., who merely convey international cargos,
and Customs brokers who merely submit declarations on
behalf of the “trader
34. Transaction based
audit (TBA)
An audit method which focuses on each import / export
declaration.
35. UQC Unique Quantity Code