CAG’s report on working of our Department

TIOL-DDT 2403
24.07.2014
Thursday

(1)    Customs EDI, not all that good - CAG

IF you are an importer or exporter, apart from the Customs officers, you have to deal with the erratic behaviour of a software programme called the Indian Customs Electronic Data Interchange System (ICES 1.5).

CAG conducted a Performance Audit on the ICES 1.5 for the year ended March 2013.

The Indian Customs Electronic Data Interchange System (ICES) was developed as the core ICT system through which import and export documents {Bills of Entry, Shipping Bills, Import General Manifests (IGMs) and Export General Manifests (EGMs)} were to be processed. The main objectives of ICES were to ensure uniformity of assessments and valuations; ensure faster processing; reduce transaction cost, interaction of the Trade with government agencies, and provide quick and accurate import/export statistics for compilation by the DGC&IS. ICES Ver 1.0 was initially launched as a Pilot project at Delhi Custom House in 1995. It was gradually made operational at other custom houses from 1997.

ICES 1.5, an upgrade of the original ICES 1.0 Version was rolled out in a phased manner across various customs locations from June 2009. The main features of the upgraded version were a migration from Oracle database 8i to 10g, which runs in an environment with a centralised application having:

1. Multi-locational functionality;

2. Single database with partitions for users to access data only for their location;

3. Centralized maintenance and updating of software.

The overall goal of the Directorate of Systems and Data Management (DoS) is to provide technical support to operations and safeguard resources by strengthening the computing infrastructure of CBEC. ICES was selected for performance audit since it forms the basis for Customs public interface and is posited to leverage the CBEC revenue administration strategy as an operational solution, which is efficient, effective, transparent and reduces transaction cost while augmenting facilitation of the trade. Audit came across systemic issues and issues involving inadequate scoping and functionality of the application. The total revenue implication of this PA report is Rs. 847.16 crore.

CAG Recommends:

1. The department may consider constituting a Steering Committee for developing IS plans according to its business strategy in consonance with its future IS needs.

2. A personnel policy for development of internal competencies for management of the CBEC's IS management, by recruitment, development and training of IT personnel may be developed for smooth operations of the department's mission critical IS systems.

3. Any changes in the operational features of logical security elements like password policy may invariably be implemented only after due authorisation and documentation of the changes.

4. The department may consider examining its core application (ICES 1.5) audited periodically for detecting deficiencies and suggesting improvements in the application. The strategic control must necessarily be with the Government and accordingly, the SLAs may be urgently reviewed.

5. DoS may consider mapping the serial numbers of the RSP notification with the Tariff line items and put in place necessary validations in the application to ensure that the importer declares the RSP, if there are any imports under a tariff line item, covered under the RSP notification.

6. The department may consider the introduction of appropriate validations in ICES Application and RMS to detect the related cases. The facilitation accorded to ACP clients by RMS may also be re-examined, in view of the large volumes of goods cleared at RSPs declared below import cost.

7. To ensure correct assessment, validation checks for declaration of same CETH/CTH may be provided for in ICES 1.5 application, for all goods classifiable under chapters 1 to 98 of the Customs and corresponding Central Excise Tariff Schedules.

8. The proposed Export Obligation Discharge Certificate (EODC) message exchange between the DGFT and ICEGATE has not materialised. The manual transmission of EODCs and their monitoring has not been found to beefficient. However, the data available in the application database may be used to generate EODC discharge failure reports and the licencees as well as DGFT may be pursued, for timely initiation of the revenue recovery procedures related to the EODC.

9. The information regarding provisional assessments, action taken in cases of short levy of duty and duty paid through manual challans may be provided for in the application, to allow updation of the data relating to each of import/export assessment record.

Will CBEC listen to CAG's wisdom?

(2)    Scrutiny of Returns is neglected area in Central excise - CAG

THE CAG in its latest report to Parliament on Central Excise observed that scrutiny of returns was a neglected area.

CBEC introduced self-assessment of Central Excise duties in 1996 and for Service Tax in 2001. With the introduction of self-assessment, the department also provided for a strong compliance verification mechanism through scrutiny of returns/ assessments, internal audit and anti-evasion. The crucial role of scrutiny of assessments as highlighted in the Report of the Task force on Indirect Taxes 2002 states "It is the view that assessment should be the primary function of the Central Excise Officers. Self-assessment on the part of the taxpayer is only a facility and cannot and must not be treated as a dilution of the statutory responsibility of the Central Excise Officers in ensuring correctness of duty payment. No doubt audit and anti-evasion have their roles to play, but assessment or confirmation of assessment should remain the primary responsibility of the Central Excise Officers".

CAG detected irregularities which could have been detected had the department conducted the scrutiny as per the prescribed procedures.

(3)    Internal Audit by Department - Not very vigilant - CAG

THE CAG observed, "One of the main compliance verification mechanisms in the department is the internal audit which carries out audit at assessee premises by following prescribed procedures including selection of assessee units based on risk parameters and scrutiny of records of the assessee to ascertain the level of compliance with the prescribed rules and regulations. Internal audit is empowered under Central Excise and Service Tax Rules, to access the records of the assessees at their registered premises. The Directorate General of Audit with its seven zonal units at Ahmedabad, Mumbai, Delhi, Bangalore, Kolkata, Chennai and Hyderabad is to provide a focal link between the Commissionerates (who actually run the audit process) and the Board on all audit-related matters. On the one hand, it aids and advises the Board in policy formulation and on the other, it guides and provides functional direction in planning, co-ordination, supervision and conduct of audits at the local level. Every Commissionerate has an Audit cell, manned by an Assistant/Deputy Commissioner and auditors and headed by an Additional/Joint Commissioner and this cell prepares, co-ordinates and monitors the audit plan. Internal audit parties consisting of Superintendents and Inspectors carry out this audit."

CAG attempted to check the efficiency of the selection process of assessees by internal audit cell of the department and actual audit done by the internal audit parties by verifying some assessee records already audited by the internal audit parties. And they found several issues not noticed by the Department's Audit.

Audit is the most lucrative section in the Department now and the consideration demanded for not raising audit points has shot up to lakhs of rupees. Assessees who have refused to budge to the high demands from Audit parties have found to their shock that it is much cheaper to pay off even lakhs to Audit parties than enter into litigation. The Audit can raise any objection on even issues settled long back. The Commissioners routinely approve these audit objections especially when huge evasion figures are shown. This results in a Show Cause Notice and the long process of litigation begins. You hire the best lawyers and plead before the learned Commissioner that the issue had already been decided in your favour by the Supreme Court. The Commissioner will come up with weird reasons for not following the Apex Court and one strong reason could be the assessee is different. He will demand duty for five years even if you were filing returns (which the officers were mandated to scrutinise and which they will not touch with a barge pole), impose an equal penalty and demand interest. He may also impose penalties on the officers of the Company. You have to make a pre-deposit for going in appeal. In the meantime even if your stay petition is pending, the Department will threaten you with attachment of goods and your bank accounts. Life will be made miserable and you will begin to realise that paying the auditor in the beginning of the story would have been the wisest decision. Sometimes wisdoms dawns a little late.