Internal Control

General Overview

Internal control is the process designed to ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Safeguarding assets against theft and unauthorised use, acquisition, or disposal is also part of internal control.

Internal Controls

The term internal controls refers to the overall operating framework of Policies, Practices, Systems, Management Philosophy, Values and Actions which exist in an organization to ensure that

a.       Essential organization Objectives are met;

b.      Assets are protected and Risks are managed;

c.       Legal requirements are met;

d.      Information used to report is accurate

To devise and maintain an adequate system of internal control for the operations of entity is the responsibility of management. Internal controls are the overall means whereby management ensures that objectives are met , risks are assessed and managed, appropriate reviews of the operations performance are made, and that information sharing and communications occur in a timely, accurate and appropriate fashion with due regard for protection of valuable information .

However the internal controls can only provide reasonable assurance that entities objectives are met. As such the company must consider the relative costs and benefits of objective established. The entity satisfies an internal control requirement by providing an operating framework for the departments to follow with regards to policies and practice.

Elements of Internal Control

Internal control systems operate at different levels of effectiveness. Determining whether a particular internal control system is effective and judgement resulting from an assessment of whether the five components - Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring - are present and functioning. Effective controls provide reasonable assurance regarding the accomplishment of established objectives.

1.     Control Environment

The control environment, as established by the organization's administration, sets the tone of an institution and influences the control consciousness of its people. Leaders of each department, area or activity establish a local control environment. This is the foundation for all other components of internal control, providing discipline and structure. Control environment factors include:

a)      Integrity and ethical values;

b)      The commitment to competence;

c)       Leadership philosophy and operating style;

d)      The way management assigns authority and responsibility, and organizes and develops its people;

e)      Policies and procedures.

The management style and the expectations of upper-level managers, particularly their control policies, determine the control environment. An effective control environment helps ensure that established policies and procedures are followed. The control environment includes independent oversight provided by a board of directors and, in publicly held companies, by an audit committee; management's integrity, ethical values, and philosophy; a defined organizational structure with competent and trustworthy employees; and the assignment of authority and responsibility.

2.     Risk Assessment

Every entity faces a variety of risks from external and internal sources that must be assessed. A precondition to risk assessment is establishment of objectives, linked at different levels and internally consistent. Risk assessment is the identification and analysis of relevant risks to achievement of the objectives, forming a basis for determining how the risks should be managed. Because economics, regulatory and operating conditions will continue to change, mechanisms are needed to identify and deal with the special risks associated with change.

Objectives must be established before administrators can identify and take necessary steps to manage risks. Operations objectives relate to effectiveness and efficiency of the operations, including performance and financial goals and safeguarding resources against loss. Financial reporting objectives pertain to the preparation of reliable published financial statements, including prevention of fraudulent financial reporting. Compliance objectives pertain to laws and regulations which establish minimum standards of behaviour.

The process of identifying and analyzing risk is an ongoing process and is a critical component of an effective internal control system. Attention must be focused on risks at all levels and necessary actions must be taken to manage. Risks can pertain to internal and external factors. After risks have been identified they must be evaluated.

Managing change requires a constant assessment of risk and the impact on internal controls. Economic, industry and regulatory environments change and entities' activities evolve. Mechanisms are needed to identify and react to changing conditions.

3.     Control Activities

Control activities are the policies and procedures that help ensure management directives are carried out. They help ensure that necessary actions are taken to address risks to achievement of the entity's objectives. Control activities occur throughout the organization, at all levels, and in all functions. They include a range of activities as diverse as approvals, authorizations, verification  reconciliations, reviews of operating performance, security of assets and segregation of duties. In other words Control activities are the specific policies and procedures management uses to achieve its objectives. The most important control activities involve segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance.

Control activities usually involve two elements: a policy establishing what should be done and procedures to affect the policy. All policies must be implemented thoughtfully, conscientiously and consistently.

In order to identify and establish effective controls, management must continually assess the risk, monitor control implementation, and modify controls as needed. Top managers of publicly held companies must sign a statement of responsibility for internal controls and include this statement in their annual report to stockholders.

4.     Information and Communication

Pertinent information must be identified, captured and communicated in a form and time frame that enables people to carry out their responsibilities. Effective communication must occur in a broad sense, flowing down, across and up the organization. All personnel must receive a clear message from top management that control responsibilities must be taken seriously. They must understand their own role in the internal control system, as well as how individual activities relate to the work of others. They must have a means of communicating significant information upstream.

5.     Monitoring

Internal control systems need to be monitored - a process that assesses the quality of the system's performance over time. Ongoing monitoring occurs in the ordinary course of operations, and includes regular management and supervisory activities, and other actions personnel take in performing their duties that assess the quality of internal control system performance.

The scope and frequency of separate evaluations depend primarily on an assessment of risks and the effectiveness of ongoing monitoring procedures. Internal control deficiencies should be reported upstream, with serious matters reported immediately to top administration and governing boards.

Internal control systems change over time. The way controls are applied may evolve. Once effective procedures can become less effective due to the arrival of new personnel, varying effectiveness of training and supervision, time and resources constraints, or additional pressures. Furthermore, circumstances for which the internal control system was originally designed also may change. Because of changing conditions, management needs to determine whether the internal control system continues to be relevant and able to address new risks.

6.     Components of the Control Activity

Internal controls rely on the principle of checks and balances in the workplace. A short description of each of these control activities appears below:

1.       Segregation of duties requires that different individuals be assigned responsibility for different elements of related activities, particularly those involving authorization, custody, or record keeping. For example, the same person who is responsible for an asset's record keeping should not be responsible for physical control of that asset having different individuals perform these functions creates a system of checks and balances. Segregation of Duties reduce the likelihood of errors and irregularities. An individual is not to have responsibility for more than one of the three transaction components: authorization, custody, and record keeping. When the work of one employee is checked by another, and when the responsibility for custody for assets is separate from the responsibility for maintaining the records relating to those assets, there is appropriate segregation of duties. This helps detect errors in a timely manner and deter improper activities; and at the same time, it should be devised to prompt operational efficiency and allow for effective communications.

2. Personnel need to be competent and trustworthy, with clearly established lines of authority and responsibility documented in written job descriptions and procedures manuals. Organizational charts provide a visual presentation of lines of authority and periodic updates of job descriptions ensures that employees are aware of the duties they are expected to perform.

3.       Independent checks on performance, which is carried out by employees who did not do the work being checked, help ensure the reliability of accounting information and the efficiency of operations. For example, a supervisor verifies the accuracy of a retail clerk's cash drawer at the end of the day. Internal auditors may also verity that the supervisor performed the check of the cash drawer.

4.       Proper authorization of transactions and activities helps ensure that all company activities adhere to established guide lines unless responsible managers authorize another course of action. For example, a fixed price list may serve as an official authorization of price for a large sales staff. In addition, there may be a control to allow a sales manager to authorize reason able deviations from the price list. Authorization Procedures need to include a thorough review of supporting information to verify the propriety and validity of transactions. Approval authority is to be commensurate with the nature and significance of the transactions and in compliance with Organizations policy.

5.       Physical control over assets and records helps protect the company's assets. These control activities may include electronic or mechanical controls (such as a safe, employee ID cards, fences, cash registers, fireproof files, and locks) or computer-related controls dealing with access privileges or established backup and recovery procedures. Physical Restrictions are the most important type of protective measures for safeguarding organizations assets, processes and data.

6.       Adequate documents and records provide evidence that financial statements are accurate. Controls designed to ensure adequate record keeping include the creation of invoices and other documents that are easy to use and sufficiently informative; the use of pre-numbered, consecutive documents; and the timely preparation of documents. Documentation and Record Retention is to provide reasonable assurance that all information and transactions of value are accurately recorded and retained. Records are to be maintained and controlled in accordance with the established retention period and properly disposed of in accordance with established procedures.

7. Monitoring Operations is essential to verify that controls are operating properly. Reconciliations, confirmations, and exception reports can provide this type of information.

7.     Internal Control Limitations

There is no such thing as a perfect control system. Staff size limitations may obstruct efforts to properly segregate duties, which requires the implementation of compensating controls to ensure that objectives are achieved. A limited inherent in any system is the element of human error, misunderstandings, fatigue and stress. Employees are to be encouraged to take earned vacation time in order to improve operations through cross training while enabling employees to overcome or avoid stress and fatigue.

The cost of implementing a specific control should not exceed the expected benefit of the control. Sometimes there is no out-of-pocket cost to establish an adequate control. A realignment of duty assignments may be all that is necessary to accomplish the objective. In analyzing the pertinent costs and benefits, managers also need to consider the possible ramifications for the organization at large and attempt to identify and weigh the intangible as well as the tangible consequences.

Internal controls should reduce the risks associated with undetected errors or irregularities, but designing and establishing effective internal controls is not always a simple task and cannot always be accomplished through a short set of quick fixes.

Audit Guidelines

The Audit is one of many effective controls that the entity should use to administer its operations.

                      However, to judge its effectiveness it is necessary to ask the following question:

1.       Does the organization have a functioning Audit Committee?

2.       Is the audit made on surprise basis rather than scheduled in advance?

3.       Is an audit also performed when there is change of officers?

4.       Are records of the audit documented and the results kept in the organizations files?

5.       Is the scope of Audit comprehensive rather than just a financial reconciliation?

If answers to the above questions are in YES then it can be assumed that audit committee will be functioning correctly.

Let’s Sum Up

Internal control is the process designed to ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Safeguarding assets against theft and unauthorized use, acquisition, or disposal is also part of internal control. Internal control systems operate at different levels of effectiveness. Determining whether a particular internal control system is effective and judgement resulting from an assessment of whether the five components - Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring - are present and functioning. Effective controls provide reasonable assurance regarding the accomplishment of established objectives. In order to identify and establish effective controls, management must continually assess the risk, monitor control implementation, and modify controls as needed. Top managers of publicly held companies must sign a statement of responsibility for internal controls and include this statement in their annual report to stockholders. There is no such thing as a perfect control system and internal control system too have its limitations, so we can say that the internal controls can only provide reasonable assurance that entities objectives are met. As such the company must consider the relative costs and benefits of objective established. The entity satisfies an internal control requirement by providing an operating framework for the departments to follow with regards to policies and practice.

Corporate Social Responsibility (CSR)-Companies Bill 2012

Corporate Social Responsibility (CSR)

The Companies Bill, 2012 passed by Lok Sabha recently would come into force after its approval by Rajya Sabha and assent by the President of India. The new law will have far reaching effects.

In recent years, increasing attention has been given to the concept of Corporate Social Responsibility (CSR), defined in terms of the responsiveness of businesses to stakeholders’ legal, ethical, social and environmental expectations.

CSR is not new to India, companies like TATA and BIRLA have been imbibing the case for social good in their operations for decades long before CSR become a popular cause. Inspite of having such life size successful examples, CSR in India is in a very nascent stage. It is still one of the least understood initiatives in the Indian development sector. It is followed by a handful of public companies as dictated by the very basis of their existence, and by a few private companies, with international shareholding as this is the practise followed by them in their respective foreign country. Thus the situation is far from perfect as the emphasis is not on social good but rather on a policy that needs to be implemented.

Companies Bill 2012 has specific requirements for the formation of CSR committee who look  for the CSR policy matters expenditure etc.

Extracts of Companies Bill 2012 on CSR

Section 135(1) said that “Every company having net worth of rupees five hundred crore or more, or

turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board

consisting of three or more directors, out of which at least one director shall be an independent director”.

Constitution of CSR Committee

Section 135 (1) says that Every company with net worth of INR 5,000 million or more or turnover of INR 10,000 million or more or a net profit of INR 50 million or more during any financial year to constitute a CSR Committee consisting of three or more directors, out of which at least one director shall be an independent director.

135(2) said that “ The Board's report under sub-section (3) of section 134 shall disclose the

composition of the Corporate Social Responsibility Committee”.

Composition of CSR Committee

Composition of CSR committee shall be disclosed by Board in the Board’s report under section 134(3).

135 (3) The Corporate Social Responsibility Committee shall,—

(a)    Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

(b)   recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

(c)     Monitor the Corporate Social Responsibility Policy of the company from time to time.

Function of Committee as defined under section 135(3)

(d)   The Committee to recommend CSR policy and

(e)   CSR expenditure and

(f)      Also monitor the CSR policy.

135 (4) The Board of every company referred to in sub-section (1) shall,—

(a)    after taking into account the recommendations made by the Corporate Social  Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and

(b)   ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

 Role of Board of directors  

Section 135(4) makes sure that recommendation made b y CSR committee is considered by company and ensures that those activities which are included in CSR policy will be undertaken by company.

135 (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.

Provided further that if the company fails to spend such amount, the Board shall, in its

report made under clause (o) of sub-section (3) of section 134, specify the reasons for not

spending the amount.

Amount for CSR activities-Appropriation of Profit

Board of such a company shall ensure that in every financial year, at least 2 percent of its average net profit made during three immediately preceding financial years is spent in pursuance of its CSR policy; reasons for failure to spend such amount will have to be explained in Board’s report.

Area of Operation

The company to give preference to local area where it operates and surrounding areas for spending amount earmarked for CSR activities.

The requirement of reporting failure would motivate companies to undertake these activities. If done properly, such activities may have significant positive impact in the local area.

 Explanation.—For the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198.

List of Documents Required for Registration-Excise

List of Documents Required for Registration

1.       Pan Card Copy –Company/Firm/proprietor

2.       Pan Card Copy –Authorized signatory of Firm/Company

3.       Ground Plan of Factory(which should also provide description of boundaries of premises to be registered)

4.       List of Directors in case of Company, Partners in case of Firm

5.       Memorandum and Articles of Association/Partnership deed

6.       General power of attorney (in case application is signed by authorized agent)

7.       PAN card copy of directors/partners other than signatories

8.       Address proofs of the factory premises like:

a)      Copy of purchase agreement along with electricity bill, water bill etc., if factory is owned,

b)      Copy of Leave and license agreement along with electricity bill, water bill etc., if factory is taken on lease,

c)       No objection certificate’ from the licensor and last paid rent receipt may also be required

9.       Residence proof of directors/partners

10.   Registration Certificate under any other laws, if any

Once the above all documents are submitted with CEO, he may issue with in a reasonable time the registration certificate which is PAN based.

Component of Registration Number

In excise registration no given is PAN based registration number and it is alphanumeric. The first part is the 10-Character PAN issued by Income Tax authorities to the person (includes a legal person) to whom the Registration No. is allotted. The second part comprises of a fixed 2-Character alpha-code indicating the category of the Registrant. The third part is a 3 character numeric code: 001,002,003…..and so on

1.      The third part with 3 character numeric code represent number of factory/ warehouse owned by the common assessee.

Example In case, a manufacturer registered with the Central Excise Department, have only one factory/ dealers premise/warehouse, the last 3 characters will be “001”. If there are more than one factories/ warehouses /dealers premises of such a person having common PAN for all such factories / warehouses /Dealer’s premises, the last 3 character of the Registration Number would be “001, 002, 003…etc.

2.      The fixed 2 character alpha-code which indicating the category of registrant are as follows

a)      XM-central excise manufacturer(including registered warehouse)

b)      XD-Registered Dealer(first/second stage)

 Examples of 15 digits PAN based Registration Number:

a)      Where the registrant has only one factory: New Registration Number will be  PAN+XM+001

 Suppose PAN is ABCDE1234H, the New Registration Number will be ABCDE1234HXM 001

b)     Where the registrant has more than one factory, say 3 factories, having PAN as aforesaid, then the New Registration Number will be:

ABCDE1234HXM001, ABCDE1234HXM002, ABCDE1234HXM003

c)      Where the registrant has one factory and is also registered as dealer, having PAN as aforesaid, then the New Registration Number will be:

for Manufacturer- ABCDE1234HXM 001
for Dealer-           ABCDE1234HXD 001     

   

  Note:

1.      These all documents are to submitted with the online generated copy of form filled (Acknowledgement of form filled)
2.      All the above documents should be in multiple copies and self attested with stamp.
3.      Points no 7 to 10 are the additional documents which department usually seek from the assessee.
4.      Where the Registrant is not having PAN (including small Scale Beedi/Match manufacturers) the system will itself generate a Temporary 15 digit PAN based Registration Number: Similar Temporary Number will be generated automatically (from  1.10.2002) for the assesses who may be having PAN but who have so far not applied for or obtained 15 digit PAN Based Registration Number. An example of the Temporary Number is:
                  for Manufacturer -(TEMP)000(XXXM001)
                  for Dealer –(TEMP)000000(D001)

Registration Procedure-Excise

Registration Procedure under Central Excise

Who are Liable to register

As per the Central Excise Rules 2002 as amended time to time by way of notifications., rule 9 “Manufacturer of excisable goods or any person who deals with excisable goods are required to get the premises registered with the Central Excise department before commencing business”. On first time  reading this definition  the first thing comes in my mind that the coverage of rule 9 is wide and it even covers all those who are in to manufacture or dealt with excisable goods like a wholesaler or a retailer or a individual who  buys goods for sale/resale or own consumption.

But when gone through detailed  It give me the Impression “manufacturers’ of excisable goods or any person who deals with excisable goods, with some exceptions, are required to get the premises registered with the Central Excise Department before commencing business”

So there are some exceptions also provided that “a person who require the registration” and “who do not require registration/exempt from registration”

Person Liable to registration

In accordance to rule 9 and notification issued under rule 18 and rule 19 of Central Excise Rules, 2002 as the case may be the following category of persons are required to register his place of business/factory with appropriate CEO.

1. Every manufacturer of excisable goods (including Central/State Government undertakings or undertakings owned or controlled by autonomous corporations) on which excise duty is leviable .
2. Persons who desire to issue CENVATABLE invoices under the provisions of the CENVAT Credit Rules, 2001.
3. Persons holding private warehouses.
4. Persons who obtain excisable goods for availing end-use based exemption notification.
5. Exporters manufacturing or processing export goods by using duty paid inputs and intending to claim rebate of such duty or by using inputs received without payment of duty and exporting the finished export goods.

Separate registration is required in respect of separate premises except in cases where two or more premises are actually part of the same factory (where processes are interlinked), but are segregated by public road, canal or railway-line. The fact that the two premises are part of the same factory will be decided by the Commissioner of Central Excise based on factors, such as:

6. Interlinked process – product manufactured/produced in one premise are substantially used in other premises for manufacture of final products.
7. Large number of raw materials are common and received/proposed to be received commonly for both/all the premises
8. Common electricity supplies.
9. There is common labour /work force
10. Common administration/ works management.
11. Common sales tax registration and assessment
12. Common Income Tax assessment
13. Any other factor as may be indicative of inter-linkage of the manufacturing processes.
    This is neither an exhaustive list of indicators nor each indicator is necessarily in each case. The Commissioner has to decide the issued from case to case

Persons Exempted From registration

By the virtue of Notification No. 36/2001-CE (NT) dt.26.6.2001, following specified  categories of persons/premises are exempted from obtaining registration:

1. Persons who manufacture the excisable goods, which are chargeable to nil rate of excise duty or are fully exempt from duty by a notification.
2. Small scale units availing the slab exemption based on value of clearances under a notification. However, such units will be required to give a declaration once the value of their clearances touches Rs.90 lakhs.
3. In respect of ready-made garments, the job-worker need not get registered if the principal manufacturer undertakes to discharge the duty liability.
4. Persons manufacturing excisable goods by following the warehousing procedure under the Customs Act, 1962 subject to the following conditions:
1. the said excisable goods and any intermediary or by-product including the waste and refuse arising during the process of manufacture of the said goods under the Customs Bond are either destroyed or exported out of the country to the satisfaction of the Assistant Commissioner of Customs or the Deputy Commissioner of Customs, in-charge of the Customs Bonded Warehouse;
2. the manufacturer shall file a declaration in the specified form annexed hereto in triplicate for claiming exemption under this notification;
3. no drawback or rebate of duty of excise paid on the raw materials or components used in the manufacture of the said goods, shall be admissible.
5. The person who carries on wholesale trade or deals in excisable goods (except first and second stage dealer, as defined in Cenvat Credit Rules, 2001).
6.  A Hundred per cent Export Oriented Undertaking, or a unit in Free Trade Zone or Special Economic Zone licensed or appointed, as the case may be, under the provisions of the Customs Act, 1962.
7. Persons who use excisable goods for any purpose other than for processing or manufacture of goods availing benefit of concessional duty exemption notification.

Declaration in Lieu of registration

The manufacturers who are exempted from the operation of Rule 9 by virtue of Notification no. 36/2001-Central Excise (NT) dt.26/6/2001 have to file a declaration with the Assistant Commissioner of the respective Divisions.

 Genuine delay in filing the required declaration need not be viewed seriously and the assessee may be allowed to enjoy the exemption from the operation of Rule 9 as well as from the payment of duty provided the conditions stipulated in the respective exemption Notifications have been duly fulfilled

Period of Validity of Registration

Once registration is granted it is permanent in nature until surrendered by the person or company or suspended or revoked by appropriate authority.

Procedure for Registration

New registrants required to apply online through the ACES website.

Link: - www.aces.gov.in

Note:

1.       Separate Registration required in for each depot, godown, however in case of Liquid and gaseous product availability of godown should not be insisted.

2.       Registration certificate may be granted to Minors provided their legal or natural guardian conduct business on their behalf.

3.       On the Death of holder of registration certificate, the certificate cease to be valid and any other person who wishes to continue with the operations ,he needs to apply fresh.

4.       Existing assessee are required to get themselves registered with ACES merely by filing a declaration with the appropriate officer and thereby obtaining  TPIN and password from the department.

Zero Duty Route-Excise in ReadyMade Garment

ZERO DUTY EXCISE ROUTE-Garment

The Union Budget 2013-14 presented by the India’s Finance Minister P Chidambaram has brought cheer for the textile and garment industry by providing them “Zero excise duty route”, as existed prior to Budget 2011-12, is being restored on ready-made garments and made ups (for cotton and spun yarn sector at the yarn, fabric and garment stages). The zero excise duty route will now be available in addition to the CENVAT route under which manufacturers can pay excise duty on the final product and avail of credit of duty paid on inputs. In the case of cotton there will be zero duty at the fiber stage also; and, in the case of spun yarn, there will be a duty of 12% at the fiber stage.

Position prior to Budget 2013-14

 Excise was levied on readymade garment by the budget 2001 prior to that these are out of the scope of excise. Excise duty levied @ 16% ad valorem on readymade garments and these are falling under Chapter 62 of the First Schedule of the Central Excise Tariff Act, 1985. . However, certain items such as clothing accessories have been exempt from the duty. Further, the benefit of the small scale sector duty exemption is available on such goods.

To give effect of various changes legislation issued various notifications and to give immediate effect of the proposed amendment notification no 8/2013 dated March 1^st 2013 has been issued and the said notification is detailed below.

S.No.16 of notification No. 30/2004-CE dated the 9th July, 2004 as amended by notification No.11/2013-CE dated the 1st March, 2013 and S. No.7 of notification No. 7/2012-CE dated 17th March,2012, as amended by notification No. 8/2013- CE dated the 1st March, 2013 may be referred to for details

Notification

Seeks to amend notification No.30/2004-CE, dated the 9th July, 2004, so as to provide ‘zero excise duty route’ to branded ready- made garments and made-ups.

NOTIFICATION No. 11/2013-Central Excise

New Delhi, the 1st March, 2013

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No 30/2004-Central Excise, dated the 9th July, 2004, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide G.S.R. 421(E), dated the 9th July, 2004, namely :-

In the said notification, in the Table, against serial number 16, for the existing entry in column (3), the entry “All goods” shall be substituted.

[F.No. 334/3/2013-TRU]

(Akshay Joshi)

 

 

What is Zero duty

Sec.5A of central excise act, 1944 grant power to central government to exempt or make duty free by issuing notification in official gazette.

In Simple words it can be said that readymade garments made up of cotton only are exempted from excise duty when no input is availed and utilized, whereas the assessee has taken the Cenvat on input the excise shall be leviable but at the rate of 6% only.
Therefore credit availed on the same in the past for goods in stock whether in raw material or finished goods stage or in between would disentitle the exemption. However the benefit under this notification can be availed even in a case where the cenvat credit on input services or on capital goods been availed. The said exemption is available from 1^st March 2013 onwards

Process and procedure of Registration

Rule 9 of Central excise Rules deals with registration process in Excise according to it every person who is producing excisable goods or holding a private ware house or desirous to issue Cenvatable invoices are liable to register under this act. But the Central Board of Excise and Customs (CBEC), by Notification No. 36/2001-CE (NT) dt.26.6.2001, has exempted specified categories of persons/premises from obtaining registration, and this notification says that  “person/s who manufactures the Excisable goods, which are chargeable to nil rate of duty or are fully exempt from duty by notification are not liable to register.” Instead of obtain registration under the act they just need to file a declaration in lieu of that.

Filing of Declaration in lieu of registration

The manufacturers who are exempted from the operation of Rule 9 by virtue of Notification no. 36/2001-Central Excise (NT) dt.26/6/2001 have to file a declaration with the Assistant Commissioner of the respective Divisions. Such declaration’s received from the assessee will have to be filed separately, tariff head-wise in the Divisional office. The details should be entered in the register to be maintained in the Divisional office in the enclosed Proforma. Genuine delay in filing the required declaration need not be viewed seriously and the assessee may be allowed to enjoy the exemption from the operation of Rule 9 as well as from the payment of duty provided the conditions stipulated in the respective exemption Notifications have been duly fulfilled.

INVESTMENT IN PPF

Only an individual resident to India can open PPF account this facility is not available to NRI’s , also not available to HUF and AOP’s.There are multiple reasons why we invest in PPF but here I am listing down some  reasons which make it a good investment and an option which creates wealth. This is the only account which is free from court attachment. We also can invest on the name of minor and when the minor becomes major he or she might have a good fortune without any liability or fear of attachments.

PPF account opening process is very simple and hassle-free. Investor can subscribe to scheme through Post Office or through banks appointed by Government. To open a PPF account, investor has to visit any of the banks/Post Office and submit account opening form and other documents. Some banks also offers online opening of accounts.

  Interest rate applicable from April 1^st 2013 is 8.7% earlier it was 8.8%.

-          Can open with minimum of Rs.500 rebate available u/s 80C of maximum Rs. 1, 00,000 P.A.

-          Ideal Investment for both salaried and business class.

-          Loan facility available from 3rd financial year up to 5th financial year. The rate of interest charged on loan taken by the subscriber of a PPF account on or after 01.12.2011 shall be 2% p.a. However, the rate of interest of 1% p.a. shall continue to be charged on the loans already taken or taken up to 30.11.2011.

-          Free from Court attachment,

-          Interest credited is tax free as well as returns are compounded annually. Deposits are exempt from wealth tax.               

-          The account in which deposits are not made for any reason is treated as discontinued, account and such an account cannot be closed before maturity. The discontinued account can be activated by payment of the minimum deposit of Rs.500/- with default fee of Rs.50/- for each defaulted year

-          Flexible deposit amounts and no fee charged

-          One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.The deposit can be in lump-sum or in convenient installments, not more than 12 installments in a year or two installments in a month, subject to total deposit of Rs.70,000/-.It is not necessary to make a deposit in every month of the year. The amount of deposit can be varied to suit the convenience of the account holders

-          A Power of Attorney holder can neither open nor operate a PPF account. The grandfather/mother cannot open a PPF on behalf of his/her minor grandson/daughter. The deposits shall be in multiples of Rs.5/- subject to minimum of Rs.500/-.The deposit in a minor account is clubbed with the deposit of the account of the guardian for the limit of Rs.1,00,000/-

-          No age is prescribed for opening a PPF account.

-          The facility of first withdrawal in the 7th year of the account subject, to a limit of 50% of the amount at credit preceding three year balance. Thereafter one withdrawal in every year is permissible.

-          Premature closure of a PPF Account is not permissible except in case of death. Nominee/legal heir of PPF Account holder on death of the account holder cannot continue the account. The account has to be closed in such case

-          The account holder has an option to extend the PPF account for any period in a block of 5 years at each time. The account holder can retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at normal rate as admissible till the account is closed. One withdrawal in each financial year is also admissible in such account.

-          The Account is transferable from one Post Office to another and from Post Office to Bank or from a Bank to a Post office. Account is transferable from one Bank to another bank as well as within the bank to any branch.

-          Nomination facility available.

Types of form’s used

-          Form-A : Account opening form.

-          Form-B : PPF Challan

-          Form-C : Application for withdrawal

-          Form-D : Application for loan

-          Form-E : Nomination

-          Form-F : Cancellation or variation of nomination

-          Form-G : Application for withdrawal by nominee / legal heirs. 

If an individual wants to change nominees name he needs to fill form F and E.

Summary

Public Provident Fund scheme has been introduced for salaried as well as for self employed people to encourage savings habit and provide tax benefits. As compared to other small savings schemes introduced by government and by non- government institutions, Public Provident Fund scheme stands out in terms of benefits offered. This is because investment in PPF scheme falls under triple E regimen i.e. Principal, Interest and outflow all are tax exempted. The balance in the PPF account cannot be attached by any order or decree of court in respect of any debt or liability incurred by the subscriber.

Investor can invest as minimum as Rs. 500 to maximum Rs. 1,00,000 in the PPF account in one complete financial year in one lump sum subscription or in maximum 12 transactions. Tenure of PPF scheme is 15 years and premature closure of account is not allowed. After 15 years investor can completely withdraw the accumulated balance (Principal + Interest) and close the account or if investor desires to extend his PPF account, extension can be taken in a block period of 5 years for any number of times. As per PPF scheme terms and conditions prescribed by Government, an investor can avail of loan and withdrawal facility.

Audit under Different Statute

Audit under Different Statute

As of we all know that every act has its own type of audit like VAT Act has VAT audit, Service Tax Service Tax Audit, Excise act Excise audit, 2000 and income tax act has Tax Audit. These all are tax audits but every audit has different aspects for it and only the audit done u/s44AB of income tax act is known as Tax Audit.

In every statute/ act there are some specific sections which defines the criteria and limit applicable to any entity falls in the preview of that statute/act.  Like income tax act speaks about tax audit of business and profession u/s 44 AB, Excise act also prescribe Audit under it likewise all other statute  VAT ,Service Tax Company Act has specific sections directing an Audit.

1.       Income Tax Audit

2.       Excise Audit

3.       Company Law Audit

4.       VAT Audit

5.       Service Tax Audit

Income Tax Audit Sec.44AB

Income Tax Audit u/s 44AB in common parlance or layman language also known as Tax Audit.

As per section 44AB of the Income Tax Act, 1961 every business and profession has to undertake compulsory tax audit in case turnover from such business exceeds Rs 1 crs for business and in case of profession gross receipt exceeds Rs 25 lakhs from such profession. In case if turnover/receipt is less than given limit assessee can opt for deemed income provision and profit and gain from such business and profession has to be minimum of 8% of such Turnover/Gross Receipt.   

Reference: Section 44AB of the Income Tax Act, 1961

Audit of accounts of certain persons carrying on business or profession

Every person,—carrying on business shall, if his total sales, turnover or gross receipts, as the case

 may be, in business exceed or exceeds 100 lakh ( 1 crore) rupees in any previous year or carrying on profession shall, if his gross receipts in profession exceed twenty five lakh rupees in any previous year; or carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed :

Provided that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later:

Provided further that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.

Explanation.—for the purposes of this section,—

“Accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;

“Specified date”, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the due date for furnishing the return of income under sub-section (1) of section 139

Excise Audit 2000

EA Audit a new system of audit was initiated from 1^st December 1999 by replacing traditional audit system in excise. This system was implemented in case of all assessees paying cash duty of over Rs.5 crores per annum. In September 2000, the Central Board of Excise and Customs made this audit applicable in case of all assessees paying cash duty of over Rs. 1 crore per annum. At present, in addition to audit of such units, those units which pay cash duty of Rs. 10 lakhs or more but less than Rs.1 Crore will be audited once in two years. Not more than 20% of the Units paying cash duty less than Rs.10lakhs are to be audited in a year.

Statutory Audit under CEA 

 Sections 14A and 14AA have been inserted in the CEA, by the Finance Act, 1995 and Finance Act, 1997, enacting provisions relating to Statutory Audit under specified circumstances.

Valuation Audit – Section 14A provides that if at any stage of enquiry investigation or any other proceeding, the Officers not below the rank of ACCE having regard to the nature of the case and interest of revenue is of the opinion that the value of the goods have not been correctly declared or determined by the manufacturer or any other person, he may, with the prior approval of the Chief CCE direct such manufacturer or such person to get the accounts of his factory, office, depot, distribution or any other place audited by the cost accountant nominated by the Chief CCE. The said cost account and shall submit the report within the period specified by the CCE duly signed and certified by him mentioning therein particulars as may be specified.

Special CENVAT Audit – Section 14AA provides that if the CCE has reasons to believe that a manufacturer has availed or utilized credit of duty under the Rules which is not within the normal limit having regard to nature of excisable goods produced or manufactured the type of inputs used and other relevant factors as he may deem appropriate or has availed duty by reason of fraud, collusion or willful misstatement or suppression of facts, he may direct such manufacturer to get the accounts of his establishment audited by a Cost Accountant nominated by him. The Cost Accountant so nominated shall submit a report for such audit duly signed and certified by him to the said CCE.

Internal Audit by Assessee’s under CEA 

In view of introduction of reforms in Central Excise procedures and consequent shifting of responsibility from CED to the assessee for determination of correct excise duty liability, conduct of regular audits by an assessee himself has gained increased significance.

Internal Central Excise Audit maybe conducted

                                 i.            Departmentally by an assessee’s organisation itself or

                               ii.            By an independent firm of professionals viz., Chartered Accountants/Cost Accountants/Company Secretaries.

Such audits could be carried out: On a continuous basis, on a periodic basis, for a specific area/activity. To illustrate: CENVAT Scheme, New Projects, Exports, Job Work, Inventory, Refunds etc.

The types of functional areas which can be subject matter of Audit in relation to Central Excise are Concepts, Exemptions, Valuation, Procedures, Documentation and Records.

Company Law Audit

Company act 1956 discussed in details about the appointment of company auditor its rights duties and obligations, it also discussed about the appointment of auditor in different sections for various types of company. In company act 1956 they defined two kind of audit Financial and cost audit.

Company Act 1956 says that every company registered under this act is liable for audit under company’s act. Company act also mention that every company or type of company will fall under cost audit on issuance of cost audit order by MCA.

Cost Audit under Company Act

Cost Accounting Record Rules are applicable as per MCA notification dt.3rd June, 2011 or 30^th June, 2011 or 24^th January, 2012  to every company including a foreign company as defined u/s 591 of the Act which is engaged in Manufacturing, Production, Processing, Mining Activities and wherein: ‐

1. Aggregate value of net worth on the last day of preceding financial year was more than ` 5 crores. Or

2. Aggregate value of the turnover of sales and other activity of all the products exceeds 20 crores in the

preceding year. Or

3. The debt or equity securities of the company are listed or are in process of getting listed on any

of the stock exchanges in India or outside India.

VAT Audit

The overall objective of audit is to bridge the gap between tax legally due to state and tax actually paid by tax payers. In other words, maximization of Tax Revenue and improvement in self tax compliance by VAT dealers. VAT Audit is conducted by VAT department they have certain criteria for that if assessee meets those then VAT audit is performed in majority LTU’s(Large Tax payer units ) will fall in to the preview of VAT Audit . Although they delegate the VAT audit to a professional degree holder like CA or CWA.

As VAT rules and regulations for every state is different so do they have different set of rules and perimeter for VAT Audit.

Service Tax Audit

The overall objective of audit is to bridge the gap between tax legally due and tax actually paid by tax payers. In other words, maximization of Tax Revenue and improvement in self tax compliance. Service tax audit is conducted by department itself .They entrusted a CEO with the authority to conduct audit.

The Auditor has to aim at detection of non compliance, procedural irregularities and leakage of revenue due to deliberate action or ignorance on the part of the taxpayer. At the same time, the Auditor should keep in view the prevalent transactional and professional practices, as also the practical difficulties faced by a taxpayer. Service tax Audit will mandatorily apply on those units which pay cash duty of Rs. 10 lakhs or more or those units which are paying less than 10 lakh cash duty but can be potential tax.