Concept of Post Clearance Audit

CONCEPT OF POST CLEARANCE AUDIT

Prepared By: -
CA Pradeep Jain
CA Nishit Shah

Introduction

A common characteristics of customs is the high volume of the transactions and the impossibility of checking of all of them, therefore a system called ‘Self Assessment’ is in place in which responsibility of filing correct declaration lies with the importer or exporter, but there are chances that there might be revenue leakage and the risk management system in customs also has to be full proof to detect such leakage, however the same is not possible owing to the number of the transactions that are processed, so there has to be mechanism in which both “Self Assessment” is done and also to ensure that revenue leakage is minimum, the answer to the same is “Post Clearance Audit”

CBEC also in its latest circular no. 39/2011-Cus dated 02.09.11 said about introducing Onsite – Post clearance Audit in the Customs.

What is Post Clearance Audit?

According to the definition given in Technical note no.5 released by World Customs organization and UNCTAD

Post-clearance audit means audit-based Customs control performed subsequent to the release of the cargo from Customs' custody. The purpose of such audits is to verify the accuracy and authenticity of declarations and covers the control of traders' commercial data, business systems, records, books. Such an audit can take place at the premises of the trader, and may take into account individual transactions, so-called "transaction based" audit, or cover imports and/or exports undertaken over a certain period of time, so called "company based" audit.

In other words Post Clearance Audit is the audit after the release of the goods at the importers premises to verify the documents, valuation, compliances related with the Audit to ensure that there is no revenue leakage and the system in place is followed properly. It may be a Transaction based Audit or Company based Audit.

Objectives of Post Clearance Audit

The main objectives of PCA are:-

1. All importation & exportation are properly declared to the customs

2. To verify the accuracy & authenticity of customs declaration

3. The import & export and control of all goods under prohibitions and restrictions list are in compliance with the existing laws

4. All duties & taxes relating to the diversions or home consumption, of those goods are properly paid and the conditions of this decision are made in accordance with the existing laws and regulations

5. Declarants are complying with their obligation to retain all supporting documents for the period as set by the existing laws and regulations

6. All goods under Customs temporary Storage procedure, customs bonded warehouse procedure, goods under suspended procedure have properly completed the customs declaration procedure and are properly receipted.

7. To ensure that the benefits of the schemes such as DEPB, Advance authorization, EPCG, duty drawback are taken in accordance with the law.

Benefits of PCA

1. Post-clearance audit allows Customs to change the approach from a purely transaction based control to a more comprehensive, company-oriented control. Customs audit can benefit from a broader picture of the transactions over a longer period of time.

2. Details for comparison will come from local or national databases and include information from each Customs declaration registered. By comparing prices and tariff headings for identical or similar commodities related to different companies, inconsistencies may indicate fraud. Similarly, comparison between countries of origin or different suppliers or pattern of intra-company trading may reveal false declarations. If the audit detects an incorrect declaration, the audit officer will ask for the correction of the declaration. This may entail an additional payment of duties or taxes by the trader and even raise Customs revenues.

3. The time taken while the goods are in custody will be reduced as compared to traditional customs control, it will also benefit to the industry as well since reduced storage time will lead to the faster deliveries.

4. Since the clearance process will be faster the cost such as storage and ware house fees together with the insurance cost for goods under storage will also be reduced.

Post clearance Audit in India

CBEC in August 2011 had published draft circular for “Onsite Post clearance Audit at the premises of Importer & Exporters regulations, 2011” the main features of the draft circular are

- The definition of Audit given includes examination of bills of entry, shipping bills, invoices, packing lists, import licences, books of account, and other records of transaction relating to imported and export goods, so as to check the accuracy and correctness of assessment of duty thereof and may include inspection of goods at the premises, if available;

- The importer or exporter is required to maintain the transactions including electronic data for a period of five years from the date of import/export

Thus board will check the accuracy & correctness of assessment of duty and also inspect the goods at the premises, moreover the data is required to be maintained for the period of years. Also the audit is to be conducted at the place of premises of importer or exporter as the case may be.

This is not the first time that board has said of introducing On-Site Post clearance Audit, earlier board had also released draft scheme vide F.NO.450/1/2010-Dir(cus) dated 10.09.2010 for implementation of On-site Post clearance Audit, the major aspects of draft are as follows: -

- Jurisdiction of Audit: The manufacturers and service providers registered under the Excise/Service Tax who are already subjected to audit by the Central Excise or service tax Department; the on-site audit will be merged with that audit. Thus, only the importers engaged in trading activity and those units which are exempt/not registered will be left. It is proposed that the address of IEC code would decide the jurisdiction of the concerned audit party. In case the importer-manufacturer/service provider is having more than one premise in different Commissionerates, it is proposed that on-site audit will be conducted both at the factory premises as well as the business premises.

- Procedure to be followed in on-site audit: It is proposed that the procedure for On-site Audit to be followed will be similar to the Central Excise Audit procedure which is done in line with EA-2000. Further, the full process to be followed by the importer and the audit party has been elucidated in the draft scheme. The procedure is more or less similar to a normal audit process. The guidelines have been given in the draft scheme regarding the selection of assessees, desk review, gathering information about the importer, internal control and revenue risk analysis, developing audit plan, site visit, verification, summarization of audit findings, reviewing the audit results, compliance of audit objections and future compliances.

Importers/Exporters Point of View

1. The post clearance audit is both a good and bad for the importer/exporter, good because it will largely help them in clearing their goods fast, procedures & compliances and all necessary documentation will be ensured, however it will be bad only for those notorious importer/exporter who change valuation of goods, claim undue benefit of export benefit schemes, tariff classification of goods is changed to go in to lower rate of duty etc. now they will have department officers checking each & every transaction and that at their place leading to many unwarranted disclosures.

2. Also since benefit of many export schemes such as DEPB, Advance license, duty drawback, EPCG are being claimed, the department in the Audit will scrutinize each & every document in details, also importer/exporter needs to be ready with detail explanatations of their valuations, country of export, applicability of notifications in order to avoid any problems during the audit.

3. It will give rise to another factum of corruption. The corruption is well known phenomenon in Central Excise and Custom department. The audit department normally harasses the assessee. The audit para are raised and demands are issued. These demands are normally settled in favour of assessee. This is due to the fact that there is no accountability on the part of officers conducting the audit. They normally raises the point on minor and technical issues. Such an approach lead to the fact that importers will be harassed and corruption will increase from such type of audits. The audit will have approach to their premises also and conduct the audit. Hence the importer community is afraid of such harassment.

Departments Point of View

1. Department will generally see the same as mechanism of increasing their revenue and targets after the scheme of EA-Audit which is highly successful, the selection of the Assessee for PCA will be done on the basis of risk assessment done by the department.

2. Department needs to ensure the availability of qualified and train staff for the PCA, since the success of PCA lies in its implementation, department should ensure the proper training programmes are conducted at the zonal level to ensure the objectives of audit are met.

3. Department also needs to ensure that audit officers doesn’t unnecessarily harass the assessee, it should ensure PCA is not being used as weapon by them to fulfill the revenue targets

Conclusion

PCA is a welcome step, since India also wants to ensure that the benefits of globalization & liberalization are available, it needs to match with the foot – steps of the world and PCA being one of them, leading to easy compliance and faster clearance procedure. However, the essence and success of the scheme lies in its implementation, in which department as well as assessee needs to ensure they co-operate with each other leading to the mutual benefit as well as benefit to the country as a whole.

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