Revenue Audit Manual

Chapter 10 Audit of Customs and Excise Duties

Index

Topics Pages

Introduction 10.1 - 10.2

Example of Computation of Custom Duties 10.2
and Related Taxes
Audit Approach to Customs & Excise Duties 10.3
Concurrent Audit 10.4
Main documents to be examined by Concurrent Audit 10.4
Audit Objective 10.5
Audit Programme 10.5 - 10.8
Appendix 1 - Schedule of Main Documents 10.9
and Records
Appendix 2 - Key Questions Checklist - Customs 10.10 - 10.12
and Excise Duties

31/8/00 10.0 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Chapter 10 - Audit of Customs and Excise Duties

Introduction to Customs and Excise Duties

1. The main legislation relating to custom and excise duties are:

the Customs Act, 1969;

the Customs Tariff, 1969/2000;
the Protective Duties Act, 1950;
the Central Excises and Salt Act, 1944;
the Central Excises and Salt Rules, 1944.

2. Customs duties are normally payable on the following goods:

goods imported into or exported from Bangladesh;

goods brought from any foreign country to any customs station and without
payment of duties there, transshipped or thence carried to, and imported at, any
other customs station; and
goods brought in bond from one customs station to another.

3. The government may, in addition to normal customs duties, impose additional

duties, e.g. regulatory duty, anti-dumping duty. Some exemptions could also be
allowed by the Government from time to time. Duty drawback on goods used in the
manufacture of goods for export may be allowed under certain conditions.

4. Excise duty is levied on a few excisable goods, e.g. cotton, gray cloth, bidi, etc.

5. Customs duties are based on the value of goods imported or exported. Inspectors of
land custom and airport custom and appraisers of customs houses propose the
appraisement and assessment of duty. The assessments are subject to approval by
the Principal Appraisers/Superintendents in these offices.

6. Similarly excise duty is proposed by Inspectors and approved by Superintendents of

Excise.

7. The basis for computation of customs duty has been recently changed. It is now
computed on the basis of import value certified by the pre-shipment inspection
(PSI) agencies. Previously the customs authorities determined the tariff value.
Certain items of imports are, however, exempt from certification by pre-shipment
inspection agencies.

8. Customs & Excise duties can be paid into branches of Bangladesh Bank or the
designated branches of Sonali Bank or through an Account Current as per Customs
Act, 1969.

31/8/00 10.1 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

9. There are a substantial number of records and documents available for audit
covering everything from bills of entry/export, import/export ledgers, shipping
documents and invoices, pre-shipment certificates, registers of customs duty
receipts, treasury challans and Accounts Current. A fuller list is given in
Appendix 1.

10. An example of a computation of customs duties and related taxes is shown below:

Import of Grey Portland Cement at Chittagong

1. Value as per bill of entry (per ton) US$ 75.00

2. Value in taka (if 1US$ = Tk 50) Tk 3,750.00
3. Add insurance 1% of Value or actual Tk 37.50
4. Add landing charge 1% of Tk 3787.50 (2+3) Tk 37.88
5. Assessable value (landing cost) Tk 3,825.38
6. Customs duty at say 30% on Tk 3,825.38 Tk 1,147.61
7. Duty paid value (3,825.38 +1,147.61) Tk 4,972.99
8. Supplementary duty at say 15% of duty paid Tk 745.95
value = Tk 4,972.99 @15%
9. VAT at say 10% of total taxed value Tk 571.89
(4,972.99+745.95)=5,718.94 @10%
10. Advance income tax @2.5% of assessable value Tk 95.63
11. License fee @2.5% of assessable value Tk 95.63
12. Infrastructure Development Surcharge @2.5% of Tk 95.63
assessable value
13. Total value of imported goods including taxes Tk 6,577.72
14. Value of goods excluding tax Tk 3,750.00
15. Total taxes, insurance and charges paid (13-14) Tk 2,827.72

31/8/00 10.2 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Audit Approach to Customs & Excise Duties

11. As with other taxes the audit approach will be structured and on a top down basis as
follows:

review management arrangements of these taxes (per Chapter 8) and consider

overall risks;
review data available on trends in income, comparison with targets and budgets
for each customs house or zone and identify areas for further examination.
review the application of systems, procedures and rules for assessing, collecting
and accounting for customs and excise duties ;
carry out substantive tests of the systems at the customs offices as needed; and
report findings to the appropriate authorities.

12. The main risks and possible controls on customs duties are listed below:

Main Risk Possible Control

1. The value of goods is incorrectly 1. Sound valuation procedures,

assessed, resulting in over or
underpayment of taxes.
2. The wrong tax tariff is applied,
resulting in over or under-payment of
tax.
3. Collusion between customs and excise
staff and assessed importers/exporters
manufacturers/ producers results in
less duty being collected.
4. Customs and excise duty due is not
recorded accurately or banked
promptly.
5. Theft or loss of goods may occur in
Customs/Excise warehouses.
6. Goods are smuggled into/out of the
Country to avoid taxes.
independently scrutinised. Adequate
review and checking of assessments.
2. An adequate system of testing
application of tax rates, supervision,
post-audit, etc.
3. Customs and excise staff subject to
independent checks by appropriate
authorities.
4. Up to date cash records, reconciled
with receipts/accounts current and
supported by adequate documentation.
5. All goods are recorded and stored
securely.
6. Appropriate authorities take adequate
counter smuggling measures.

13. Substantive audit tests should be carried out on a sample basis following the review
of procedures above, based on the checklist in Appendix 2.

31/8/00 10.3 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Concurrent Audit
14. Resident Audit Teams known as Concurrent Audit Parties have been placed in the
Custom Houses in order to primarily check the custom duty and tax assessed and
collected immediately after the process is completed, so that Government revenue is
not lost due to under assessment of duty. Examination of the duty assessment and
collection on the Bills of Entry/ Bills of Export immediately after the transactions is
necessary because if there is any under assessment of duty, the difference duty
amount can only be recovered if actions are taken within a limited time frame fixed
by Section 32(3) of Customs Act, 1969.

15. Concurrent Audit Parties based in the Chittagong, Khulna and Dhaka Custom
Houses are entrusted mainly with the responsibilities of checking all papers relating
to: a) Bills of Entry, b) Bills of Export, c) Bonded Goods, d) Baggage Bills, e) Post
Parcel Bills, f) Auction and Removal List, g) Duty Drawback and h) Refunds on
Assessment etc.

16. Besides the functions indicated above, the concurrent audit teams also carry out an
expenditure audit of the custom houses like any other Audit Party under
programmes prepared by the Local and Revenue Audit Directorate (See Local
Audit Manual for guidance).

17. Since substantial Government revenue is derived from custom duty, proper
functioning of these teams can not be overemphasized. It is therefore imperative
that personnel with appropriate expertise are placed in these audit teams.

Main documents to be examined by Concurrent Audit

18. The following records should be requested for audit review:

Revenue receipt target for the year.

Bills of Entry.
Bills of Export.
Shipping Bills/Airway Bills/Bill of Lading.
Ex-bond Bills.
Bond Register.
Baggage Declarations
Post Parcel Bills.
Refunds on Assessment.
Auction Files.
Removal List.
Papers relating to duty drawbacks.
Pre-Shipment Inspection Certificates.
Write off cases.

31/8/00 10.4 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Audit Objective

19. A huge number of bills of entry, bills of export and other bills are appraised and
assessed for duties everyday. It is possible that bills are under assessed causing loss
of revenue to the Government. The objective of audit is, therefore to ensure that less
revenue is not collected than due to the Government and recoveries if any, can be
made within the time fixed by the law.

Audit Programme

20. The attached programme should be followed for each batch of work.

31/8/00 10.5 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Audit Programme
Custom House
Name of office _________________________________ Financial year ___________

Audit Steps Checked W/P

by
Budget
Carry out periodical review of budget performance to see
the trend of revenue receipt. Comment and seek reasons in
the event of wide variation.
Also verify the trend of recovery to be made due to under
assessment as pointed out by the audit.
Bills of Entry/Export
Check the number of bills received for scrutiny with the list
of bills assessed during the period. In the case of non-receipt
of all the bills, send necessary requisition.
Verify whether the bills sent for examination are legally
time-barred. Point out if this is so.
Check if the bills sent to audit are complete with all
necessary attachments.
Check the HS code of the goods and see whether there has
appropriate classification of code with the goods and duty
percentage imposed accordingly.
Scrutinise duty calculations for authenticity.
In the case of chemical goods, verify whether necessary
laboratory test certificates have been furnished.
Check at random and the large amounts assessed and
collected with the bank statement for reconciliation.
Also check whether appropriate VAT has been recovered
from the C&F Agents Commission.
Write offs
Check all sanctions of write offs from the point of view of
regularity and delegation of financial powers.
Refunds on assessment
Examine the cases of refunds on assessment to see whether
the refunds have been made correctly as per relevant rules
and orders.

31/8/00 10.6 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Audit Steps Checked W/P

by
Bond register and papers
Verify item of into bond and ex-bond to see whether these
were recorded and properly reconciled on the basis of
authorisation
Baggage declarations
Check whether free baggage/exemptions from duty have
been allowed as admissible under the rules in force.
Post parcel bills
Test check post parcel bills to see whether appropriate rules
have been applied in these cases.
Duty drawback
Check whether duty drawbacks have been allowed
appropriately after necessary cross checking of imported goods
and exports products.
Pre-Shipment Inspection
While examining cases of assessment of duty on the basis of
Pre-Shipment Inspection, check whether necessary
certificate is there.
Also check with reference to HS code whether Pre-
Shipment Inspection has been covered by relevant SROs.
Auction of goods
Examine auction files to see whether auctions have been
processed as laid down under the rules.
Also check the Removal List received form the jetty shed to
see whether the goods auctioned are as per the list.
Reconciliation of assessment, collection and accounting
Verify whether there is a system of verification of assessed
and collected amounts by the Appraiser group with the bank
statement.
Examine whether there is adequate system of reconciliation
of assessed, collected and accounted amounts among the
Appraiser group, bank and accounting section/treasury.

31/8/00 10.7 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Audit Steps Checked W/P

by
Internal audit
Review the findings of Custom House Internal Audit both
for reliance and rendering assistance as and when necessary.

Work done by __________________________________ Date ________________

Reviewed by ___________________________________ Date ________________

31/8/00 10.8 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Customs & Excise Duties

Appendix 1
Schedule of Main Documents and Records
Customs Duty

1. Bills of entry/ export

2. Pre-shipment inspection agencies certificates - on classification, quality, price etc.
3. Valuation/Certificate files
4. Shipping documents, invoices, etc.
5. Bond register and bond documents
6. Register of Customs Duty Receipts
7. Register of Penalties
8. Register of Seizures, Attachments & Forfeitures
9. Register of unclaimed goods
10. Importer/Exporter Ledgers
11. Account Current
12. Treasury Challans of revenue paid
13. Refund documents
14. Duty drawback/exemption papers.
15. Registration certificates/licenses for importer/exporter
16. Letters of Credit
17. Trans-shipment Advice notes
18. Files of monthly returns (All RT Forms)

Excise Duty

1. Application forms for trade license in excisable goods

2. Register of excisable goods (All RG Forms)
3. Register regarding payment of duty (AR 1)
4. Various forms regarding movement of goods (AR Forms)
5. Files of monthly returns (ST Forms)
6. Warehouse/Store room register (WRG registers)

31/8/00 10.9 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Appendix 2

Key Questions Checklist - Customs and Excise Duties (1)

Audit Objective Key Questions/Tests Yes No W/P

Assessment

1. Regulations and 1.1 Are there adequate regulations

procedures adequately in place to ensure that all
provided for the persons, transactions or events
proper assessment of liable for custom and excise
customs and excise duties are duly identified?
duties and those
regulations work in 1.2 Do these procedures work in
practice. practice on custom and excise
duties?

1.3 Are there adequate regulations

and procedures to ensure that
persons, transactions or events
identified as liable for custom
and excise duties are properly
assessed?

1.4 Do they work in practice?

Collection

2. Regulations and 2.1 Are there adequate regulations

procedures adequately and procedures to ensure that
provide for the all sums assessed as due are
collection of sums correctly recorded?
assessed and the
regulations and 2.2 Are those procedures working?
procedures operate in
practice? 2.3 Are the procedures and
regulations adequate to ensure
that custom and excise duties
recorded as due is collected
without undue delay?

2.4 Are custom and excise duties

collected without undue delay?

31/8/00 10.10 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Key Questions Checklist - Custom and Excise Duties (2)

Audit Objective Key Questions/Tests Yes No W/P
Banking

3. Regulations and 3.1 Are the procedures and

procedures adequately regulations adequate to ensure
cover the prompt that custom and excise duties
banking of sums due. due is banked promptly?

3.2 Do these procedures work?

Allocation

4. Regulations and 4.1 Are there adequate procedures

procedures adequately to ensure that:
provide for sums
collected to be All sums received are
allocated to the promptly and correctly
appropriate code of recorded?
account. Only valid receipts are
recorded?
Records of duties paid are
reconciled with amounts
banked?
All receipts are coded
correctly?
All recorded receipts are
properly shown in the
account?
Arrears

5. Procedures for 5.1 Are there adequate procedures

following up arrears of to ensure that duties unpaid or
duties are adequate underpaid are pursued
promptly?

5.2 Are these procedures working?

31/8/00 10.11 Chapter- 10 Audit of Customs & Excise Duties

 Revenue Audit Manual

Key Questions Checklist - Custom and Excise Duties (3)

Audit Objective Key Questions/Tests Yes No W/P

Write - offs

6. Procedures for writing 6.1 Are there adequate procedures

off unpaid custom and to ensure that write-offs or
excise duties are sound remissions of custom and
and adequate. excise duties are appropriate
and properly sanctioned?

6.2 Are they working in practice?

Refunds

7. Procedures for 7.1 Are there adequate regulations

refunding custom and to ensure that:
excise duties are
adequate. Repayments are properly
assessed?
Only valid repayments are
made?
Repayments are made to the
proper recipients and for the
correct amounts?
All valid repayments are
properly coded and
recorded?
Repayments are properly
shown in the account?

7.2 Do they work in practice?

31/8/00 10.12 Chapter- 10 Audit of Customs & Excise Duties