Para 3.18.24 — MSO (Audit)
Original Rule Text
3.18.24 Issues to be examined in the course of audit of a production or fabrication plant are as follows:
(i) Working results for a few years to ascertain the economic viability of the plant.
(ii) Analysis of monthly/annual production in relation to the targets fixed for the purpose.
(iii) Capacity utilisation with reference to the plant's rated/installed capacity.
In case import substitution is the objective of establishing the plant, the extent to which the objective has been achieved should be examined. The cost of indigenous production should also be compared with the financial implications of imports with a view to ascertaining whether the import substitution effort and the related investments were in fact justified.
# Communication of results of audit
What This Means
When auditing a production or fabrication plant under a scientific department, auditors should examine the plant's working results over several years to assess economic viability, compare actual production against targets, and check capacity utilization against installed capacity. If the plant was set up for import substitution, auditors should check whether domestic production costs justify the investment compared to import costs.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Analyze working results over multiple years for economic viability
- 2Compare monthly/annual production against fixed targets
- 3Check capacity utilization against rated/installed capacity
- 4For import substitution plants: verify whether the objective was achieved
- 5Compare domestic production cost with import cost to assess justification
- 6Determine whether investment in import substitution was warranted
Practical Example
A DAE fabrication plant was established to domestically produce specialized radiation monitoring instruments previously imported from Europe. After five years, the audit reveals that the plant operates at 35% capacity and produces instruments at Rs. 2.5 lakh per unit compared to an import cost of Rs. 1.8 lakh. The auditor questions whether the Rs. 50 crore investment in the plant was justified given the higher domestic production cost and low utilization, and whether the import substitution objective has truly been achieved.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What does capacity utilization mean here?▼
Is import substitution always beneficial?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.