Transcript Document

Plucking Feathers Without Hissing
Procedural Improvements in Indirect Taxes
401/408, Nirmal Towers, Dwarakapuri Colony, Punjagutta, Hyderabad – 500 082
Tel: 91 40 2335 0778 / 23350 790; Fax: 91 40 23350783; email: [email protected]; url:www.voteindia.org
“The art of taxation consists in so plucking the goose as
to obtain the largest possible amount of feathers with
the smallest possible amount of hissing”.
Jean Baptiste Colbert
ca. 1665
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Genesis
The Central Vigilance Commission (CVC) and Central
Board of Excise and Customs (CBEC) are interested in
introducing reforms in the functioning of the Central
Excise department. Towards this end they have invited
suggestions from Lok Satta to facilitate procedural
reforms
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Recommendations – Criteria

Revenue neutral / revenue enhancing

Simple and transparent procedures

Build trust between department and industry

Better service to assesses

Encourage voluntary compliance

Ensure accountability

Minimize litigation

Improve efficiency

Enhance departmental image
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What is Central Excise Tax
Central Excise Tax is a duty on manufacture or production of
goods. Manufacture means converting an article into a different
article bearing a different name, use and characteristic
Duty for the manufactured goods is assessed and paid on self
removal procedure (SRP). No manufactured goods can be
removed without payment of duty
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Structure – Current
Chief Commissioner
Commissioner
Division (4-5 Ranges)
Preventive –
Anti-evasion
–
Audit
Range (25-30 units)
Sector
This is the structure at the state level
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Structure – Current

RACE - Revenue Audit Central Excise - state unit under
(CAG)
All India Level Organisations

DGCEI – Director General of Central Excise Intelligence

DRI – Director General of Revenue Intelligence

Narcotics Agencies

Directorate General of Audit

NACEN
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Structure – Recommendations
Commissionarate, Preventive, Anti-Evasion, and Audit
departments to be merged.
 Staff to be redeployed – Commissionerate
 Reduce range jurisdiction ( in terms of units) and increase
accountability
What would this result in*?
– Elimination of overlap of duties
– Increase accountability
– Improve efficiency
– Entrepreneur spared of multiple visits by authorities
* The points referred to here are discussed in greater detail
in the ensuing slides

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Role of Range

Reduction in jurisdiction - greater accountability

Range to provide assistance and counselling to the assessee
and to be made more responsible and accountable

Range to encourage and assist in voluntary tax compliance

Range Suptd. to be held accountable for malpraxis of industry

The range superintendent should carry out audit with particular
emphasis on classifications and valuation of goods

Frequency of audit:
– SSI Units: Once in 3 years
– Large Units: Once in a year

Integration of functions in the changed scenario
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Procedures – Current

Monthly returns have to be filed in person at the dept

Officials make informal visits to the factories

Stakeholders not clear about classification of goods

Amendments made at different times causing confusion
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Objectives of
Procedural Recommendations

Interface with industry should be to a minimum

Online transactions to increase

Making sure that all rules / amendments are self contained
to eliminate ambiguity
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Specific
Procedural Recommendations
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Procedure - Registration
Current Status


Small-scale units with a turnover of less than 1 crore are
exempt from registration
Acceptance or rejection of application should be done within
1 day. After 1 day the application is deemed to have been
accepted
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Procedure - Registration
Recommendations

Rejection of any application should be in writing for preset
reasons and should be given within 1 day

In case of deemed registration, numbers are to be given
within 7 days from the date of application

Any classification changes to have prospective effect – not
retrospective
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Inspections
Current Practice

Multiple visits/ inspections by personnel of various agencies

Assessee is not allowed to have the services of support
staff during inspections
Problems

This is impacting the work schedule of the units

There is a duplication of work by agencies

Perception of harassment – statements taken under duress
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Inspections
Recommendations

Right to enter the factory premises with permission of
Commissioner of Central Excise, not applicable to
intelligence agencies under the jurisdiction of Delhi

The right to enter the premises shall be available only in
following cases:
– during audit or for carrying out the audit related function
– when any documented information is received against
the manufacturer or importer / exporter
– when any vehicle with goods is caught on the way
without appropriate Central Excise Invoice

All other random checks / inspections to be discontinued

All officials visiting a unit should enter in the register
– name and designation
– purpose of the visit
– present their identity cards
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Inspections
Recommendations

Assessee to be allowed to have his officials/advisors during
inspection

Officers taking statements under duress should be
punished

Officials to be trained in inspections – for instance, inputoutput ratios, capacities, electricity charges
can be
investigated
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Audit
Current practice


All units are subject to frequent audit of various agencies –
Internal Audit, AG’s Audit, special audit and jurisdictional
authorities
Absence of coordination between the field officials and CAG
Problems

Substantial manpower of units is being geared to answer
queries

Show cause notices being issued by multiple departments
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Audit
Recommendations

As all the documents are available with the Range office, the
routine audit may be conducted in the Range Office giving a
date, similar to the practice followed by ST & IT Depts., for
assessment

To prescribe simplified proforma for maintaining records. This
would prevent the assesse from being accused of suppressing
information

Field officials should be present whenever CAG visits units.
The final report of CAG should be prepared only after
consultation with the concerned Commissioner

Audit only to raise objections

For audit of any other activity or verification of any documents
requiring a visit must be done with the prior approval of the
Commissioner
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Adjudication
Current practice

Documents submitted during investigation are being withheld for
long periods

The assessees are being made to personally come and handover
the documents

The show cause notices are being issued much after the detection
of ‘alleged’ irregularity

Investigating officers responsible for show cause notices are not
present during the hearings

Assessees do not receive any acknowledgement of any
communication

There are delays in adjudication

Coercive tactics are being used to recover sums during the
pendency of stay petition

The stay given during appeals is valid only for a period of 180
days and if the appeal is not decided within those 180 days, the
stay stands vacated
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Adjudication
Current practice

There is undue delay in the payment of refund amounts.

Pre-deposit amounts are too high and cause a blockage of funds

The order-in-original in most of the cases lacks in the following
areas:– It does not consider various judgments which have been
referred in reply to show cause notice or during personal
hearings
– The documents which are relied upon in the show cause
notice are not submitted to the assessee. Cross examination is
not permitted
– The charge of suppression is not elaborated
– The role played by the individual person in levying personal
penalty is not stated

The final appellate authority, CESTAT, is too distant for many units
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Adjudication
Recommendations

Documents submitted during investigation
to be returned
immediately

Certified copies may be retained if documents are required for
departmental proceedings

The assessee should not be made to personally come and
handover the documents in the excise office. They maybe faxed or
couriered

The show cause notice must be issued within 30 /60 days of the
detection of ‘alleged’ irregularity

Further adjudication should be completed within 6 months of the
Show Cause Notice

Investigating officer responsible for Show Cause Notice should be
present during hearings

Declarations, intimations, applications, returns and all
communications from the assessees should be acknowledged
within 7 days of their receipt
Continued……
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Adjudication






Refund amounts must be paid within 30 working days of
receiving a valid claim and for any delay interest to be paid
and the concerned officer should be held responsible and
penalized
Pre-deposit provisions to be simplified or dispensed with
Instead of cash, bank guarantees and other securities can be
used
If there is to be a pre-deposit, Appellate Commissioners’
discretion to be curtailed and amount cannot be more than 1525%. (In case of delay in adjudication the pre-deposit amount
should be given back)
It would be best to fix time period for disposal of appeal
In
issues
of
pure
technical
nature
–
revenue
neutral/classification stay can be issued by the adjudicating
officer
Continued……
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Adjudication

The Section 35-C(2A) needs to be amended by giving the
CESTAT a time limit of 180 days to decide the appeal and the stay
should be valid till the appeal is decided

Quasi judicial bodies should be strengthened by using staff
available due to restructuring

Two commissioners may be made as first appellate authority
instead of single Commissioner Appeals working at present

Instead of the presence in only four regions, CESTAT should be in
every state

Special officers should be trained for adjudication, and they should
not be responsible for revenue targets ( may be the practice of
having targets should be dispensed with)
Continued……
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Penalties
Current practice

No classification to determine the severity of penalties to be
levied

Officials having too much discretionary powers in imposing
penalties

Extended law of limitation is now 5 years

Goods are being seized as penalty

Power to arrest is available to officials
Problems

Even procedural mistakes incur heavy penalties

Seizure of goods is resulting in host of problems

The fear of arrest is resulting in assessee not contesting even
on legitimate grounds
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Penalties
Recommendations

For procedural and technical lapses not causing loss in revenue
– there should be no penalty nor punitive action

In case of difference in duty on account of interpretation,
classification etc, no penalty should be levied, only duty to be
collected with interest

No penalties without full enquiry

In levying penalties – discretionary powers to be curtailed and
following to be done
– 1st offence – duty
– 3rd offence – duty + 50%
2nd offence – duty + 25%
Regular offender – duty + 100%
Continued……
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Penalties

Instead of seizure of goods, authorities can take surety / bank
guarantees / bonds and release goods

Authorities should have no power to arrest

Defaults to be divided into two categories and accordingly dealt
with:
– clandestine removal where no records have
maintained. Here a hefty penalty should be levied
–

been
the question of interpretation like claiming exemption under
notification, classification of the product etc., Here no
penalties may be levied
Fraudulent assessees should have deterrent punishment in the
form of alienation of property
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Accountability
Current practice

There are no clear lines of responsibility within departments

Large number of unsustainable show cause notices are being
issued
Problems

Errant personnel are going unpunished and there are no support
structures for honest and hard working personnel

Assessees feel that they do not have a say in the system
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Accountability
Recommendations:

As the Range Superintendent/Inspectors are completely in the
know of the functioning of the units, they should be held
accountable for gross irregularities which have taken place
overtime

Show Cause Notices Review – Performance indicator
– How many sustained
– How many dropped
– How many of them were frivolous
– This data to be kept online in the public domain

When a Show Cause Notice is dropped – full refund with interest
at bank rate should be given to the assesse, and show cause
notice issuing authority should be made accountable
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Accountability
Current practice

As on date there are no mechanisms to examine the nature and
validity of queries raised by officials
Problem

The asssesses are being harassed on trivial queries or
sometimes by queries that defy logic
Recommendation

All queries raised by an official should be submitted in writing to
higher authorities, for instance an Assistant Commissioner
should vet all queries

Along with Show Cause Notice review, a review of audit queries
should also be done

There should be tracking system on refunds – how many and in
what time-frame have they been disbursed
Continued…
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Accountability

The officials should be held accountable in case of arbitrary and
unsustainable acts ex., raids and show cause notices

Computerisation of all transactions

Citizen’s Charter to be implemented by amending Customs
Act 1962, Customs Excise Act 1962

Feedback on the functioning of the department from industry
may be considered
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General Recommendations



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


Administration should attend to requirements of the
assessees, eg., offering consultation with respect to stuffing of
export goods, overtime works, etc,
There should be a master circular of all amendments to rules
made over a period of time
Assesee’s monthly returns to be posted / e-mailed / faxed
Assesse visits department only if consultation is needed
Entire transactions to be computerized under EDI system of
functioning with various related organizations such as Bank,
DGFT, IT, Statistics, Custodians, Airlines, Liners
If it is not possible for the Range to offer counselling, the SSI
Associations as a group should engage someone to advise
them on procedures, laws and rules etc.,
There should be institutional mechanisms to protect whistle
blowers
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Exports
Current Practice

Currently, if an exporter exports any item, s/he has 2 options
– To export against bond and after exporting, get the entry
duty reversed
– Export against payment of duty and after exporting claim
the rebate or refund of excise duty paid

The documentation for exports and factory stuffing procedures
are now under the supervision of range superintendent
Problems

Exporting against bond requires resources/skilled staff to
handle the detailed documentation which most small and
medium sized companies cannot afford to have. Hence they
export against payment of duty and claim rebate or refund

Claiming and getting the refund is a long drawn out process
involving lot of paper work

Documentation and stuffing procedures resulting in undue
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delay and is an avenue for bribe collection
Exports
Recommendations

In the simplified procedure, anyhow the Final verification report
is given by the concerned range

The Department can allow the Exporter to take the credit for the
amount of refund (after receiving confirmation letter from the
port officer) and submit all export related documents along with
the RT 12 return and documents are then verified/checked by
the concerned officer

The same process could be allowed if you import any item
Continued……
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Exports
Recommendations

This way the exporter can utilize the credit immediately towards
domestic sales and hence does not suffer on account of the
long time taken for refunds in the current system

In the event of any discrepancies, then for the purpose of reexamining the case, the concerned department can make their
report and forward the case to their higher authorities if required
Continued……
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Customs
Current Practice

For central excise, the self removal procedure allows the
assessee to remove the goods without having to inform the
range every time, which is not the case with exports

The ARE, application to remove exports, requires submitting
proof of export to the range officers

ICEGATE operated only in some port collectorates

Sample testing is delaying the procedure of logging in the export
books
Problem

ARE is not only cumbersome and illogical, but becomes an
avenue for bribe collection

Sample testing is delaying the procedure of logging in the export
books
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Customs
Recommendations

For established industries and enterprises,
– The self removal procedure practiced for central excise may
be applied for exports
– Exporter can maintain the credit and debit records for export
duty

The implementation of Indian Customs & Excise Gateway
(ICEGATE) with digital signature and auto process may be
undertaken at the earliest

Export and Import entries should be online

Strict time limits for sample testing failing which, to accept
exporter test reports. Augmenting the staff in the laboratories
should be done to cut down delays
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Customs
Current

A letter of undertaking (LUT) has to be executed at the end of
every financial year

The bill of entry is appraised before the clearance of goods
even for 100% EOU & SEZ Units
Problems

Expect in a few ports, where computerization is being
implemented in a phased manner, the bill of entry involves lot of
paper work
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Customs
Recommendations

The system of executing LUT after every financial year should
be dispensed with. The validity of the LUT shall be as long as
the validity of license

The system of appraising the bill of entry before clearance of
goods shall be done away for 100% EOU & SEZ Units

The importer or the Custom House Agent (CHA) shall prepare
the bill of entry in their computer which is linked to the computer
of the customs department and pay the duty based on their own
assessment
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Customs
Current practice

The cash section shall sign the intimation for receipt of the duty,
however examination of goods and clearance is resulting in
delays

Whenever there is provisional assessment, valuation is now
taking more than necessary time and the exporter / importer
has to deposit the duty amount

Presently the import audit is being done online at the particular
port at which the importer is registered

Duty Drawback is resulting in delays
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Customs
Recommendations

Based on self-assessment and payment of duty by the
established industries and enterprises, the physical
examination of the goods can be carried out by the shed
appraiser and the goods shall be allowed to be cleared

The order of special valuation branch must be passed within
the stipulated period of 7 days from the date of submission of
the questionnaire. In case the order is not passed within 7
days, then the collection of revenue deposit should be
dispensed with

Augmentation of staff required in the valuation branch to
prevent delays

Routine inspection of the trade samples from the exporters with
ISO 9001:2000 & Export House and 100% EOU & SEZ Units
certification may be exempt, as there is a lot of delay due to
various procedures in getting clearance for the samples

Similarly, online export audit should be implemented
to
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Customs
Recommendations

Customs Should do away with verification of Duty Exemption
Pass Book Scheme (DEPB) / DFRC, etc. Licenses issued by
DGFT should be available at the click of a button. This is the
main purpose of starting the Electronic Data Interface (EDI)
System

Duty drawback to be paid within 48 hours of the export of the
goods in case of electronic declarations and 15 days in case of
paper declarations

Filing of ER-1 to be done without enclosing duty payment
documents and the same can be verified during audit
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Service Tax
Current practice
• Service Tax should be paid by the 5th of the following month
• Taxes on services received during the month of March should
be paid by the 31st March
• There are no rules to classify or segregate the services into
dutiable and non-dutiable
• Invoice of taxable service within 14 days of completion of
service
Problems
• Large companies are finding it difficult to pay the service tax by
the 5th of the every following month and by the 31st March
• Many assessees are ending up paying service tax even for
non-dutiable services
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Service Tax
Recommendations
• The date of payment of service tax on 5th of the following month
need to be reverted to 25th of the following month
• Service tax collections for the month of March should revert to
the earlier deadline of 25th April
• 31st March should be the deadline for service tax collections
from 1st March to 15th March, and April 25th should be the
deadline for collections from 16th March to 31st March
• Clear classification of services into dutiable and non-dutiable
should be done expeditiously
• Invoice of taxable service within 14 days of completion of
service needs to be removed as it is not practically possible
• Service Tax Credit should be allowed immediately on receipt of
service as it is practically difficult to track the payment of each
invoice particularly where the payment is being made in
installment
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Service Tax–Transport
• It is obligatory on the consignees to pay service tax on the
goods they receive and this is against the principles of Service
Tax and this requires some changes
• Endorsement of the consignment note and invoice of the
transporter may be allowed in favour of the consignee to enable
him to take the credit
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Service Tax–Transport
• The consignor may be allowed to act as input service distributor
for the purpose of passing on the credit to the consignee. A
clarification may be issued that transportation is an activity
related to business of the consignor in the definition of the input
service under Rule 2(1) of the Service Tax Rules
• It may be necessary for the consignees to get a declaration
from the Goods Transport Agency on the invoice itself that he
has not claimed the Cenvat Credit or benefit under notification
no 12/2003. If this declaration is available and the Goods
Transport Agency is showing the Service Tax amount on 25% of
the freight charges, then only the consignor or consignee can
pay the said amount of Service Tax
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Facilitating Transparency and Accountability

Protection for whistle blowers

Ensuring Confidentiality

System of fair enquiry

Commissioner Services to look into grievances, day to day
services for assessees, importers and exporters
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Strengthen Honest Officials

Increase in facilities like housing, transport, and payment of
such perks should be linked to performance

Uniform to be dispensed with except for customs and airport
officers

There is a necessity to institute feedback mechanisms to
assess the functioning of all concerned agencies
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