Post on 27-Dec-2015
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: info@voteindia.org; url:www.voteindia.org
VOTEINDIA
“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
VOTEINDIA
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
Specific
Procedural Recommendations
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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, input-
output ratios, capacities, electricity charges can be
investigated
VOTEINDIA
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
Audit
VOTEINDIA
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
Audit
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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……
VOTEINDIA
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 15-25%. (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……
VOTEINDIA
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……
VOTEINDIA
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
VOTEINDIA
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 2nd offence – duty + 25%
– 3rd offence – duty + 50% Regular offender – duty + 100%Continued……
VOTEINDIA
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 been maintained.
Here a hefty penalty should be levied
– 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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
AccountabilityCurrent 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…
VOTEINDIA
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
VOTEINDIA
General Recommendations 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
VOTEINDIA
ExportsCurrent 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 delay and is an avenue for bribe collection
VOTEINDIA
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……
VOTEINDIA
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 re-
examining the case, the concerned department can make their
report and forward the case to their higher authorities if required
Continued……
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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 minimize the documentation hassles faced by the exporter
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
Service TaxRecommendations• 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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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
VOTEINDIA
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