Draft - Seeking views on proposed measures to provide deterrence to tax evaders in the manufacturing sector - Central Excise - Draft

Draft Circular (To elicit response/Comments only) F.No. 224/40/2006 - CX 6 Government of India Ministry of Finance Department of Revenue Central Board of Excise Customs New Delhi, the November, 2006 To All Chief Commissioners of Central Excise Service Tax, All Commissioners of Central Excise Service Tax, All major Associations of Trade and Industries Sub : Seeking views on proposed measures to provide deterrence to tax evaders in the manufacturing sector The Central Board of Excise and Customs,over the years, has progressively simplified tax procedures regarding excise duty and made them trade facilitative. However, it has been noticed that these measures have not resulted in expected rise in the level of compliance. Even now, many cases are being booked, which indicate that certain classes of assessees continue to evade excise duty in a planned manner. In view of this, it has become necessary to deal firmly with the problem of planned and deliberate non-compliance, and put in place deterrent provisions to discourage default. In this context, the Board proposes to lay down certain measures to be initiated immediately after detection of cases of deliberate non-compliance causing substantial loss of excise revenue. 2. The following offences are to be considered for the purpose of such action: i) Removal of goods without documents and without payment of duty ii) Undervaluation of goods where portion of sale proceeds, in excess of the invoice price, is received separately and remains unaccounted. iii) Taking of CENVAT credit without receipt of goods specified in the document iv) Taking of CENVAT credit on invoices which are not genuine v) Issue of excise invoice without delivery of goods (by a manufacturer or a dealer) vi) Claiming of refund or rebate based on invoices which are not genuine 3. Some of the facilitative procedural changes introduced over the last few years in central excise are as follow:- i) Monthly payment of duties as compared to consignment-wise duty payment system which was prevalent in the past. ii) Taking of CENVAT credit for inputs, capital goods and input services used by manufacturers. iii) Payment of 80% refund/rebate on provisional basis within 15 days of filing of claim. 4. The Government is of the opinion that cases of planned and deliberate evasion should invite swift action such as withdrawal of some of the facilities listed above for a specified period, with a view to create deterrence for planned evasion of duty, as also to encourage voluntarily tax compliance. 5. In this regard, it is proposed to take the following measures: 5.1 Type of offences, which would be covered under the present proposal: (a) Removal of goods without documents and without payment of duty (b) Undervaluation of goods where portion of sale proceeds, in excess of the invoice price, is received separately and remains unaccounted. (c) Taking of CENVAT credit without receipt of goods specified in the document (d) Taking of CENVAT credit on invoices, which are not genuine (e) Issue of excise invoice without delivery of goods (by dealers and manufacturers) (f) Claiming of refund or rebate based on invoices which are not genuine (For Manufacturer Exporters and Merchant Exporters) 5.2 Monetary Limit: Amount of evasion - Rs 10 lakhs or more 5.3 Nature of restrictions proposed to be imposed: I - For Manufacturers [for cases (a) to ((f)] (A) (i) Withdrawal of facilities of monthly payment of duties for a specified period. (ii) Non-utilization of CENVAT credit for a specified period. However, he can take credit and utilize the same after the period of withdrawal is over. (iii) Withdrawal of the facility of disbursement of 80% refund/rebate on provisional basis within 15 days of filing of claim, (B) After detection of second case, the manufacturing unit would be placed under physical control. II - For Dealers (for cases falling in (e) above): Suspension of registration of the dealer for a specified period. III - For Merchant Exporters (for cases falling in (f) above) (i) Withdrawal of facility of disbursement of 80% refund/rebate on provisional basis within 15 days of filing of claim. (ii) Withdrawal of self sealing facility of export consignments. 6. Safeguards Procedures As the proposed measures are deterrent in nature, it is proposed that the decision to withdraw the facilities should be taken at a senior level in the Government. The decision to impose the restriction will be taken by the Member (Excise), Central Board of Excise Customs. The proposal for withdrawal of the facilities will be forwarded by the jurisdictional Commissioner or Additional Director General (CEI) to the Chief Commissioner/Director General (CEI). The zonal Chief Commissioner/Director General (CEI) will examine the proposal after giving an opportunity to the assessee to present his case. After due consideration of the evidence on record, and the submissions made by the assessee, the CC/DG will forward his recommendations to the Member (Excise). His recommendations will, inter alia, specify the facilities that may be withdrawn and the period of withdrawal of the facility. The final decision in this regard will be taken by the Member (Excise), CBEC, after due consideration of the facts and circumstances of the case. The order of such withdrawal will be administrative in nature and, therefore, no appeal remedy will be available to the tax defaulter. 7. The above-mentioned measures are proposed to be brought into force with effect from 1.01.2007 and necessary legislative changes, as required, shall be carried out in this regard. 8. All the field formations are requested to bring the content of proposed measures to the notice of Trade, Industry and Associations. The views and comments of Trade, Industry, Associations and field formations will be examined before taking a final decision. The views of the Trade, Industry, Association and field formations shall be sent within 15 days by post or by E-mail to Ms. Hemambika R. Priya, Director(CX 6 8). CBEC, Room no. 144A, North Block, New Delhi or hema.priya@nic.in . 9. It is once again reiterated that the intention of the Government is to encourage voluntary compliance and promote the cause of the genuine taxpayers. At the same time, the Government is also keen to deal firmly with the cases of deliberate non-compliance that causes substantial loss of revenue. (Rahul Nangare) Under Secretary Disclaimer:- This Draft Circular has been put up only to elicit public response. No final decision has been taken by the Government. The Government will proceed further in the matter only after due examination of the responses received.