TIOL-DDT 111 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b><font color="#0000FF" size="3">TIOL-DDT
111</font><br>
10 05 2005<br>
Tuesday</b></font></p>
<p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif">
<b>More wisdom from CAG</b></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> The CAG’s
report to Parliament is a much talked about document. Newspaper headlines
scream, “CAG raps ----.” You can fill any department
there. I spent a lot of midnight oil reading through the voluminous report
the CAG presented to Parliament and I feel greatly agitated that what is being
reported to Parliament is the ignorance of the AGs in the guise of gross mistakes
of the Central Government departments, especially my Central Excise. As submitted
in these columns yesterday, the AG is the single major cause for litigation
in Central Excise – unwanted, unwarranted, illogical, illegal and outright
atrocious litigation. It will be a nice idea for the CAG to conduct a study
on the number of Show Cause Notices issued as a result of Audit objections,
how much money was spent by the State on this litigation and how much was
realised. How much money the assessees had to spend should also be studied.
The CAG is sure to come up with startling findings which it may not like to
tell Parliament. See some more great objections on Central Excise, the
CAG is reporting to Parliament.<br>
<br>
<b><font color="#006633">Undervaluation of goods – Big conspiracy by
Big Four :</font> </b> Four companies entered into a conspiracy to cheat the
government. They were all manufacturing the same products. In a well-hatched
conspiracy they started selling their products among themselves at mutually
agreed prices, which would later be sold to consumers at higher prices thereby
cheating the Central Excise department of precious excise duty amounting to
over two hundred Crores of rupees! You will be eager to know the names of
these big-time fraudsters? Here they are - <b>M/s. HPCL, M/s. IOCL, M/s. BPCL
and M/s. IBPL. </b>The AG found fault with the valuation as<br>
<br>
<i>Such a price cannot be considered the transaction value for section 4 since
this price was adopted for oil exchange transactions alone and the product
sharing agreement to sell products at lower prices for the benefit of each
other clearly establishes <b>mutuality of interest among oil companies.</b></i><br>
<br>
Even though the Department submitted that there was no extra consideration
beyond the agreed price, CAG has reported to Parliament that the oil companies
are cheating the excise department and but for a vigilant AG, the Petroleum
Ministry of the Government of India (not Pakistan) would have become richer.
Now thanks to the AG, this case will run through various courts – <b>at
the cost of the Government of India.</b><br>
<br>
<font color="#006633"><b>Who decides the tax policy?</b></font> FM or AG?
The AG has objected to the non-inclusion of the value of branded goods and
export goods in computation of the aggregate value of clearances in the preceding
year for SSI units. The AG believes that because of this lapse, large manufacturers
are getting SSI benefits. No, they don’t. The value of branded goods
cleared by SSI units are not included in the aggregate value, because they
are duty paid and this facility would help SSI units getting orders from large
brand owners without the Government losing a penny. But AG does not understand
this elementary principle. In a rare exhibition of courage, the Department
informed the AG that this was a deliberate policy decision – means AG
has no business to interfere. But AG is not impressed. The report states,<br>
<br>
<i>The fact remains that this ran contrary to the declared intentions of the
Government through Budget, which enabled the large scale manufacturers to
derive undue benefit of duty concession.</i><br>
<br>
First of all there is no undue benefit to any large manufacturer. This would
have been clear to the AG’s if they had read the whole notification.
More importantly, who has a better understanding of the Finance Minister’s
declared intention in the Budget? The Finance Ministry or the AG? How can
any one reply to this objection? <b>Should the AG tell the Minister
what his intentions were?</b><br>
<br>
<font color="#006633"><b>Wire Drawing – AG does not allow an issue to
die.</b></font> As everyone will remember, Board had issued a circular in
2001 that drawing of wire amounted to manufacture, which it withdrew in 2003.
Now CAG says that the original Board circular was ab initio wrong and because
of the delay in withdrawing it, huge amounts of revenue are lost! How? The
units have paid duty, when they were not required to pay and downstream units
took credit when they were not eligible! So what? The credit taken cannot
be more than the duty paid (which was not required to be paid). The department
replied that the so called revenue loss was notional. AG doesn’t agree.
The report says,<br>
<br>
<i>Reply of the Ministry is not tenable as issue of Board’s circular
of February 2001 enabled the assessees to avail credit on wire rods and to
pass it further on clearance of wire which was not other wise available.</i><br>
<br>
The report says that test check of twenty assessees were conducted, which
means at least 200 Show Cause Notices are already issued. Does the CAG remember
that in the 2004 Budget a section note was inserted to make wire drawing,
manufacture? And if the AG’s office had done a little <b>go through</b>
of reported cases, they would have found that judicial opinion is that even
if duty is not payable, credit cannot be denied if duty is paid.<br>
<br>
<b>In CCE & CUSTOM (APPEALS), AHMEDABAD Vs NARAYAN POLYPLAST</b> - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2004/2004-TIOL-110-SC-CX-LB.htm">2004-TIOL-110-SC-CX-LB</a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">,
the Apex Court upheld the Tribunal’s order allowing credit of duty paid
on exempted inputs, on the ground of revenue neutrality. The Supreme Court
took a similar view in CCE v Narmada Chematur Pharmaceuticals Ltd -
</font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2004/2004-TIOL-113-SC-CX-LB.htm">2004-TIOL-113-SC-CX-LB</a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">. <br>
<br>
The Madras High Court recently gave a similar judgement- </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2005/2005-TIOL-32-HC-MAD-CX.htm">2005-TIOL-32-HC-MAD-CX</a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
<br>
After the Madras High Court judgement, in February 2005, the Supreme Court
had another occasion to deal with an identical case in Punjab Tractors v CCE,
Chandigarh- </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2005/2005-TIOL-66-SC-CX-LB.htm">2005-TIOL-66-SC-CX-LB</a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">.
In this case the Tribunal had upheld demand of duty and penalty. In
spite of the earlier two orders of the Supreme Court, the Revenue pleaded
that this might amount to condoning violation of excise rules by assessees
with impunity. The Supreme Court made it clear that for the violations, the
assessee was liable for penalty, but CREDIT CANNOT BE DENIED. <font color="#006633"><b>Who
will tell the AG?</b></font><br>
<br>
<font color="#006633"><b>AED credit cannot be used for paying BED but is the
converse true?</b></font> The Cenvat/Modvat Credit Rules had a provision
that the credit of AED can be used only for payment of AED. Even a child will
know that this provision does not bar credit of excise duty being used for
payment of AED. AG doesn’t agree. The Department replied that that the
rule did not contain any prohibition for utilisation of credit of basic excise
duty for payment of AED (GSI). AG was not impressed. The report says<br>
<br>
<i>Reply of the Ministry is not tenable as rule 57AB(2)(b) specifically debars
utilisation of credit of AED (GSI) for payment of other duties.</i><br>
<br>
Yes Sir, the Rule does so but it does not bar BED from being used for AED.
If the AG’s logic is extended, credit of excise duty cannot be <b>used
for paying education Cess</b>. But that will be a future day’s objection.
I only hope I am not giving ideas to AG!<br>
<br>
I know I am doing a great injustice to my profession by pointing out these
Audit objections. I am aware of the fact that the whole tribe of consultants
live and thrive on these objections if there is no Audit, there will be no
consultants. AG is our ‘anna datha’. On behalf of the Tax Consultants,
I should say, “anna datha, sukheebhava”. Long Live Audit! In their
activity alone lies our prosperity!<br>
<br>
<font color="#006633"><b>Import of Livestock from India : </b></font></font><font color="#006633"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Quarantine
Houses at Wagah Customs Station</font></b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
<br>
Pakistan has established a Quarantine Houses at Wagah Customs Station for
import of livestock from India. Four temporary Quarantine Houses were setup
at Wagah Customs Station for laboratory tests of the livestock imported from
India. Import of onions, potatoes, tomatoes, garlic and livestock is exempted
from Customs duty in Pakistan.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#FF6666">Until
Tomorrow with more DDT and CAG<br>
<br>
Have a Nice Day.<br>
<br>
Mail your comments to</font></b> <b>vijaywrite@taxindiaonline.com </b>
</font> </p>
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