Provisional Assessment – permanent mis-assessment
In Central Excise, it is very easy to get into provisional assessment but impossible to get out of it. Can you believe it provisional assessments are pending for more than 25 years? And do you think any officer will finalise the provisional assessment pending for more than 25 years?
The CAG embarked on a study of provisional assessments in Central Excise and came up with some startling revelations.
1. As per information furnished by 73 commissionerates test checked in audit, differential duty was not even quantified in 2087 provisional cases as on 30 September 2005. The figures for the differential duty estimated by the department, therefore, relates to only 215 cases. Thus, the department is not even aware of the estimated differential duty involved in pending provisional assessment cases. The figures furnished by commissionerates do not appear to be reliable as under-reporting of the pendency both in terms of numbers and amount was noticed in audit.
2. Despite the time limit of six months, 2010 out of 2260 (89 per cent) provisional assessment cases were pending for period ranging between more than six months to more than 25 years.
3. A provisional assessment in respect of Eicher Limited, in Chennai I Commissionerate was pending finalisation for more than 22 years (from 30 December 1983 onwards). The case was shown as pending in the monthly technical report of the division with the remarks that 'certain records for the period from 1984 to 30 June 2000 were not available with the division and on instructions from commissioner search was being undertaken to locate the records.
4. There was marked reluctance of the departmental officers to finalise those cases where amount of differential duty had not been quantified. This is borne out by the fact that out of 2220 cases pending as on 30 September 2005, there were 2087 cases where the differential amount of duty was not at all determined.
5. It was noticed that a large number of cases involving substantial revenue were pending mainly because of lack of initiative to finalise these cases. Most of these cases could have been finalised, had the delays been addressed promptly by the department.
6. BHEL, in Hyderabad I Commissionerate, was allowed to clear goods on provisional assessment on account of several factors such as price variation, escalation charges, change in design, foreign exchange fluctuation etc., for the period from 1985-86 to 2001-02. The assessee executed a consolidated bond for Rs.1crore with a security/bank guarantee for Rs.25lakh. There were 84 provisional assessment cases involving contract value of Rs.15l2.28crore which had not been finalised till the date of audit (November 2005). Final accounts in these cases have already been furnished by the assessee to the department, during the period between May 2001 and August 2004. Verification at range level was, however, completed in only 18 cases involving contract value of Rs.138.26crore. Even in these 18 cases, the final action to communicate the differential duty amounting to Rs.3.67crore was awaited, although the assessment memoranda were already completed by division in March 2004. Acton to finalise the remaining 66 cases involving supplies valuing Rs.1374.02crore was yet to be taken.
7. Inaction by the department, despite submission of accounts by the assessee, resulted in blockage of revenue of approximately Rs.25.67crore, including revenue of Rs.3.67crore already determined but yet to be communicated to the assessee.
8. Rule 7 of the Central Excise Rules, 2002, provided for grant of extension of the period for finalisation of case beyond six months by commissioner and beyond one year by the chief commissioner. This extension was to be given on sufficient cause being shown and the reasons to be recorded in writing, so that there was no un-necessary delay in finalisation of cases.
9. A test check of the records made available to audit revealed that during the period from 200203 to 2004-05, the requirement of extension by the commissioner in writing, was not fulfilled in 99 cases in seven commissionerates.
10. In 1645 cases in 18 commissionerates, the extension required to be granted by chief commissioner was also not obtained.
11. In Chennai III Commissionerate, the extension of time was not even applied for in 23 cases which were pending for the period ranging from 1 year to 8 years.
12. In Chennai I Commissionerate, a case relating to M/s. Eicher Limited was pending since 1983 without extension of the chief commissioner having been obtained.
13. No mechanism was devised by the Board, whereby the requirement of grant of extension by commissioner/chief commissioner on the merit of each case could be monitored by the commissioner/chief commissioner/Board.
14. As a result of examination of Audit para 1.03 of the CAG's Report for the year ended 31 March 1995 (No.4 of 1996), the Public Accounts Committee, in its 14th Report of the 11thLokSabha, had recommended for development of appropriate computer programme so that uniformity could be maintained in all the commissionerates and consistency of data ensured. To implement this recommendation, a software namely Provisional Assessment Monitoring System (PAMS) for monitoring of provisional assessment cases was launched on 8 November 2002. The Board vide their circular dated 19 May 2003 instructed all the commissionerates to enter all new cases as well as pending cases into the system by 31 July 2003. The implementation of the instruction of the Board was reviewed in selected divisions.
15. It was noticed that even after entering new as well as old cases into system, differential duty was not at all worked out in as many as 2087 cases in accordance with standard method, in the absence of which, audit could not verify as to how did the department ensure that the security already obtained was revised from time to time to safeguard revenue.
16. It was noticed that the number of cases shown as pending in respect of BHEL, BHPV. at Hyderabad I, Visakhapatnam I and Trichy commissionerates, were shown as one each, whereas the actual number of cases, contract-wise, were 84, 1816 and 35 respectively. Since the provisional cases were to be finalised contract-wise, the depiction of one case in PAMS as well as reporting of one case in the MTR was incorrect, which led to under-reporting of actual pendencies.
17. While in 33 divisions no case was entered into system, in 61 other divisions, the entries into the system were partial. The annexures relating to provisional assessment cases to be attached to monthly technical report (MTR) were not being generated through PAMS in 82 divisions.
18. It was noticed that report for showing age-wise pendency was not yet developed on PAMS and the age-wise pendency was being worked out manually.
19. It was noticed that the software did not provide for capturing details of recovery of differential duty after realisation and refunds. When non-compliance of requirements by commissionerates and deficiencies in the functioning of system were brought to the notice of Directorate of System at Chennai on 25 November 2005, it was stated by ADG on 29 November 2005 that their office was in no way directly involved in data entry at the field level or monitoring of data or monitoring of any provisional assessments. He, however, acknowledged that PAMS software had not undergone any major changes based on the feedback from the field formations.
20. The introduction of PAMS has not brought about any tangible improvement either in monitoring the disposal of cases or correct estimation of differential amount of duty to protect revenue, by way of obtaining appropriate security.
21. The board vide circular dated 14 January 1997 instructed the field offices to maintain provisional assessment register in prescribed format. In the absence of the orders of the Board to the contrary, commissionerates were required to maintain manual records, besides the maintenance of Provisional Assessment Monitoring System (PAMS).
22. A test check of records of 63 commissionerates revealed that in 11 divisions of KolkataI, Kolkata III, Kolkata VI, Bolpur, Mumbai III, Vapi, Bhubaneshwar I and Ghaziabad commissionerates, the registers were not at all maintained.
23. The registers being maintained in 50 test checked divisions were incomplete and lacked information relevant for final assessment like differential duty involved, whether bonds/bank guarantees were furnished, validity period of bond/bank guarantee, etc.
24. In the course of test check of the records of selected divisions, it was noticed that there was under-reporting in terms of number as well as amount in the monthly technical reports sent to commissionerates/Board.
I am not a great fan of the CAG, but I fully endorse the findings of the CAG. The findings are only a tip of the ice berg. The fraud that goes on in the name if provisional assessments in the Central Excise department would make the worst conmen blush.
Just imagine- provisional assessments pending for a quarter of a century.
The blunt fact is that the department will never be able to finalise these. Why can’t they just write off the provisional assessments which are more than one year old and close all those stupid files? And save the world from useless litigation?