TIOL-DDT 618 · the untouched capture
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<p align=justify><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="3">TIOL-DDT 618</font></b><font size="2"><b></b></font></font><font face="Verdana, Arial, Helvetica, sans-serif"><font size="2"><b><br>
22.05.2007<br>
Tuesday</b></font></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Provisional
Assessment – permanent mis-assessment </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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? </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CAG embarked on a study of provisional assessments in Central Excise and came up with some startling revelations.</font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>2. </b>Despite the time limit of six months, 2010 out of 2260 (89 per cent) provisional assessment cases were pending for period ranging between <b>more than six months to more than 25 years. </b></font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. <st1:City w:st="on"><st1:place w:st="on">Acton</st1:place></st1:City> to finalise the remaining 66 cases involving supplies valuing Rs.1374.02crore was yet to be taken. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">10. In 1645 cases in 18 commissionerates, the extension required to be granted by chief commissioner was also not obtained. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 14<sup>th</sup> Report of the 11<sup>th</sup>LokSabha, 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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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). </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 <st1:City w:st="on"><st1:place
w:st="on">Ghaziabad</st1:place></st1:City> commissionerates, the registers were not at all maintained. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Just imagine- provisional assessments pending for a quarter of a century. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The blunt fact is that the department will never be able to finalise these. <b>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?</b></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Scope and coverage of goods imported under Target Plus Scheme – CBEC issues clarification</b></font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Target Plus Scheme (TPS) for the Star Export Houses was introduced in the Foreign Trade Policy (FTP) which came into force on 01.9.2004. Under the scheme the exporter gets entitled to rewards in the form of duty free credit based on incremental exports. In terms of para 3.7.6 of the FTP the duty credit may be used for import of any inputs, capital goods including spares, office equipment, professional equipment and office furniture provided the same is freely importable, for their own use or that of the supporting manufacturer(s). In terms of para 3.2.5 (II) of the Handbook of Procedures, Vol.I (2005 edition), goods imported under this scheme shall have a ‘broad nexus’ with the products exported. In terms of condition No. 3 of Notification Nos. 32/2005-Cusdt. 8.4.2005 and 73/2006-Cus.dated 10.7.2006 the certificate and the goods imported against it shall not be transferred or sold.</font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It has been brought to the notice of the Ministry by the trade that some exporters had obtained duty credit certificates against exports of rice and using these certificates they have imported almonds which, after removal of the shells, have been sold in the market without payment of duty. As dry fruits / almonds cannot be used in the processing / manufacture of rice, it is alleged that the condition of ‘broad nexus’ stipulated in the Handbook is not fulfilled. The ‘actual-user’ condition specified in the Policy and the Customs notification is also violated because almonds, after removal of shells, are being sold in the open market. It has been alleged that the act of importation of almonds which are neither inputs nor capital goods in relation to rice is nothing but misuse of the TPS. </font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Ministry of Law has clarified that the holder of TPS certificate is permitted to import an item under the TPS and get the same processed into possible resultant products only if the same has a ‘broad nexus’ with the product group as an input in the export product and is required to be used as an input in the product exported for which TPS benefit is sought. The Ministry of Law has also clarified that the term <u>‘broad nexus’ with the product group is in addition to and not in substitution of the words “inputs” and “own use” in Para 3.7.6 of the Scheme</u>.</font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC agrees with the Law Ministry and wants the instructions to be followed.</font></p>
<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=25&filename=notification/custom/2007/cuscir07_21.htm" target="_blank">Circular No. 21/2007-Cus dated the 8<sup>th</sup>May, 2007</a></u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=25&filename=notification/custom/2007/cuscir07_21.htm"><u>.</u></a></font></p>
<p align=justify><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more DDT</font></p>
<p align=justify><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day.</font></p>
<p align=justify><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:vijaywrite@taxindiaonline.com"> vijaywrite@taxindiaonline.com</a> </font></p>
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