TIOL-DDT 625 · the untouched capture
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<p align=justify><font face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399" size="3">TIOL-DDT 625</font></b><font size="2"><b><br>
31.05.2007<br>
Thursday</b></font></font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">CAG</font></b><font color="#006600"><b> strictures on EOUs</b></font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In its Report No 7/2007 to Parliament, the CAG has found the department miserably failing in every field, to start with ascertaining the number of EOUs. CAG has realized that Commerce Ministry and Finance Ministry are not on talking terms and have suggested several measures to improve the situation. Of course we all know what the Indian Cricket team should do, but for some strange reason, those 11 players out there in the field do not know these tricks. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Highlights</b></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>1. Macro data regarding total number of EOUs approved, those functional, duty foregone etc. was inconsistent, incomplete and unreliable. As a result, there was minimal assurance that the units were monitored by the departments to ensure that these met the objectives of their formation and functioned within the existing norms and regulations.</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>2. Duty amounting to Rs.285.81crore was not levied/short levied on imports effected, in violation of applicable conditions.</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>3. The department did not recover duty of Rs.284.72 Crore and interest of Rs. 289.24 Crore from 47 EOUs that failed to achieve their prescribed EO/net foreign exchange earning as a percentage of exports (NFEP).</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>4. Duty amounting to Rs.84.37 Crore was recoverable as 76 EOUs had effected irregular/excess domestic tariff area (DTA) sales, in contravention of Exim Policy/notifications.</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>5. There was variance between export performance figures as recorded by Revenue Department (Customs) and Development Commissioners (DCs) in Ministry of Commerce. In fact, the performance {free on board (FOB) value of exports} was inflated/over stated in records of DCs which formed the very basis of their evaluation by the DCs. Accordingly, the risk of incorrect decisions based on inflated export performance was left unmitigated.</b></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>SOME AUDIT FINDINGS </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>No. of units functioning more than No. of units approved.</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Audit noticed that the macro data provided, suffered from following inconsistencies:-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>(a) </b>Out of 5,637 approved units, 3,209 were functional, 2,007 non functional and 549 were de-bonded in principle. Accordingly, 128 units {(3,209 + 2,007 + 549) – 5,637 = 128} may be existing without valid approval unless the data of approved units itself is incorrect. There is therefore, minimal assurance that the units were monitored by the department to ensure that these met the objectives of their formation and functioned within the existing norms and regulations.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>(b) </b>Number of units in operation was more than the number of valid approvals in Surat-II, Daman, Hyderabad-II, Hyderabad-III, <st1:place w:st="on">Visakhapatnam-I and Tirunelveli commissionerates.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>(c) </b>A sum of Rs.1,624.57crore on account of duty, interest and penalty remains to be recovered from 451 closed de-bonded units.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>Duty foregone</i></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Information furnished by 69 commissionerates relating to duty foregone revealed following inconsistencies:-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>(a) </b>Number of units engaged in imports/exports was more than the total of 5,637 approved units rendering the data unreliable.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>(b) </b>Export proceeds realised in Bangalore II (CE) and <st1:place
w:st="on">Mysore commissionerates were 12 and six times higher than the value of export prescribed respectively. The reasons of these wide variations were not ascertainable.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>(c) </b>Commissionerate wise figures for Chandigarh, Jalandhar and <st1:place
w:st="on">Ludhiana were not furnished.Wise guys.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>Recommendations</i></b></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>1. Decide on the numbers!</i></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>Ministry of Commerce should re-verify/reconcile the number of units approved, functional/closed and that de-bonded as a first step to effectively monitor functions of these units, in close co-ordination with department of revenue so that timely and effective action could be taken for effecting recoveries, wherever due.</i></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>Not our job says, Revenue!</i></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Ministry of Finance replied (January 2007) that reconciliation would need to be primarily carried out by Ministry of Commerce as Development Commissioners issue LOP to EOUs, monitor their export performance and permit de-bonding.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>2.Huge drain on Revenue!</i></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>Duty free irregular imports made by EOUs are a huge drain on the Government revenue. There is an urgent need to put in place a workable co-ordinated mechanism between Commerce and Finance Ministries, to detect such lapses and recover duty in time.</i></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>But they don’t seem to be on talking terms.</i></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>3. Ensure Export obligation</i></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>Ministries of Commerce and Finance should strengthen their internal control mechanism and coordination to monitor that the EOUs achieve their prescribed VA/EO failing which the duty foregone along with interest and penalty leviable under Customs Act/Exim Policy should be recovered promptly.</i></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>But we are already doing it! </i></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Ministry replied (January 2007) that provisions already exist for concurrent joint monitoring to review the performance of EOUs by the DC and concerned Customs/Central Excise officers in terms of Appendix 14-IG of HBP (Volume-1). Ministry further replied that CBEC vide circular No.35/2001-cus dated 15 June 2001 and circular No.41/2001-cus dated 23 July 2001 had also issued similar instructions to field formations. Reply of the Ministry further corroborates audit recommendation of strengthening joint monitoring mechanism, implementation of which was apparently weak.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>4. Make them export oriented not DTA oriented</i></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>As the name itself suggests, EOUs are intended primarily for exports. Any DTA sale should only be permissible after the unit has achieved minimum prescribed EO/EP/NFEP etc. Government should strengthen its control mechanism to ensure that DTA sales are effected after achievement of EO. In audit opinion, use of duty free imports and other concessions in production and diverting the output products in DTAunauthorisedly is a major risk, which needs to be mitigated effectively.</i></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>Fault lies with Commerce Ministry</i></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Ministry agreed (January 2007) that DTA sale entitlement accrues on completion of export commitment and stated that Development Commissioners monitor the export performance of EOUs including DTA sales and Customs/Central Excise officer initiates action only on receipt of decision regarding irregular DTA sale by the Development Commissioner.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>5. Recover that incentive</i></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>The Government should further strengthen its monitoring mechanism to watch the recovery of export incentives, in cases where units fail to achieve intended objectives like earning of foreign exchange, prescribed exports etc.</i></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>6.Attach property</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>There is need to review and strengthen existing provisions of Foreign Trade (Development and Regulations) Act, 1992 to protect revenue, on the lines of property attachment rules under Section 142 of Customs Act.</i></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>7. Depend on customs records and not the APRs</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>Government should (i) ensure that export performance evaluation of EOUs is done only on the basis of Customs records and not APRs/QPRs submitted by the EOUs as the ports are the point of exit of exported goods and (ii) increase the coordination mechanism between Revenue and Commerce Ministries to achieve foregoing recommendation efficiently without causing inconvenience to exporters.</i></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Conclusion</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Review has revealed:-</font></p>
<blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Lack of well-coordinated and concerted action by DCs and Customs/Central Excise authorities providing opportunity to defaulting EOUs to misuse provisions of Exim Policy and Customs/Central Excise notifications.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Evidence of non/short fulfilment of EO, excess and inadmissible imports, irregular and unauthorized DTA sales.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Excess reimbursement of CST and drawback on DTA sales.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Non realisation of export proceeds, irregular de-bonding, non receipt of re-warehousing certificates, insufficient coverage of duty through execution of bond/BG.
</font></p>
</blockquote>
<p align=center></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_31.gif" alt="Guest Photo" width="191" height="160" border="1" align="left"><font color="#006600">From our Legal Corner</font></b></font></p>
<p align=justify><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>A,
any, many?</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Exemption from capital gains</b>, if invested in a new residential house. Is this <b>a </b>residential house or any number of houses? Does <b>a </b>mean <b>any </b>or <b>many?</b> See our ITAT Special Bench order in <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=39&filename=legal/itat/2007/2007-TIOL-142-ITAT-MUM-SB.htm" target="_blank">2007-TIOL-142-ITAT-MUM-SB</a> and the analysis in <u><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5558" target="_blank">Breaking News</a>.</u></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>No higher tax for Hindi Films – Supreme Court </b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court struck down the AP entertainment tax levying a higher rate of tax for Hindi films, compared to Telugu ones as discriminatory. Quotes from the judgement.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>It is also required to be realized that imposition of reasonable tax is a facet of good governance.</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Although the legislature enjoys a greater freedom and latitude in choosing person upon whom and suggest upon which it can levy tax, it is trite that taxing legislations are not immune from attack based on Article 14.</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See this important judgement from our<a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5557" target="_blank"> Breaking News</a> today. </font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Tomorrow’s Law</font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">Interest to be charged by statute, nit Board circulars.</font></b>The Special Bench of the ITAT in a landmark order held that Board circulars beyond the statute has no relevance, though beneficial(to the assessee) circulars are binding on the department. This is the whole crux of the binding nature of Board Circulars – even if the circular is against or beyond the statute, if it is beneficial to the assessee, it is binding on the department. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We will bring you this interesting order tomorrow.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">Sales Tax payable on retention of gas cylinders – Supreme Court</font>.</b>Charges collected forover retention of gas cylinders is sale price and is liable to sales tax according to the Supreme Court – Be with us tomorrow for this judgement.</font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">On our <st1:place w:st="on">Hyderabad Seminar</font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A netizen writes in,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Sensitization of the subject by way of bringing together law maker & law user is commendable. Till recent past, Excise and customs was a subject to be discussed by govt officers among themselves and make assessee horrified by displaying big volumes of books, assessee participation was to receive and follow the order.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
TIOL has successfully bridged the gap and taken a task to educate the assessee up to highest level. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Also, TIOL has successfully attempted to make subject interesting which otherwise has been dry, boring and difficult to understand. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Hyderabad seminar is going to be a milestone for future endeavours. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Great effort, greater vision, and greatest commitment.</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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