By TIOL News Service

NEW DELHI, SEPT 01, 2013: INDIA's Comptroller and Auditor General (CAG) has advised the Government to tighten the monitoring of exports tax expenditure to ensure that tax incentives are not wrongly availed of by the exporters.

In a recent report relating to indirect taxes-based export incentives submitted to Parliament, CAG says tax collecting authority, Department of Revenue (DOR) and the tax incentives named deemed export benefits reimbursement authority, Department of Commerce (DOC), are different.

“There is no mechanism to correlate the tax collection on inputs with the deemed export benefits reimbursed, to assess the efficacy of the tax expenditure or export promotion measures.”

The report says: “DOC needs to make an outcome assessment of the efficacy of the scheme with regard to its performance strategy or the revenue impact assessment done before implement the scheme of deemed exports, import substitution, taxes neutralized and financial benefits accrued to the beneficiaries, etc.”

The CAG report deals with deemed export drawback scheme (DBK scheme) and reimbursement of central sales tax (CST) to export oriented units (EOUs), software technology parks’ units and electronic hardware technology parks’ plants.

Listing out several shortcomings in the implementation of export incentives, CAG has recommended that the existing electronic data interchange (EDI) system of Directorate General of Foreign Trade (DGFT) should be linked to the Customs and Excise department’s EDI to reduce the incidence of fraud while processing of tax refund claims.

The Scheme of Deemed Exports refers to the supply of domestically manufactured goods in to certain specified customers and the taxes paid by the domestic manufacturers for such supplies are reimbursed.

The scheme was conceived to provides a level playing field (to domestic manufacturers vis‐à‐vis foreign suppliers) in the area of International Competitive Biddings (ICBs) for specified projects. Deemed export benefits include duty drawback and exemption or refund of terminal excise duty.

CAG has recommended that DOC may consider suitable mechanism to levy interest on erroneous payment of DBK and TED.