DECEMBER 19, 2016

By Dr Awdhesh Singh

The Central Board of Excise and Customs (CBEC) is going through the most challenging times since its creation. CBEC shall be the agency to implement the Goods and Services Tax (GST) for the Government of India, which is being hailed as the greatest economic reform since independence. The officers of the CBEC are a worried lot. They don't know what their future career would be once they are forced to share their power with the officers of state VAT officers.

I had the privilege of working in CBEC for more than 25 years. I also had the opportunity to work in Large Taxpayer Unit (LTU) Chennai and National Academy of Customs, Excise and Narcotics (NACEN), during which I had the privilege to closely interact with the officers of CBDT and other civil services. I have closely analyzed some of their good-practices which can be easily implemented in CBEC with some improvisation for improving its performance and make the department more efficient and effective. For example, CBEC and CBDT collect almost the same amount of revenue in LTU Chennai. However, LTU Chennai has a sanctioned strength of 485 officers/staff (including Audit Commissionerate officials) against only 30-40 in CBDT. There is no doubt that CBDT is making better use of their manpower than CBEC as they are managing substantially large number of assesses than CBEC using almost same manpower.

There are many good practices that are followed in CBDT whose adaptation by the CBEC can be of tremendous benefit for the government and the taxpayers. Since the CBDT laws and procedures are already approved by Government of India and time-tested, it would be easy to convince the Government to implement similar procedures in CBEC.

I would like to make following suggestions for making the Central Board of Excise & Customs more efficient and effective.

1: Filing of Returns

Income Tax assesses usually file only one return in a year while Central Excise assesses file one return every month for each registered premise. The Service Tax assesses have to filesix-monthly returns for each registration. The need for filing multiple returns not only increases the transaction cost of the assessees but also makes the scrutiny of the return almost impossible for the CBEC officers.

For example, in LTU Chennai, there are around 50 taxpayers and approximately 800 registrations for Central Excise alone. So there are 800 returns filed every month which means about 10,000 returns per year, while income tax has only around 50 returns per year.

The situation has been made even more complicated in GST regime. In addition to multiple returns which are prescribed to be filed quarterly and annually, they would have to file GSTR-1 (details of outward supplies), GSTR-2 (details of inward supplies) and GSTR-3 (monthly Return) for each registration.It would be virtually impossible to scrutinize so many returns even with such huge force of officers. Moreover, there is hardly much useful information in different returns and the scrutiny of returns hardly yields any substantial revenue.

My suggestions in this regard are -

- Collect comprehensive information for meaningful scrutiny in returns

- GSTR-1 (details of outward supplies) and GSTR-2 (details of inward supplies) can be uploaded every month. These are actually not the returns but only information about the supplies and receipt. A system generated return for each assessing officer can be generated by the system itself. No scrutiny of such returns are required to be done.

- One common return for all registrations for CGST, IGST and SGST purposes at all India level needs to be filed. The IT system (GSTN) should be designed to divide the data for each state depending upon the supplies and receipt. Each state can scrutinize these returns for their purpose.

- Option for a single registration for all CGST and IGST matters can be permitted at all India level where the Head office of the company is located. Only one scrutiny/assessment authority at all India level done for Central GST.

- Annual return may be prescribed for small taxpayers, while quarterly returns can be prescribed for large taxpayers.

2: Assessment of Returns

In CBEC, all the assessments of returns are usually done only by the Supdt/Appraiser. In CBDT, the power of assessment/scrutiny is done upto the rank of Joint/Additional Commissioner depending on the taxes involved.

The returns must capture all necessary data to make an effective assessment possible. This is possible when the return is to be filed annually/quarterly. We need to capture far more data in our returns, particularly from the large taxpayers.

The power of assessment of returns should be one rank below the power of Adjudication.

3: Audit

It is proposed to dispense with the regular audit of all companies every year and only intelligence based audit should be done. A separate Directorate General of Audit should be created with each Zone headed by a Commissioner/ADG rank officer. The officers in this directorate must have proper training in GST audit and vested with all India jurisdiction like DRI/DGCEI.

If the returns capture enough data, the scrutiny should be able to detect most of the duty evasion cases. Only in exceptional cases, audit of the company should be ordered by the Commissioner concerned and the case be referred to DG Audit.

The audit procedures must be properly notified by the Government and the CBEC audit must take 15-30 days to complete the audit. Audit officers must issue a certificate after every audit certifying the correctness of issues except those which are pointed out by them.

Thereafter, no CBEC officer would contest their findings and issue a demand for the period already covered in the previous audit.

4: Investigations

CBDT has neatly separated the assessment and investigation functions. They have a DG or Principal DG rank officer to head their Investigation Wing in almost every state, who reports to Member (Investigation).

CBEC may also consider combining DRI and DGCEI, which can be called DRI-Directorate of Revenue Investigation with all India jurisdiction. Directorate of Revenue Investigation may be headed by DG/PDGrank officer in all major States and have ADGs separately for Customs, Central Excise & Service Tax (or GST).

A common Directorate of Revenue Investigation would be beneficial to the government because the Directorate of Revenue Investigation officers have all India jurisdiction while the jurisdiction of Commissionerate are quite small as often even a single city has multiple Commissionerates.

The Preventive/Anti-Evasion Wing from all Commissionerates/Divisions should be abolished and all manpower should be diverted to Directorate of Revenue Investigation so that we can make optimum use of the limited manpower.

A common Directorate of Revenue Investigation would also integrate Customs with the GST since a large amount of GST shall also be collected by Customs formations on imported goods as Additional Customs Duty (CVD). Further, all exports would result in refund/rebate of GST. Hence, Customs formations have to be integrated with GST for effective tax administration.

5: Refund/Rebate Orders

At present,all sanctions of refunds/rebates above Rs.50,000 is done by issuing Orders-in Original (OIO). CBEC also does pre-audit of all refunds/rebates orders of Rs. 500,000 or more and Post-audit the rest of the refund orders. Similar practice is likely to continue in the GST regime as well. CBDT issues refund and interest in a routine manner by giving direct credit to the taxpayer's account without the need of any speaking order in most cases.

My suggestions in respect of refunds/rebates are:-

- System generated automatic sanction of refund in case of excess payment

- No need to pass OIO for refund orders in routine cases

- OIO required only when the refunds are rejected partially or fully

- Pre-audit only for refunds above Rs 1 Crore

- Post-audit only for refunds above Rs 5 lakhs

6: Review of Orders

In CBEC, all orders are subjected to review by appropriate Reviewing Authority. In CBDT, no review is required for any Assessment Order. Only the taxpayer can appeal against the orders of the departmental officers, if they are aggrieved. The department can only file a writ petition before the Honorable High Court, if the order is illegal or perverse. The officers, therefore, feel far more confident in passing orders which are even against the revenue.

Further the DG (Vigilance) letters F.No.V.500/100/2009-Pt.1 dated 24.02.2010 and 27.04.2010 directed the scrutiny of adjudication/appellate orders from vigilance angle. This has further created a fear in the mind of the adjudicating officers. This has given the syndrome of reject-all-refund-confirm-all-demand in CBEC as the safest method to avoid problems. For such attitude, they often have to face the ire of Higher Courts and Appellate forums.

My suggestions in this regard are:-

- OIOsneeds to be passed only when an offence cases of anti-evasion or anti-smuggling is made against the taxpayers

- As far as possible, decisions can be taken by the competent officers on file itself in routine mannersby recording the reasons therefor. There should be no need for issue of speaking order except when the assesse desires such order for filing an appeal.

- The need for issue of SCN and issue of orders should be eliminated in several cases like that of audit, scrutiny etc. Instead, a standard format may be prescribed where details of duty etc. can be filled up and given to the taxpayers and on representation by assessee, decisions can be taken on file.

- Government can prescribe specific instances where SCN and OIOs are required. All other cases, this formality can be dispensed with.

7: Call Book Cases

It is interesting to know that there is no provision of call book in CBDT. However, there are lakhs of cases pending in call books of CBEC. Some of these cases are pending for decades which are not only a source of anxiety to the taxpayers but also increases unnecessary work for the departmental officers. Department issues protective demands every year against all such issues and the call book cases keep on mounting every year. Officers often find it convenient to transfer the cases to call book to dispose of the cases pending adjudication.

The Board has excluded the transfer to call book cases based on CERA objection vide its Circular No.1023/11/2016-CX dt.08.04.2016. However, the other four categories still remains including the first category which include the cases “where the department has gone in appeal against the appropriate authority”. This provision itself is enough to transfer a large number of cases into call book because it is routine for the Commissioners to file appeal against the orders of CESTAT before High Court if the order is against the revenue. If one Commissioner has gone in appeal, that would be enough reason for all Commissionerates in India to transfer such cases to call book, even if the contested issue may be just one of the many issues in the show cause notice.

When department is quick to pass adjudication orders when the orders of Tribunal or higher Courts are favourable to revenue, there is no reason to withhold the order when these are against the revenue.

When an appeal is filed by the department before higher Appellate Authority (Appellate Commissioner, CESTAT, HC or SC) on an issue, the Adjudicating Authority should pass appropriate orders based on the legal position at that point of time. Department may continue to file review orders at the higher forum till the matter is finally decided.

My suggestions in this regard are:-

- Abolish Call Book system totally from CBEC

- All cases must be adjudicated within a period of one year

- This period of adjudication can be extended only is cases of matter pending before Settlement Commission, at the request of assesse.

8: Central Processing Centre for CBEC

CBDT has a CPC located in Bangalore, where they deal with all processing of returns. The preliminary scrutiny of returns and the issue of demands are also done by CPC. The demands are system generated and issued by email.

CBEC needs to build its own CPC. This will free our departmental officers from doing the routine jobs like preliminary scrutiny. They can focus their attention in more productive jobs like detailed scrutiny assessment, audit and survey.

9: Single Portal of Customs, Central Excise (GST) and Service Tax

At present CBEC has two separate Systems for Customs and Central Excise/Service Tax.

- ICES deals with Customs and have separate software for Import and Export.

- ACES deals with Central Excise and Service Tax, which too have separate modules for Service Tax and Central Excise.

- In the GST regime also separate Customs and GST systems are envisaged

It is better to have single IT System and software for Customs, Central Excise and Service Tax (or GST). It is important because Customs, Excise/ST (GST) are interlinked. The CVD and SAD credit is taken by CE and ST assesses on the Customs Documents (Bills of Entry) and the refund of duties is claimed on export of goods based on Customs documents like Shipping Bills. If these two IT systems are combined, it would be possible to get automatic refunds/rebates by the exporters similar to Drawback. All the demands/refunds/rebates/drawback of Customs, Excise/ST (GST) would be available on one single page for the taxpayers.

The CPC can perform most of the assessment work and the field formations are required to do assess BE/SB only on the basis of risk parameters or specific information.

10: Directorate of Taxpayer Services

The newly created Directorate of Taxpayer Services (DTS) may act as an interface between the taxpayers and the department. DTS should play a proactive role in issuing clarifications to remove ambiguity in classification, valuation and exemption matters. They may set up a call centre and web portal by which they can clarify the queries of the taxpayers.

CBEC may be empowered by law to issue binding clarifications on classification and valuation matters for departmental officers as well as taxpayers with prospective effect. Any technical matter can be referred to DTS either by department or taxpayers on the issue of classification, valuation, exemption or other matters as specified by Government.

The orders of DTS must be binding on the department and the taxpayers at all India level.

11: Capacity Building

CBEC is required to focus on capacity building in a big way. The present state of training to departmental officer is far from satisfactory which results in making poor cases in Audit and Anti-evasion, issue of frivolous demands and passing of poor quality adjudication orders.

There is a dire need to augment the infrastructure and other resources of NACEN to make it a world class Academy.

There is going to be a great requirement of GST training. NACEN Faridabad may be developed as Deemed University issuing degrees and certificates to departmental officers as well as the tax consultants. Only certified person should be allowed to handle the job relating to taxes within and outside the department.