Suggestions for Budget : Duty-free liquor for children?

By V Unnikrishnan

Central Excise

Section 4 - Transaction Value and freight collected in excess of actuals/ equalised :

The new section 4 effective from 1-7-2000 has made it clear that the duty has to be paid on the Transaction Value and also the element / quantum deductible towards freight-as actuals or equalised only. However, there are large no. of CESTAT orders passed to the effect that any amount collected as 'Freight' - no matter whether in excess of actuals/equalised - would be admissible for deduction. This aspect may call for urgent intervention to set the matter right in tune with spirit of the law.

Provisional Assessment :

There is no provision for Dept. to order provisional assessment on its own. Only on the request by the assessee it can be insisted/ordered. Even in cases where there is price escalation/variation clauses in the transaction, assessees do not resort to provisional assessment. Instead they resort to pay the differential duty as and when supplementary invoices are issued in terms of sec.11A-2B;but there again interest will not be paid under the pretext that only 'duty' has been mentioned in the section and thus avoidable litigations emerge. Here all issues as to whether the interest itself is payable, from what date, demand can be under sec.11-A ; etc. are raked up. The price escalation clause is a typical example whether the provisional assessment under Rule 7 of CERs, 2002 should be insisted. There are other situations as well-instances of finalisation of classification, etc where the provisional assessment may have to be insisted by the Dept.

Pre deposit /Stay application before Commissioner (Appeals) :

At present the appellants should file stay application for waiver of pre deposit and the same should be disposed of within thirty days. But in practice, the applications are insisted and no orders are issued within thirty days .Since the interest is payable under section 11AB, and considering the practical experience in the passing of stay orders ,the feasibility of dispensing with the pre-deposit at the first appeal stage may be considered. This will not make any difference in the liquidation of Arrears and also no interest is being allowed on the pre-deposit, when refunded.

Repeated SCNs invoking proviso to Section 11A :

There are many reported case laws where issue of repeated SCNs alleging suppression and invoking proviso to section 11A have been adversely commented upon. The chances of issue of SCNs again and again invoking suppression is possible since the SCNs are to be issued by respective adjudicating authorities as per the monetary limits. Hence there must be a specific embargo to ensure that the SCN will not be issued alleging suppression on same issue, to the same assessee.

Separate powers for adjudication by AC and DCs :

At present the AC and DCs are being posted in charge of Divisions even interchanged as well. There is no distinction in the statutory powers for adjudication in the Central Excise, Customs and Service tax matters. Even assessees find it difficult to ensure correctness in addressing the Division heads. There is no justification in having same monetary limits for adjudication powers—separate limits may be notified on priority basis.

Section 35EE-Revision by Central Government :

As per sub section (1) of s.35EE the Revision Applications against orders passed by the Commissioner(Appeals) are decided by the Joint Secretary (Revision),in the Ministry of Finance, New Delhi.. Now that senior level officer at the level of Chief Commissioners is available in every State, the assessee need not be insisted to pursue their cases in Revision Application only in Delhi. Considering the fact that both these officers are of the same Rank, the propriety of the practice now followed may be looked into.

Issue of Notifications :

Now the notifications are issued just like that at any time immediately after the Budget as well. In many cases there is delay in the proper circulation of the changes as well thus leading to avoidable litigations. While it would be desirable to issue along with Budget only, at least the feasibility to issue notifications only on quarterly basis effective from first of April, June, Sept and Dec may be considered.

Revised ER1 returns :

The self-assessment scheme and resorting to sec11-2B would be better effectively implemented if there is a provision for filing revised ER1 returns incorporating the changes that may be essential in the details given in the ER1s. Also a speaking order of finally accepting the assessment also can be enforced.

Filing of Balance sheets mandatory :

There are large no. of litigations as to whether suppression can be alleged with regard to details published in the Balance sheet, authenticity of the figures for alleging evasion etc. Accepting the basic fact that the Balance sheet is a mandatory document to be filed with the Income-tax department by specified class of assessees, a provision could be inserted to insist to file the copy of balance sheet as on 31st March every year. This would also settle the matter that no suppression can be alleged w.r.to details published in the Balance sheets. This would facilitate the Dept to cross verify the details given in ER1, cenvat availed, income from other sources etc.

End use verification :

There is a notification no.108/95CE as amended exempting all excisable goods supplied to the projects funded by the United Nations,or International organizations like UNDP,UNICEF,FAO,WHO etc. and approved by the Govt. of India. However, there is no checking mechanism to ensure the veracity of exemption availed. To cite an example, Bitumine cleared for repairs of Roads funded by World Bank is exempted from duty. However there was a recent exposure in Kerala on the ingenious methods adopted by contractors by procuring duplicate invoices and thus defrauding few crores of rupees from PWD/Govt. The exemption granted should go for the specified purposes only and this has to be monitored and ensured by the Central Excise Dept. The feasibility of insisting the special procedure on the lines of the Central Excise ( Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods ) Rules,2001 may be looked into. This would avoid instances of the type recently exposed. There are other commodities as well where the chances of misuse of the exemption cannot be ruled out.

On Service Tax

On section 84 :

There is an urgent need to restrict the TWO YEAR time limit allowed for review and revision by the Commissioners of the orders passed by AC/DCs. However, there is no such powers on orders passed by the Joint /Additional Commissioners. There are large no. of cases where duplication of proceedings come up by way of appeal by Party within three/six months and later revised orders by Commissioners. Similarly, the revised order should be passed by the Commissioner only so that the further appeal would be with CESTAT.

Section 85-Time limit :

There is no justification in keeping THREE months as the time limit for filing Appeal before the Commissioner(Appeals) with further condonable limit of Three months after the reduction to Sixty days with condonable limit of Thirty days for Central Excise and Customs cases. Suitable amendments may be made to ensure uniformity in the Time Limit especially because the appeals are filed before same Commissioner(Appeals).

On waiver of penalty under Section 80 :

There is blatant inconsistency in the provision for waiver of penalty under section 78 in as much as this penalty is for ‘suppressing value of taxable services’ in cases with intend to evade tax and how can there be a ‘reasonable cause for the failure’ in such cases. The section 78 must be deleted from section 80. Moreover, there is the inbuilt waiver in section 78 as only 25% need be paid if the dues are paid within one month.

On Refunds of Tax paid against advances received :

At present tax is to be aid as and when amount is received-no matter whether rendering of service is pending. Thus there could be cases where the order may be cancelled later before execution, service could not be provided by the provider, the project may get cancelled etc. Now there is no provision to claim in such cases if it is after filing of the subsequent ST3 return. Hence an in built provision may be provided to the effect that in cases of tax paid against consideration received in advance, the assessee can claim the refund without any time limit w.r.to date of payment of tax.

Classification of services :

There are large no. of services where overlapping of different services may come up. Since the rate of tax being uniform, assessees must be given an option to pay the tax under the main activity undertaken instead of insisting payment under different categories. Assessees can be given option to get classified under the choice category especially because many new services are brought in from the left out area of services provided by the assessees.

On Baggage Concessions :

The Baggage Rules, 1978 notified vide Notification No.30/98-Cus.(NT)dt.2-6-1998 as amended regulates the conditions on the ‘baggage and personal importation by passengers and tourists’ . As per Rule 3 read with Appendix A -‘All passengers up to 10 years of age returning after stay of more than three days ‘ are allowed articles free of duty up to a value of Rs.6000 other than those mentioned in Annex. I if carried on the person or in the accompanied baggage.’ So also for those returning after stay of three days or less, the difference is only in the value limit as Rs.3000.(Appendix A-(d) refers) The articles mentioned in Annex.I interalia include Alcoholic liquor or wines in excess of two litres and Cigarettes exceeding 200. Similarly, there is no mention as male or female among the passengers .Thus both alcoholic liquor and cigarettes within these limits are permissible to be imported by those passengers upto 10 years of age. Though the free allowance admissible has been clearly spelt out as above, in practice the same is being denied to all the passengers returning with family and children. Even though all these items are available for purchase at the Duty Free Shops in the Airports, usually the full quantity permissible for duty free allowance including the liquor of 2 litres and cigarettes per passenger (including children and ladies) are never allowed by the Customs authorities. Hence, the free allowance of Alcoholic liquor upto 2 litres and 200 Cigarettes are permissible even for children and ladies since there is no such exclusion clause. But here it is also pertinent to note that as per Union Health Ministry's guidelines both Liquor and Cigarettes are not to be sold to Children below 18 years. This also may be explicitly made clear in the Baggage Rules,1978. Hence the baggage allowance as well as sales from the Duty Free Shops are also to be regulated accordingly.

Again, the present free allowance of Rs.25,000 for passengers coming from abroad is for items brought in the baggage and carried on person. This would mean that even gold ornaments worn in person upto a value of Rs.25,000 should be permissible since the exclusion is only for Gold other than ornaments . But in practice it is seldom allowed. Hence the explicit provision may be provided as intended. In cases of clearance of Liquor on payment of duty , no educational cess is to be paid as per the exemption notification and this also must be correctly enforced.

Custom House Agents :

It is an admitted fact that even after all the LIBERALISATION/Simplification policies for Customs clearances , duty payments etc. nobody can dream of the clearance of the cargo or even unaccompanied baggage from any Custom House in India without availing the services of a Custom House Agent(CHA).There is a long queue for persons seeking the Licence under CHALRs. Recently, as per CBEC guidelines, all retired Group A officers have been exempted from passing the qualifying examination for CHA. The indispensability insisted for CHA may call for an urgent intervention to ensure the Fast Track and normal track clearances are really hassle free. The service tax paid by the CHAs would give an idea of the avoidable expenses incurred by the importers/exporters.

If the liberalised policies have not made it possible for smooth clearance of cargo/baggages by the importers/exporters, the only conclusion can be that the desired purposes have not yet been achieved as publicised.

(The author is working with the Department and the views expressed are personal)