JANUARY 27, 2011

Dear FM, Budget 2011 needs to focus on some micro reforms in tax laws

By B V Kumar & Dr Prabhat Kumar

(i) Section 11AC of Central Excise Act, 1944 and Section 114A of the Customs Act, 1962 could be amended to allow automatic discharge of additional duty liability up to Rs 1 Crore without any penal proceedings. The advantage of such amendments would be :

++ Large number of cases are initiated for levy of penalty where assesses do not dispute taxes. These generate useless and frivolous appeals which can be easily avoided. This would be consistent with Section 28 (2B) of the Customs Act, 1962.

++ Will reduce litigation of two rounds (which may involve up to six appeals lasting for 5-7 years).

++ Will reduce the work-loads of Tribunal and Commissioner (Appeals).

++ Will provide citizen friendly Governance.

(ii) Amendment in Section 11B to allow refund up to Rs 1 Crore a year without scrutiny for ‘Unjust Enrichment'

++ Will reduce corruption in sanction of refunds, where average pay-off is between 5% in cases involving big amounts to 15% in cases involving smaller amounts.

++ Will reduce litigation of two rounds (which may involve up to six appeals) in refund cases rejected.

++ Will reduce the work-loads of Tribunal and Commissioner (Appeals).

++Will increase faith of Citizens in Governance.

++ Will prevent manufacturers become victims of ‘Unjust impoverishment', where due to lack of knowledge of tax laws bear the tax burden which is not passed on to the consumers.

(iii) Amendment in Section 35F of the Central Excise Act / Finance Act, 1994 relating to Disposal of Stay Application by the Appellate Authority and CESTAT in the following manner

a. Where duty involved is less than Rs. 25 lakhs -- 25% of deposit of duty may be treated as maximum deposit for admitting the appeal.

b. For amount over Rs. 25 lakhs -- 10% of the duty deposit in addition to the above amount may be treated as sufficient deposit for admitting the appeal.

c. The Tribunal / High Courts will still have the discretion to waive the pre-deposit of duty demanded depending on the merits of the case or where the impugned orders are contrary to settled law.

Litigants availing the above facility may be asked to pay the balance amount of duty along with 1% extra rate of interest over and above the prescribed rate of interest, if cases are decided in favour of the Revenue. This will ensure that the assessees, who have bad cases to fight, have to pay penal rate of interest over and above @ 1% etc.

This will also end the tyranny of perverted Members of the Tribunal / Judiciary, who fix arbitrary amounts as pre-deposit, without going into the basic facts of the Appeal and give perfunctory orders.

++ Will save 40% time of Appellate Tribunals / Courts and hence disposal of appeals can be done much faster.

++Will reduce corruption in appellate procedures.

++Will make the appellate procedures more transparent.

++Final disposal will become faster hence easier for government to collect revenues.

++ Will increase faith of Citizens in Governance.

(iv) Amendment to Section 35 B of the Central Excise Act, 1944 /129B of the Customs Act, 1962 to make the stay order absolute till disposal of appeal

++ As per existing provisions stay orders are to be renewed after 180 days, leading to huge increase in in-efficiency, paper work, no-gain for the government in revenue and high-handedness / blackmail in forcible recovery of revenue by the field officers.

++ Will reduce corruption and high handedness in recovery when stay was already granted.

++Final disposal of appeals is not in the hands of litigants, when cases are now pending for nearly 5 years; CESTAT is without Members and is running huge vacancies.

++ Saving in time due to less number of Stay Matters before CESTAT.

(v) Amendment in Section 9 (1) (i) of the Central Excise Act, 1944 relating to Prosecution by raising the threshold limit of prosecution to Rs 1 Crore from the existing Rs 25 Lakhs.

The present instructions relating to filing of prosecution is governed by Board's Circular vide F. No. 208/31/97-CX -6 dated 12.12.1997, where prosecution is launched in cases involving evasion of more than 25 Lakhs. There is an urgent need to concentrate on a few big cases of organized evasion of Rs 1 Crore or more of revenue, since otherwise the history of prosecution of offenders is extremely poor in Excise cases.

++ Courts will not be clogged with too many cases.

++ Will ensure that frivolous cases are not filed and department concentrates on the big offenders only.

++ Prosecution should be filed only after decision by CESTAT, since on the Excise side, there is a heavy casualty of cases booked by the Central Excise Department.

++ The change in timing of filing prosecution will bring about uniformity and reduction in harassment and corruption.

++ Fast track Court should be set up to bring offenders to book, so that there is a deterrence for evasion of customs duty.

(vi) Assessing authorities must pass a proper Order in Original, in case of disputes in assessment

++ The provisions of Section 17(5) of the Customs Act, 1962, though mandatory, the field Officers are showing scant respect to these provisions and are seldom implemented.

++ It must be made mandatory for the assessing authority to pass an order of assessment, wherever disputes arise. This will ensure that the appellate authority has the advantage of knowing the basis of the order and no need for remand arises after several rounds of litigation

(i) Show Cause Notice must be issued with all the RUDs and Non RUDs must also be returned simultaneously.

++ The existing orders of the CBEC for returning the unrelied upon documents are not being implemented, inspite of citing these orders to the Investigating Agencies.

++ Further, copies of the Statements recorded are not given to the assessees / accused / witnesses, till the show cause notices are issued. This is contrary to law and this should be made mandatory.

(ii) Amendment to Rule 6 (a) of CESTAT Procedure Rules to enable filing of common appeals against one single order-in-original before CESTAT

++ Currently separate appeals are filed by Directors, Partners etc, which unnecessarily multiples the number of appeals and increases the paper work.

++ In order to simplify, Rule 6(a) of CESTAT Procedure Rules 1982 should be amended to allow common appeals to be filed by several appellants (which are many a time sister concerns or Partners or Directors of those concerns).

++ This will lead to less paperwork, better utilization of space, better handling of files and faster disposal of appeals. Maintenance of the files in the Registry will also become easy. The Filing Fee can be collected in respect of each Appellant.

(iii) Issue of Board Circular on allowing Cenvat Credit in Service Tax, where Departmental Officers are insisting on filing of Refund claim for Cenvat Credit

A large number of Show Cause Notices have been issued denying Cenvat Credit to exporter-manufacturers, who are otherwise entitled to claim Cenvat Credit as per Cenvat Credit Rules. SCNs are issued on the ground that these concerns should have filed refund claim instead. This stand is totally illegal in as much as those who are entitled to Cenvat Credit can take Cenvat Credit. The Department can do post Audit, if necessary.

CBEC therefore may issue instructions clarifying on the subject matter.

++ CESTAT has been allowing such credit and hence show cause notices being issued are not in accordance with law.

++ Courts will not be clogged with too many cases.

++ Will ensure that frivolous cases are not filed

(iv) Amendment in Section 11BB relating to sanction of Interest on refund to assesses and importers

Interest on refund amount should be allowed from the date of payment of additional / extra Customs duty and the provisions relating to refund should be brought at par with Section 11AA. Interest is a compensatory payment for unjustified retention of money and hence interest should be due from the date payment is made and not from the date of filing the refund claim.

++ This change on award of interest will bring about legal parity between the assessee and the department, as demand and refund will both be subjected to the same provisions of law.

++Amendment in the law will bring about uniformity in approach and payment of interest will act as a balancing factor for the officers, who may be acting in an over-zealous manner in collecting extra duty, otherwise not due as per law.

++ The Tribunal should also be empowered to award interest on delayed payments, like equity courts.

(v) Amendment in Section 11 AC for Penalty

Section 11 AC of the Central Excise Act, Rule 25 and 26 of Central Excise Rules relating to levy of penalty need to be amended

(a) Quantum of penalty may be fixed at 25% of duty evaded and under the proviso the quantum may be reduced to 15%, in case the penalty is paid within 30 days.

(b) Rule 25 and Rule 26 of Central Excise Rules may also be amended correspondingly.

The “Citizens Charter”, exhibited in all Central Excise Offices as well as the Board relating showing the name of the Vigilance Officer are just a mockery of the situation on the ground. They are never implemented.

It is not known as to why the provisions of Rule 56J are not implemented in the case of well known corrupt officers.

Service Tax

(vi) It is high time that the law relating to Service Tax is codified and legislation is introduced in 2011.