TIOL-DDT 2409
04.08.2014
Monday

THE latest report of the CAG on the Compliance Audit of the Customs Department presented to Parliament on 1.8.2014 shows the Customs to be a thoroughly incompetent and inefficient Department due to which the Government is losing precious revenue. And for a change, the CAG pointed out a couple of instances where the Customs Department collected more revenue than what is mandated.

Assessing Officer levied excess duty on imports

As per notification no.51/96-cus dated 23 July 1996, goods imported by Public Funded Research Institutes/Universities are exempted from whole of the additional duty of customs leviable under Section 3 of the Customs Tariff Act, 1975. Audit scrutiny revealed that in case of 2991 items imported by Public Funded Research Units through ACC, Bangalore during the years 2010-11 to 2012-13, the Assessing Officer in contravention of provisions in the aforesaid notification, levied four per cent additional duty thereby resulting in excess levy of CVD of Rs.8.79 crore. This was pointed to the Ministry in June 2013/November 2013; their reply has not been received (March 2014). Your job is to collect the correct revenue; not a penny more, not a penny less - now they will not even refund the illegally collected excess duty and if the poor importer is tempted into filing a refund claim, the department will claim it to be time barred. Will the department take action against any officer for illegally collecting excess duty?

Disposal of Seized Goods:

The system of disposal of seized and confiscated goods by the department was characterized by lack of proper maintenance of records, inadequate quality of documentation, non-projection of targets, delays in adjudication as well as non-compliance with the prescribed guidelines resulting in delays in disposal of the goods, blockage of storage space and loss to the public exchequer.  

Incorrect updation of EDI system resulted in short levy of CVD

The Finance Bill 2012 was introduced in Lok Sabha on 16 March 2012. As such, changes in the Excise duty and Customs duty rates, if any, were to be effective from the mid-night of introduction of Finance Bill i.e. 16 March 2012. Therefore, if there were any change in the Excise duty rates it would normally be effective from the 17 March 2012, unless otherwise stated in any notification or as part of the provisions of Finance Bill 2012. Government of India enhanced the rate of Central Excise duty (CVD) from 10 percent to 12 per cent for all the goods falling under tariff headings 8607, 8608 and 8609 vide notification no.18/2012 - CE dated 17 March 2012. Subsequently, Finance Bill 2012 was passed by the Parliament which received the assent of the President on 28 May, 2012. Scrutiny of Bills of Entry and Import/Export data relating to ICD Tughlakabad, ICD Patparganj, NCH, Delhi, Kolkata (Port), Kolkata (Airport), Custom Houses, Kochi and White field - Bangalore, Air Commissionerate, Devanhalli for the period May 2012 to March 2013 revealed that various importers imported different items falling under Customs tariff heading (CTH) 8607 - Parts of Railway or Tramway Locomotives or Rolling stock, 8608- Railway or Tramway track fixtures and fittings, Mechanical signalling and CTH 8609- Containers specially designed and equipped for carriage. The imported goods were assessed to CVD at the rate of6 per cent, instead of at the rate of 12 per cent under aforesaid Finance Act. Further, it was observed that although the aforesaid Commissionerates levied CVD at the proposed enhanced rate of 12 per cent during the period from 17 March 2012 to 27 May 2012 but the same was incorrectly reduced to 6 per cent after the assent of the Act by the President on 28 May 2012. Thus, incorrect updation of the notification Directory in the ICES database by the department resulted in short levy of duty aggregating to Rs. 30.17 crore. Deputy/Assistant Commissioner of ICD, Tughlakabad, Patparganj and NCH Custom House, New Delhi intimated (April/May 2013) recovery of Rs. 1.86 crore along with interest of Rs.7.34 lakh. Reply from other Commissionerates are not received (February 2014). No accountability was fixed for the erroneous updation of notification Directory. The importer had to pay 18% interest for the lapse of the Customs Department.

Adjudication

Board has prescribed 27 specific time frames, within which the officers would complete adjudication in the cases which relate to seizure alone. The Commissioner or Additional/Joint Commissioner of Customs is required to complete adjudication within one year from the date of service of the Show cause notice. Audit scrutiny revealed that nine Commissionerates did not adhere to the aforesaid provisions and there were delays in adjudication ranging from 1 to 204 months in respect of 65 cases having seizure value of Rs. 3317.57 lakh.

The Assistant/Deputy Commissioner of Customs is required to complete adjudication within six months from the date of service of the show cause notice. Audit scrutiny revealed that six Commissionerates did not adhere to the aforesaid provisions during the period 2010-11 to 2012-13, resulting in delays in adjudication ranging from 1 to 23 months in respect of 343 cases having seizure value of Rs. 271.40 lakh.

Improper control over warehoused goods

Provisions of section 62 of the Customs Act, 1962 read with provisions of Customs Manual stipulate that warehoused goods should not be removed from the warehouse without the permission of proper officer. Preventive officer of customs is to accompany the importer/agent with the key of customs lock and is to put his signature in the bond stock register maintained in the warehouse. The private warehouse keeper has to submit statement report of receipt, issue, balance in bond to customs bond department to locate time expired goods lying in warehouses and to ensure that there is no discrepancy in the stock of Customhouse record vis-à-vis warehouse record.

(i) Audit scrutiny of records of Central Warehousing Corporation under Jaipur commissionerate revealed (June 2013) that the Preventive Officer did not accompany the importer/custodian on the dates of entry/removal of warehoused goods which was evidenced by the fact that the Bond-stock register was not bearing signature of the Preventive officer. Thus there is a lapse in preventing risk of substitution and un-lawful removal of warehoused goods.

(ii) In Mumbai Commissionerate in respect of 1 Public and 5 private warehouses, it was noticed that the statement report of receipt, issue, and balance in bond was not submitted to Customs Bond Department. Non-submission of monthly report leads to improper control of warehouse goods. This was pointed out and accepted by the department.

(iii) The Ex - bond clearances need to be entered in the ‘ Warehouse Bill Register', and the entries need to be signed by the Bond Officer indicating the supervision of the removal of the warehoused goods. However, it was seen from the Warehouse Register furnished under ICD, Sanatnagar, Hyderabad -II Commissionerate, that in some cases, the register showed ‘none'/'only part' of the stock as cleared as at the end of the year. However, on verification by Audit in the EDI System, it was found that the stocks were completely cleared from the warehouse.

(iv) Similarly, scrutiny of records of a private bonded warehouse (Kandla) revealed that signature of Preventive officer (PO) was not found in the Bond Stock register which signifies the fact that the PO had not accompanied the importer/custodian on the dates of entry/removal/clearance of the warehoused goods.

Obviously, the Customs officers have no time for statutory work, which can be neglected with impunity, as there is nobody to question.

At last CBEC issues transfer order of 53 Commissioners

CBEC had done it! They were struggling with it for the last few months - It is of course a herculean task - what with pulls and pushes from all directions - political and official. They were forced to issue a circular that many representations are being received from VIPs and other political sources recommending transfer/posting of officers belonging to Customs and Central Excise Departments. FM has desired that this practice be discouraged. But circulars can't stop lobbyists from functioning and there are some well-connected officers in the department, who can try influencing Barack Obama or the Pope for a transfer.

The Transfer Policy states, "All annual transfer orders shall be normally issued by 30th April and, in any case, not later than 31st May of the year.” And finally they issued the transfer order after office hours on 1st August 2014. Transfer orders are generally issued after dark on a Friday - is it an under cover operation?

53 Commissioners were transferred and maybe 100 Commissioners are unhappy. Except a few many of the Commissioners are totally disillusioned with the Board for the way they are treated in transfers. Can anybody say that considerations other than transfer policy did not influence the transfers? Whatever be the policy and whoever be at the helm of affairs, some people manage to get the postings they want and some unfortunate ones will not get what they desire.

Many officers complain that the senior most officers in the Board are rude, callous and outright inconsiderate. They shout at senior officers like Commissioners and do not even listen to the genuine woes of the officers - that is the reason some of them try political or other sources and the ones who do not have those resources should simply suffer.

Yours is not to question why;

Yours is but to do and die.

While this is the sad story at the level of Commissioners, at the still lower level of Superintendents and Inspectors, the complaint is that these very Commissioners who have faced humiliation in the Board, subject the subordinates to worse humiliation - with the result you have an entire department of employees who are thoroughly unhappy and disgusted with the system - and we have entrusted the onerous task of collecting taxes to them. Thank God the taxes come into the State coffers in spite of them; not because of them.

Once I took a young editorial colleague to a Central Excise office. We met an Additional Commissioner who had unadulterated contempt for his thoroughly useless Commissioner. We met the Commissioner who told us that his Chief Commissioner was a joker. We called on the Chief Commissioner who honestly believed that he was slightly greater than Manmohan Singh and Montek Singh put together and was sorry that the dunces sitting in the Board would not understand taxation or economics. My young colleague understood the Department thoroughly.

Assessees beware - world is going to be full of Excise, Customs and Service Tax officers. CBEC announces cadre review posts

125 Deputy Commissioners for NACEN

CAN you believe it - the National Academy of Customs, Excise and Narcotics (NACEN) will have 125 Deputy Commissioners. What on earth will these 125 officers do in NACEN - they wouldn't be able to provide chairs for all these officers and they have less number of probationers?

The Department has got more number of posts than it can ever handle?

The Board has announced the allocation of revised cadre strength. There will be an army of officers out there to finish you.

The field formations of the Department will be like this:

The Staff Strength of the Department will be like this:

An army of nearly 85,000 personnel. Is the Board capable of handling so many employees - their transfers, promotions and many other issues connected with employment? There is going to be utter chaos in the field with officers and files going helter-skelter.

Do we really need so many employees? And why were the Commissioners transferred if these new posts are going to be created soon? This means the Board knows that the cadre review cannot take place in the near future.

In a message, the CBEC Chairman Shanti Sundharam said, "I am happy that the order specifying the staff allocation for the new formations has been issued today. This is the first step for the implementation of the cadre restructuring….. It is expected that there shall be some disruptions to normal working during this process, but with your cooperation and assistance we shall be able to reach successful completion.”

CBEC Order on Staff allocation Dated: August 01, 2014

CBEC Chairman's Message Dated: August 01, 2014

Staff in Revenue Departments - Centre and State - Huge Difference

I made a quick study of the staff position of gazetted officers in the Customs, Central Excise and Service Tax department and the Commercial Taxes department of a large State. Both the Central Revenue and the State VAT collect about 22,000 crores of rupees as Revenue. The Commercial Taxes Department is headed by a part-time Commissioner, who is not even from the Department and he is assisted by a Spl. Commissioner, both of whom belong to the IAS. They work in this Department for two to three years. And they have just 4 Additional Commissioners and two JCs, 42 DCs, 73ACs and 288 CTOs. Compare this with the Central Excise, which is manned by one Principal Chief Commissioner, 4 Principal Commissioners, 15 Commissioners, 42 ADCs, 209 DCs and over 1500 Superintendent grade officers! (please see the Table below)

Does the Central Excise/Service Tax department really need so many officers when with one-third that strength, the VAT department is able to collect the same amount of tax? And they have more assessees than the Central Department and of course less litigation. More officers invariably mean more litigation and more harassment and less facilitation. The entire exercise is not for the benefit of the taxpayer or the Nation, but for giving promotions to a large number of officers who are frustrated that they are not getting their due promotion.

Anyway as so candidly agreed by the Chairman that there would be disruption of normal working - read total confusion!

Instead of this massive destructive exercise, they could have promoted all the officers to their next higher cadre and avoided this irreparable mess.

RMV Gurusai Dutt brings Bronze from CWG

INDIA'S shuttler RMV Gurusai Dutt won the men's singles bronze at the Common Wealth Games. Guru's father worked in Central Excise.

For more on Guru, please see DDT 983 - 03.11.2008

Jurisprudentiol - Tuesday's cases

Service Tax

61 crores lost - SCN was for classification under 'maintenance and repair services' whereas demand confirmed under "IPR services” for period prior to 16/05/2008 and under 'information technology services' post 16/05/2008 - Without putting appellant to notice and without giving an opportunity to appellant to rebut same, no demand can be confirmed: CESTAT

THIS is the second round of appeal and the Service Tax demanded is Rs.86.42 crores with loads of penalties and interest. Four SCNs covering the period from 01.04.2004 to 31.03.2013 make up for the proceedings.

Before the CESTAT, the appellant submitted that as regards the first show-cause notice, the proposal in the notice was that the services rendered by the appellant falls under the category of "maintenance and repair services”, whereas the adjudicating authority has confirmed the demand under the category of "Intellectual Property Rights Services” (IPR) for the period prior to 15/05/2008 and under "Information technology services” with effect from 16/05/2008.

Income Tax

Whether if acquisition of machinery turns out to be contrary to terms of contract, Revenue is right in denying depreciation u/s 32 - NO: HC

THE assessee company was engaged in the business of manufacture and trading of pharmaceutical products and its machines. It had entered into a contract with M/s. Nicholas Piramal and the products manufactured were ophthalmic which required a particular type of machinery to manufacture the moulds. M/s. Nicholas Piramal had the particular type of machinery to manufacture the moulds and as per the manufacturing agreement, the assessee also could purchase the second machinery which could be installed in the premises of M/s. Nicholas Piramal and used for the manufacture of the said moulds. Accordingly, M/s. Nicholas Piramal had one machine and the assessee purchased another machine and installed the same in the premises of M/s. Nicholas Piramal and the same was used for manufacturing the moulds. During the FYs 1997-98 and 1998-99, the assessee claimed depreciation on the second machine purchased by it.

The issues before the Bench are - Whether when there is no substantial change in the language of the substituted provision of law, it can be said that the assessee would be denied deduction merely because the provision has changed; Whether in order to claim depreciation u/s 32, it is relevant how the said machinery was acquired & Whether in case acquisition of machinery was contrary to the terms of the contract between the parties, depreciation claim can be denied to the assessee. And the verdict favours the assessee.

Central Excise

Manufacture of dutiable and exempted goods - Once proportionate credit on inputs used in exempted products is reversed, there is no requirement to reverse 8% of price of exempted goods: CESTAT

THE respondents were engaged in the manufacture of Paper and Newsprint classifiable under Chapter 48 of CETA, 1985 and availing MODVAT/CENVAT credit under CENVAT Credit Rules, 2001. The respondent removed an intermediate product, "Lapped Chemical Bagasse Pulp”, a non-dutiable product. They availed MODVAT/CENVAT credit for inputs viz. Furnace Oil, Hydrogen Peroxide, Caustic Soda, Liquid Chlorine etc. used in the manufacture of dutiable and exempted products. By Show Cause Notice dated 19.7.2002, the respondent was directed to pay the amount of Rs.24,74,092.20 being 8% of the value of clearance of Wet lapped bagasse pulp for the period July 2000 to December 2001 under Rule 57AD of the Central Excise Rules, 1944 and Rule 6(3)(b) of CENVAT Credit Rules, 2001. It has also proposed imposition of penalty along with interest. The adjudicating authority dropped the proceedings.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice day.

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