Area

Extant provision

Difficulty

Suggestion

CENVAT credit on inputs like cement, steel, other building materials

(Central Excise)

Definition of the expression "inputs" under Rule 2 (k) of CCR, excludes -

any goods used for -

(a) construction or execution of works contract of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods,

- except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act;

Denial of CENVAT credit on building materials in civil works and structures is repugnant to the concept of value added tax. Tax on tax should be avoided by all means. Further, in most process industries, the capital goods are to be kept above the ground level, only with the structural support.

The statutory definition under CCR for "Inputs" should cover all goods, except the petroleum products which are now excluded. Correspondingly, the "setting up of factory" should also be included in the definition of "input services" under Rule 2 (l) of CCR.

Definition of 'input service'

(Central Excise & Service Tax)

Rule 2 (l) of CCR

Complex definition of "input services", the distribution of CENVAT credit by Input service provider etc. leads to many SCNs and unintended litigations.

The statutory definition under CCR for "Input services" should cover all services, without exception, even if such services are remotely connected to the conduct of the business for which the assessee is registered with the department.

Input service content in exempted service / exempted product (Central Excise/ service tax)

Rule 6 of CCR starts with the following clause – but the subsequent clauses are not assessee-friendly.

"The CENVAT credit shall not be allowed on such quantity of input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services], except in the circumstances mentioned in sub-rule (2) :-

The circumstances/procedures laid down under this rule are so complex and complicated, that the assessees are invariably not in position to comply with.

The provisions of CCR may be amended to allow credit of only 90% of the duty paid for all, regardless of the extent to which the inputs or input services are used in dutiable goods/exempted goods/taxable services/exempted services.

Frequency of filing ER1 / ER3

(Central Excise)

Rule 12 of CER requires every assessee to submit a monthly/quarterly [ER1/ER3] within ten days after the close of the month to which the return relates

As these returns are comprehensive, the filing thereof consumes much of time for each assessee. Also there is no scope to rectify any genuine errors in the return.

Central Excise assessees should also be brought on par to file only bi-yearly returns and also be made eligible to amend their ER1/ER3 returns similar to the provisions existing for Service Tax.

Special Valuation Branch cases

(Customs)

According to paragraph 10 in Board's circular 11-Cus. dated 23.02.2001 ''where provisional assessment is being resorted to, the investigation and finalisation of the assessment must be completed within four months from the date of reply. If no decision is taken within 4 months, the extra duty deposit should be discontinued and the concerned Deputy Commissioner/Assistant Commissioner will be held responsible for inexplicable delay in finalisation ''.

Department sits on file for years, yet, does not discontinue the extra duty deposit.

Earlier, SVB decisions accepted declared values even at original stage. Now, they have become pro-Revenue irrespective of merit.

Dept. should follow this direction scrupulously.

SVB deals with cases of foreign collaboration. Objectivity and transparency in its decisions and procedure is crucial to attract foreign investment.

ARE-1 procedure frauds

(Central Excise)

Removal of excisable goods for export takes place by filing ARE-1 in the manner prescribed apart from other documentation. Exporters remove the goods on self-sealing or after examination by officers. Examination of goods at the exit port is driven by the RMS (Risk Management System). Self-sealed movement is more likely to be examined at exit port. Pre-examined goods are extremely unlikely to be re-opened at the exit port.

For decades now, it is a modus operandi by smugglers to use fake ARE-1 with forged examination certification at source. Goods royally pass without examination by customs at exit port. This modus takes place to smuggle prohibited goods like red sanders or export junk or sub-standard goods as highly valuable goods to avail of massive export benefits like drawback, fulfillments of export obligation under promotion schemes.

To plug the frauds, it is high time the ARE-1 procedure should be made online and synchronize with the EDI system at the exit port. The removals for export should be authenticated online by the jurisdictional Central excise officials. In fact, it won't be a tall order to make ARE-1 and shipping bill (or, bill of export as it is called at land customs) into a single documentation – online, of course - and thus facilitate genuine exporters from harassment, exploitation etc..

Conversion of shipping bills

(Customs)

What is meant by 'conversion' of shipping bills is changing the nature of the export benefit claimed – drawback, Advance Authorisation, DFIA, EPCG, EOU – after the export is over. Often, human error and mistakes occur in making correct claims. Extant procedure is governed by section 149 of the Customs Act read with Board's circular 36-Cus. dated 23.09.2010.

The cited circular provides that it is applicable only to shipping bills filed on or after the date of issuance of this circular.

This is unnecessary restriction. After all, the circular itself says that it is issued pursuant to requests for relaxation of norms for conversion and in the light of section 149 provisions and after noticing Tribunal orders.

Once there is no limitation prescribed in the statutory provision, it is ultra vires for the Board to introduce limitation. Well, this is a 2010 circular, yet, many claims for 'conversion' are stuck in litigation because of this.

Bias in original adjudication

(Customs, Excise & Service Tax)

Adjudication is a quasi-judicial function, but today only theoretically adjudication, without realizing that the process is a serious one, is adopted by quasi-judicial authorities and this approach has been condemned by CESTAT/Courts time and again.

Assessees are put to hardship, especially to honest taxpayer; as

(a) Original adjudication invariably favours Revenue;

(b)Mandatory pre-deposit of 7.5% or 10% is perceived as revenue to exchequer.

(c)  Precedent decisions are invariably flouted;

Adjudication work must be made mandatory by an alliance - comprising of the departmental officer and an external person (like the judicial member in CESTAT) or the requirement of the mandatory pre-deposit must go.

Non-judicial dispute resolution mechanism (Customs, Excise & Service Tax)

Tribunals – even if more benches are created – and Courts are inadequate to handle the volume of litigation generated. They are glut with pendency.

Reason for litigation is 'play safe' attitude at original levels. Such attitude was deprecated in the Chief Commissioners Conference by the present President of India when he was FM. But the story is ever as before. Often the department stakes huge duty / tax claims on to shore up statistics.

For private establishments, there is lack of objectivity at original adjudication stage. Original adjudicators play safe by confirming demands even unreasonably and in violation of settled legal positions. There is eternal uncertainty and harassment.

A solution is to nip the weed in the bud. Even before show cause notice stage, cases or disputes relating to public sector or other government bodies should be vetted or addressed at Chief Commissioner level by discussing the issues with the public entity concerned for objective resolution out of court. There is no harm in discussion between government officials inter se even in respect of ongoing cases.

General adjudication should be made impartial and neutral by including or co-opting officers of the department of law or by appointing professional adjudicators.