Procedural Reforms-Indirect Taxes

8/4/2019 Procedural Reforms-Indirect Taxes

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If India wins, who loses?

Procedural Improvements in Indirect Taxes

23rdJune, 2005, Mumbai


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Structure Current

Chief Commissioner

Commissioner

Division(4-5

Ranges) Preventive /Anti-evasion Audit PersonnelandVigilance

Technical Legal &Tribunal

Adjudication

Range (40-50 units)

Sector


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Structure Current

RACE - Revenue Audit Central Excise units under CAG

All India Level Organisations DGCEI Directorate General of Central Excise Intelligence

DGRI Directorate General of Revenue Intelligence

Narcotics Agencies

Directorate General of Audit Directorate General of Inspection

Directorate General of Vigilance

Directorate General of Service Tax

Directorate General of Valuation

Directorate General Systems


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Structure Recommendations

Preventive / Anti-evasion to be centralized at theCommissionerate Head Quarters level and done away with at

the Division level. Headquarters preventive unit can have

branches in case of Commissionerates with far-flung

jurisdictions.

Audit function to be continued at the Commissionerates

Headquarters.


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Quality of manpower at the level of Ranges should be improved

and the Ranges should be strengthened in terms of

infrastructure, logistics and public delivery system -

Before posting officers at the Range, there should be a

refresher course for updating their skills.

Departmental manuals containing detailed procedures &other relevant aspects concerning the functioning of the

Ranges should be available in simple laymans language.

These items should be made available on the CBEC website

and maintained & updated regularly by the CBEC


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Departmental circulars posted on the website should be

comprehensive, providing cross-reference and inter-linkages

(attach circulars) to all previous circulars/instructions.

Ranges should be Technology-driven & Officer-oriented.

Computer with Internet connection may be provided to all

Ranges. Computers may be upgraded periodically.

Software may be developed to generate reports and returns on

basis of records/data available in the Range.

E-filing must be encouraged.


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With EDI connectivity in place in all the Divisions by March 2006,some of the aforesaid recommendations made in respect of

Ranges will become relevant for Divisions, which will take over

most of the technical work of the Ranges ( e.g Scrutiny of

Returns & other documents)

The role of Large Taxpayer Units(LTUs) and the Systems, will

have to be suitably factored into in the next cadre restructuring


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Chambers and Trade Associations may ensure higher level of

participation from Trade and Industry in all interactive meetings.

In respect of Zonal PGCs and RACs, names of assessees

raising a particular issue would be kept confidential on request.

Intelligence & Vigilance set-ups may be strengthened with more

online connectivity, logistics and infrastructural support


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For the sake of continuity & expertise, officers in departments

dealing with Intelligence, Audit and Systems should have aminimum of 5 years tenure.

An appraisal of the staff requirements in the Central Excise

Commissionerates should be carried out, and excess staff, if

any, may be deployed for service tax work.

The legal cell in the Commissionerates should be strengthened

both in terms of quality of personnel as well as infrastructure and

logistics support.


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Role of Range

Range will assist and counsel the assessee, and encourage

voluntary tax compliance. Help Centres at suitable locations

accessible to all stakeholders is recommended.

Guidelines / advice on procedural matters will be provided to

the assessee by the Range Officers.

Specific queries may be replied to in terms of the Citizens

Charter within one week. Range, with the associations involvement, will conduct

workshops around Oct/Nov every year for SSIs approaching

threshold levels of Rs 1 crore to educate SSIs on compliance

issues.


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Accountability

Current practice

There are no clear lines of responsibility within departments Large number of unsustainable show cause notices are bein

issued

Problems

Errant personnel are going unpunished and there are no suppo

structures for honest and hard working personnel

Assessees feel that they do not have a say in the system


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AccountabilityRecommendations:

A charter of duty manual for all officials to be in place and

updated at least once in two years. Duty manual copies shoulbe available to assessees and associations for a price.

The Range Superintendent / Inspector and other official

concerned should be held accountable in case of gros

irregularities time found to have been committed over time by th

assessees and in situations which were expected to be in the

knowledge.

Show Cause Notices Review

How many sustained

How many dropped This data to be kept online in the public domain


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A t bilit


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Accountability

Recommendations:

Before issuing Show Cause Notice on new issues, other thaevasion and suppression matters, the assessees should be givetime to take the matter to the next higher authority for resolvinthe dispute before issuing the Notice.

Unique identification number can be assigned to all employees tassess their performance through systems generated reports.

When a Show Cause Notice is clearly unsustainable andropped full refund of the deposit made before issuance oShow Cause Notice may be made with interest at bank rate.

(Note: Some of the Show Cause Notices are being issued as pethe CAG objections and Board (CBEC) directions. These notice

are beyond the control of the issuing authority. The matter needto be resolved with CAG.)


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Accountability Auditing

Current practice

As on date, while auditing, there are no mechanisms to examin

the nature and validity of queries raised by officials

Problem The assessees are being harassed on trivial or illogical and

clearly unsustainable queries while auditing


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Accountability Auditing

Recommendation

All supplementary queries should be raised with approval of nexhigher authority and queries should be specific.

There should be tracking system on refunds how many and i

what time-frame have they been disbursed

The officials should be held accountable in case of arbitrary an

unsustainable acts eg., raids and show cause notices (Provision

of Sections 22 and 40 of The Central Excise Act, 1944 may be

reiterated).

G l R d ti


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General Recommendations

Protection for whistle blowers with time limit for rewarddisbursal.

Ensuring Confidentiality (amendment of Preventive Manual).Only requirement should be identification of informer by theofficer recording the information, at the time of the rewarddisbursal. In order to take due care to protect the informer, onlytwo identification marks to be recorded at the time of recordinginformation. The sealed cover to be opened only by the

Disbursing Authority Where assessees make specific complaints of

harassment/extortion against officials, a credible and effectivemechanism must be put in place to ensure confidentiality andrigorous follow-up action. CVC may please examine and give

suitable guidelines.


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A manual should be evolved for Central Excise and Customs

officials, benchmarking against the global norms and adopting

the best practices and updated at least every two years. This

manual should be available to the assessees, associations and

the public for a price.

Guidelines should be issued regarding acknowledgement of

complaints from the trade within a stipulated time frame.

Further, such complaints should be addressed within specified

time frame (time frame to be decided by CBEC)

G


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Strengthening honest and efficient officials

Improve HRD policies in terms of placement & training policies,

expertise/professionalism, performance rewards, promotions

with due regard to the core competence and domain expertise

and facilities like housing, transport and such other perks as

motivational and aspirational policies.

Increase in facilities like housing, transport, and payment of

such perks should be linked to performance



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Uniform to be dispensed with except for customs and airport

officers, and inspection of vehicles on the road.

Feedback should be collected formally from assessees, in

terms of tangible parameters such as accessibility,

responsiveness, sensitivity and timeliness of service delivery.

Such a feedback will be a valuable input to assess the

performance of officials.


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Procedures Registration

For registrations of applications, acknowledgements or

deficiency notes should be given within two days positively.

Deficiency note should be formatted.

In case of non-delivery of registration certificate in seven

days, where proper acknowledgement has been given by

the department for application, the assessee will make his

own registration number (on the basis of PAN number). Thedepartment will notify/publicize on how to give own number

in such situations. The assessee will intimate the registration

number so generated to the jurisdictional Assistant/Deputy

Commissioner of the Central Excise Division.


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Registration

Online registration should be operationalized by March2006. The submission of application form, along with the

attendant documents, physically will be dispensed with, oncecomputerization is complete.

On the issue of filing returns/documents in person,Association can collect these returns on behalf of the

assessee and file with the department. This will preventindividual assessee and department interface. ProposedHelp Center in public-private partnership can be given thismandate.

Once computerization is complete, assessees should be

allowed to file all returns online.

Inspections


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Inspections

Right to enter premises shall be only with prior permission ofthe Asst./ Dy. Commissioner of Central Excise except in thefollowing cases :-

During audit or for carrying audit related function withprior intimation

When a documented information is received againstmanufacturer or importer/exporter

When any vehicle with goods is caught on the way withoutappropriate Central Excise invoice

To collect information for parliamentary queries with priorintimation

In any other case, the written permission of the Asst./ Dy.

Commissioner of Central Excise will be required

Inspections


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Inspections

A register should be maintained in all units where details of

their name, designation and purpose of their visit should beentered.

Officials must maintain their own dairy in which all these

details of visits shall be recorded, and the assessees

signatures obtained.

All inspecting officials should present their identity cards at

the time of visit of factory.


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S


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Summons

In case of requirement of documents initially, a letter

requesting for copies of documents should be issued.

Summons should be issued only when all other modes of

obtaining information have failed.

Summons should be issued only after approval is obtained

from appropriate authority (Asst. / Dy. Commissioner).


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Adjudication


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Adjudication The adjudication procedures should be expedited if the

assessees file the replies within one month. The order

should be issued by the adjudicating authority within 30 daysof completing the personal hearing. There must be special

efforts to ensure that adjudication is completed within 6

months.

All the communications from the assessees should be

acknowledged immediately upon receipt. Failure to

acknowledge should be reviewed by the immediate senior

officer. For this purpose, a register must be maintained.

Adjudication


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Adjudication

The representatives from trade felt interest should be paid

after 30 days from filing of refund claims, as opposed to 90

days now. However, the representatives from the

department felt that any reduction in the present time limit is

possible only with the change in the present system of

internal verifications, along with infrastructural upgradations,including computerization. Once computerization is

complete, from March 2006, interests should be paid for

delays beyond 30 days from refund claim.

Adjudication


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Adjudication

There appears little justification for difference in rates of

interest for delayed payments (13% by assessee) and

delayed refund (9% by department). The department is

reluctant to concede this. However, CVC may discuss with

CBEC and reconcile the issue fairly and equitably.

Pre-deposit provisions to be simplified by accepting cashand/or bank guarantee or other securities. The assessee

should have the option to pay the deposit in cash or through

bank guarantee. In case bank guarantees are not renewed

in time, the same may be encashed.


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Separation of Adjudication from Revenue Wing


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Separation of Adjudication from Revenue Wing

Separation of adjudication from Revenue Wing not agreedto. Reasons for not accepting this suggestion are:

It is not possible to create a separate staff cadre foradjudication within a common stream of senior officers.

The officers are periodically interchangeable from onewing to another wing of the same department.

Adequate training on judicial and quasi-judicial proceduresto be given to department officers.

Other effective measures should be introduced to ensurethat adjudication and revenue are truly separate. Otherwise,the prosecutor will become the judge. CVC may pleasediscuss with CBEC and help evolve procedures.


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Penalties


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Penalties

Release of seized goods should be made mandatory in all

cases. In cases release of goods is refused, it should be

accompanied with a written rationale for non-release of

goods

Penalties


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Arrests should be given up as a weapon to collect taxes.There are ample powers available to the department to collect

revenues and enforce compliance. In the meanwhile, only in blatant evasion cases (duty limit of

Rs 1 crore or above), the officers should resort to arrest of theassessee where sufficient documentary evidence is available.This will not apply to habitual offenders and cases involving

forgery or fraud where an arrest can be made even if the dutyevasion is less than Rs. 1 crore.

Circumstances warranting arrest should be publicized widelyso that in non-deserving cases, there is no threat or fear ofarrest to the assessee. This will go a long way in preventing

the misuse of these provisions.


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Cenvat


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The proposed section 11DDA of the Central Excise Act,

should be restricted in application and should be applicable to

only situations where there is a reasonable and well-foundeddoubt of alienation of property by the assessee. Detailed

instructions should be issued to prevent misuse of these

provisions, when these provisions are made effective.

In the case of removal of capital goods after use, the benefitof depreciation in value of capital goods should be given to

the assessee. For the purpose, reversal of credit

proportionate to depreciated value or transaction value,

whichever is higher, can be resorted to.


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Customs


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In case of valuation of second hand machines, normally a

certificate from approved chartered engineer should be

accepted, if it gives full details as prescribed. In case ofdiscrepancies on intelligence information, machines should be

allowed on second-check basis. Customs instructions on this

should be reiterated.

Regarding retention of samples on importer/exporters goods, thepresent system of sample retaining requires improvement.

Sealed samples should be given to importer/exporters, which

can be referred to in case of disputes. If there are instructions in

this regard, they should be reiterated and circulated.

Customs


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The provisions of section 27 Customs Act for refund are not

available in case of assessment of Bill of Entry, and provisions

of appeal under section 128 have to be followed. In case ofdemands, the department can raise demand under section 28

within six months and without challenging assessment of Bill of

Entry. Considering the principles of equity and natural justice,

the provisions needed to be aligned so that refunds can be

sanctioned without challenging the assessment in the Bill of

Entry. When the assessment claimed by importer is accepted,

this provision of filing appeal is valid. However, if an assessment

order has been issued, then appeal has to be filed and

consequent refund claimed.


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Customs


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In case of unjust enrichment, the government should come up

with a list of situations detailing where unjust enrichment will not

apply. In other cases, where unjust enrichment applies, it shouldclearly be specified what proof is required to establish that duty

has not been passed on to customers.

The interest on refund should be paid if it is sanctioned after

three months from date of filing applications. Even if the refundbecomes subject matter of appeal and same is allowed by

appellate authority, the interest should be paid on expiry of three

months of the original refund application.


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Exports Software Sector Debonding


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The destruction of unserviceable/unusable systems may be

similarly made under a 15-day intimation to the RO concerned.

Need to amend the 52/2003 Notification on donation of

computers, to make it more general/broad to permit donation to

a wider group of institutions/offices.


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Exports


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At present, the Bill-of-Entry is only provisional and could be

changed within six months. As customs duty is capitalized at the

time of manufacturing/delivery of service, the initial assessment

should be full and final


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Customs

Current


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Current

A Letter of Undertaking (LUT) has to be executed at the end of

every financial year The Bill of Entry is appraised before the clearance of goods

even for 100% EOU and SEZ Units

Problems Except in a few ports, where computerization is being

implemented in a phased manner, the Bill of Entry involves a lot

of documentation

CustomsRecommendations


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The system of executing Letter of Undertaking (LUT) after every

financial year should be dispensed with. The validity of the LUT

shall be as long as the validity of license. The LUT can bedispensed with if bond is already executed with the Customs.

The system of appraising the Bill of Entry before clearance of

goods should be done away with for all export houses and

manufacture-importers with over one-year track record. (TheCircular 30/2003 provides for self-assessment/appraisal by

status holders/PSUs and those with a 2-year track record. Here

the system appraises and the goods can be cleared after

payment of applicable duties).

Customs


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Recommendations

The importer or the Custom House Agent (CHA) will pay the

duty based on their own assessment shown in the Bill of Entry.

Customs

Current practice


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Currentpractice

The cash section shall sign the intimation for receipt of the duty;

but delays in examination of goods and clearance.

Whenever there is provisional assessment, valuation is often

delayed

Presently, the import audit is being done online at the port where

the importer is registered

Duty drawback is resulting in delays


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CustomsRecommendations Augmentation of staff, by way of redeployment and filling of


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vacant posts is required in the valuation branch to preventdelays

The exporters with ISO 9001:2000 and Export Houses and100% EOU and SEZ Units may be exempted from routineinspection of trade samples. This will minimize delays. (Bonafide trade samples do not need permission/inspection as RBIhas waived GR formality up to US $ 25,000).

Trade requested that online export audit should beimplemented to minimize the documentation problems faced bythe exporter. However, there is currently no export auditrequirement in place. This position may be widely publicized toprevent undue harassment of exporters.


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Customs


Organize workshops all over the country on application and use


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Organize workshops all over the country on application and use

of ICEGATE

Status-holders, manufacturer-exporters and exporters with clean

track record of one year should be given duty drawback

immediately and for others duty drawback should be given after

inward remittance of foreign exchange.

Wherever the associations project and justify the traffic, Air

Cargo Customs should work on more shifts.


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Customs


Training of officials should be mandatory On taking up new


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Training of officials should be mandatory. On taking up new

promotion/assignment with which the officer in charge is not

familiar, training should be mandatory.

A motivational workshop / session by professional speakers,

professional bodies to enthuse the departmental officers in

doing their work.

More informative interaction should take place between

department and industry. And open houses should include

lecture training on the department procedures for the benefit of

industry covering specific subjects

Customs

General Recommendations The possibility of giving sabbatical to officers can be explored.

The departmental officers can join the private sector and


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The departmental officers can join the private sector and

members from private sector should be allowed to work in the

department. Lateral employment opportunities can be explored.

Eight or ten agencies are working at the ports (such as health

and explosives). There should be single window clearance

under Customs. Officials of all other departments will be on

deputation with Customs. If the government has sanctioned certain number of posts after

full examination, then sanctioned strength should be available at

all times. This is necessary for effective delivery system to

operate.

Documents

Procedural Reforms-Indirect Taxes