I. MEASURES TO AUGMENT REVENUE
A. General Measures
1. Information in respect of assessees be shared between the Central Government and the State Governments on a reciprocal basis. This will facilitate reconciliation of returns and indicate areas / sectors of revenue leakage or areas requiring further investigation.
2. Excise/Service Tax Audit in line with the Income-Tax Audit be introduced for traders/ manufacturers/ service providers having a turnover of goods/services of more than 3 crores. The Tax-audit under section 44AB of the Income-tax Act, 1961 is a very powerful tool to unearth frauds, ensuring compliance and checking revenue leakage. A similar audit in the area of indirect taxes would capture a major portion of the businesses and check significant revenue leakage.
3. Attempt must be made to reduce the litigation time as pending and frivolous litigation reduces the confidence of the tax payer and increases the costs of doing business. The revenue loses 90+ %age of its demands, some due to inefficiency, some due to connivance but most due to the fact that most cases are only to create a nuisance value. Steps that can be taken in this direction include increasing the number of members ( allowing the professionals with practice experience of more than 10 years) additional benches where matters are not reaching/ delayed [ almost all present] adding of benches of CESTAT in tier 2 cities [examining the issues litigated often and issuing the clarifications early, instead of issuing the same after the court verdict and introducing the system of obtaining advance rulings by resident assessees as prevalent in many State VAT in the form of Determination of Disputed Questions (DDQs).
4. The knowledge of the law [which is fast changing] among the majority of officers be it Inspectors, Superintendents or Assistant/Deputy Commissioner is surprisingly very limited and normally outdated!!! An examination may be the litmus test. This helps conniving evaders/ non compliant assessees to continue their nefarious activities. Specialised training of the Government Officials, particularly the officers posted in the Audit wing, in the indirect tax laws as also in reading and interpreting Financial Statements would lead to better results in enhancing the revenue.
5. Considering that indirect tax laws are very dynamic and are continually exposed to frequent changes, apprising the assessees with the latest law is equally important to ensure better compliance leading to increased tax revenue. Board can achieve this by organising series of public awareness programmes on various aspects of indirect taxes at Tier II or III cities – in comparison to metros, assessees of these cities are less aware- with focus on specific needs of the city.
6. During the past 8+ years, confidence of the tax payers in the tax administration has eroded substantially. At present tax compliant assessees are also seen with real/ put on suspicion. Tax reforms to build the trust of the registered / tax compliant assessees ought to be taken forward as had been done in the past.
7. Fixing the accountability of the revenue officers is the need of the hour. Most tax payers cite the example of being harassed / corruption by audit parties, visiting jurisdictional officers, preventive parties and frivolous demands as major impediments to register and pay the just taxes. There is a perception that it is better to be outside the tax net as they can and have been getting away from the system for years together.
1. The unholy nexus between some corrupt customs officers and unscrupulous importers leading to large revenue leakages needs to be broken. Entrusting the independent professionals with the responsibility of audits can help in achieving this objective.
2. Audits of consignments of high to low value and volume can be allocated on random basis in varying percentages.
3. The professionals need to be selected on the basis of their knowledge as well as experience in indirect taxes and they must report directly to the CBEC.
C. Central Excise.
1. A study of all major products which are presently exempted or coverage is limited could be undertaken and exemption withdrawn as done in 2011. Major Items like textiles starting with branded ones could be introduced. This may add more than Rs.10,000 Crores per year.
2. CENVAT ratios be also be examined industry-wise to identify the possible leakages.
3. The estimated consumption of highly taxed products [sin goods- tobacco, gutka etc.] be made and compared to actual collection. This data could indicate revenue leakages of Rs.20,000 crores or more.
D. Service Tax
1. A study of the major activities where leakage exists as per experience of past be undertaken and also why the present system of monitoring has not worked be examined. The unregistered service providers could be as much as 30-50% in certain categories. Possible revenue Rs.40,000 Crores.
2. The possible connivance with the Jurisdictional Officers/ Investigative officers be considered in the study. Here also, independent professionals can be entrusted with the responsibility of breaking this nexus. As long as the tax evader is able to get away scot free and the registered, tax compliant assessee bears the brunt of target based demand, the compliance in certain sectors would be low. The provisions of Point of Taxation Rules are not in line with the business realities and need to be either on accrual basis or cash basis not hybrid.
3. The Joint charge provision with so many permutations and combination, other than taxing even int eh transaction by small service providers partially are an accounting and compliance nightmare. Even if one were interested in complying the systems in place would not facilitate the same.
A. Cenvat Credit
1. The GST to be successfully implemented needs that the credit is seamless and only few restrictive entries exist. All capital goods, inputs and input services used for the business should be allowed. Unfortunately in the last decade the revenue has made restricting the credits as a backdoor entry to increase taxes.
2. The unreasonable restrictions introduced at various point of time in last 10 years which exist today are as under:
i. Capital goods
a. Credit only on CG in factory other than for electricity. To be extended to any CG used for mining of raw material, movement of material.
b. Equipment and appliances used in office like computers, communication and copiers..
c. Motor vehicles registered in name of assessee
d. Construction of building or works contract of building or civil structure, laying of foundation or making of structures for capital goods.
a. LDO/ petrol used for generation of electricity/ power.
b. Goods used for construction/ works contract or laying of foundation or making structures.
c. Motor vehicles
iii. Input Services
a. Service portion of works contract & construction services
b. Renting of motor vehicles.
3. Definition Suggested for input services: Input service means any service used by a manufacturer or provider of taxable services whether directly or indirectly, in or in relation to the manufacture of final product or provision of taxable service and clearance of final product.
4. Pending refund claims for exporters of Service
The tax compliant exporter CANNOT get refund in normal cases. From 2006 onwards they have been denied their just dues. Compared to a few weeks for refund in most developed countries. Huge pendencies with Commissioner ( Appeals) – not hearing for years!!!, Pile up at CESTAT in 1000’s.
5. The issue of SCN only by higher officers may avoid the frivolous notices being issued. This used to be the law before the provisions were withdrawn about 8-10 years back.
B. Disparity between interest payable by assessee and Department under central excise, service tax and customs- 18% vs 6%.
C. Audit by CAG/ Internal Audit Party
1. The auditors from CAG visit assessees’ premises/interact with assessees which leads to wastage of assessees’ valuable time & resources as well as unnecessary litigation which normally does not yield any additional revenue for Government. In the present regime of simplification of excise laws, such visits / interactions with assessees are unwarranted and actually do not add much to the revenue though it does to the many unscrupulous officers.
It is suggested that the matter be discussed by the CBEC with CAG and audit of excise be introduced at par with Income Tax or Sales Tax/ VAT Department.
D. Summons Powers under section 14 of the Central Excise Act, 1944
Section 14 of the Central Excise Act is applicable in case of service tax matters also. These provisions are often misused as under:
1. Notices are issued to Managing Director/Director/Chairman despite the fact that they are not concerned with routine functioning of business.
2. Notices are issued even for seeking that information what can be obtained by ordinary letters.
3. The time mentioned in the notice is not rigidly followed. As a result, plenty of precious time of the assessee is wasted.
4. Copy of the recorded statement is not provided immediately to the concerned assessee.
5. Summons is issued even in those cases where question of law is involved.
6. Often tax payers forced to pay even though duty not determined- akin to an extortion. Officers say this is way it is!!!
E. Appeal from CESTAT in valuation and classification matters
1. Under the present law an appeal relating to valuation and classification matters directly goes to Supreme Court from the Tribunal by passing the High Court.
Necessary amendments to be made to file appeal in High Court in such cases as well.
F. Suggestions for Reduction of Litigation
1. Streamlining of Circulars/Trade Notices
CBEC may make a practice of issuing a Master Circular on 1st April every year in Excise/Custom/Service tax compiling all related circulars issued during the year be adopted on an annual basis. This would ensure better compliance as assessees will be aware of necessary procedural steps and exemptions as available. A comprehensive circular makes easy to review all updates in an indexed manner.
Also, it be made mandatory for the Officers to only use the current circulars. The CBEC made accountable by making such circulars binding on the revenue.
2. Training of Departmental Personnel
A comprehensive training covering all the substantive, procedural aspects of the law and understanding of financial statements be scheduled for the officers at all levels. Attitudinal training and change management from collector to facilitator be put in use.
3. Accountability of tax collectors
In order to project a sense of even-handedness in dealing with tax payers, provisions relating to accountability be introduced and not formulated independently.The Tribunal or Commissionerate (Appeal) may impose reasonable cost for the same.
If there are rewards awarded to the departmental officers for anti-evasion cases then there ought to be penalty also for frivolous litigations.
These are a few suggestions which maybe considered when the policy level decisions are taken to take forward the tax reforms agenda. imely information and guidance
It is suggested that all the orders passed by CESTAT and Adjudicating Authority/ Commissioner (Appeals) be made available on websites for ready reference of the industry. The CBEC may play a proactive role and issue clarifications on problems / issues of industry which are similar in nature to avoid such problems resulting in litigation at a later stage.
4. Vacancies in Tribunal
The vacancies in Tribunal be filled and additional benches in metro and non-metro cities be constituted to expedite the disposal of long pending cases. A fast track system of disposal of cases be introduced to deal with high revenue cases and settled issues.
5. E-filing of appeals be introduced to encourage paperless society as an environment friendly measure.
6. Retired officers of Central Excise, Customs and Service Tax department be not allowed to appear in adjudication, first appellate authority or any other proceedings before the departmental authorities for a period of 1 year after their demitting office.
7. Practicing Chartered Accountants be made eligible for being appointed as Members of the CESTAT as in case of ITAT.
These are some of the suggestions among many needed. Looking forward to an era of more trust and power to the tax compliant and an ethical tax administration.
CA Madhukar N Hiregange