N-E Excise escrow a/c under lens

THE government has initiated an investigation into improper use of excise duty deposits kept aside in escrow accounts by companies in the excise free zone of the north-east.
   Manufacturing entities in the north-east, that enjoyed excise exemption scheme, had to deposit an amount equal to the sum of basic excise duty, special excise duty, additional excise duty and national calamity contingent duty in an escrow account. The scheme was valid till March 2007.
   A special investigation team under director general of central excise intelligence has been set up to look into the matter, a government official said. Preliminary findings of the excise department have indicated that some companies had donated part of escrow account funds to a temple trust and to set up an International Baccalaureate school.
   Companies were permitted to use the funds deposited in escrow accounts only for development of the north-east or for buying new plant or machinery in the company. The amount kept in escrow account has to be used within two years of the deposit and is allowed to be invested in plant and machinery in a manufacturing unit located in the states, or in infrastructure, civil works or social projects in the states. Besides, the amount withdrawn is to be invested within 60 days of withdrawal, as per the conditions of the exemption scheme which was replaced with another scheme after 2007.
   Escrow account refers to an arrangement where assets or revenue streams are held in the safe custody of a bank as safety against a situation when a contract isn’t fulfilled. The escrow arrangement ensures that obligations between parties are met with and transactions are operated in terms of the underlying agreement.
   The official said though companies have shown these expenditures as spending on social projects in the states, donation to temples or setting up a school as a commercial entity does not exactly qualify the norm. Since the escrow account mechanism will continue to operate in 2009-10 despite the expiry of exemption in 2007, the government is not taking any chances and stringent monitoring norms may follow once the probe is over.