Duty evaders abuse amnesty clause
Today in New Delhi, India
Jan 17, 2019-Thursday
New Delhi
  • Humidity
  • Wind

Duty evaders abuse amnesty clause

Customs and excise duty evaders know that if they get caught, they can just approach the tax settlement commission, confess their sin, and get away by paying a fine too, reports Manish Pachouly.

india Updated: Nov 25, 2007 22:21 IST
Manish Pachouly
Manish Pachouly
Hindustan Times

Customs and excise duty evaders are getting bolder. The reason: they know that if they get caught, they can approach the tax settlement commission, confess their sin, and get away by paying a fine. Which is better than the alternative, which includes a possible prison term.

The settlement commission for customs and central excise has collected around Rs 1,000 crore in the Mumbai region alone since its inception around eight years ago. Though the purpose of establishing the commission, which was to speed up cases and ensure the government got to collect its dues, is being met, taxmen complain that smart operators are exploiting a loophole in the provision to deliberately dodge taxes. <b1>

A clause in the rulebook says that a person can approach the settlement commission only once in his lifetime. So they simply float another firm, swap partners on paper, and evade taxes again--till they are caught.

“If one company is caught evading duty, the owner approaches the commission, confesses to the crime and agrees to pay the duty with interest," explained an officer with the Directorate of Revenue Intelligence. “However, to avoid complications next time, they close the company and start operating another,” he added.

The officer pointed out that a new head of the company is nominated to avoid suspicion that the same person is involved in duty evasion. “The nominal head of the company is often a clerk, a driver or a peon,” the officer said.

He added that this way, many groups keep on evading duty till they are caught. “They are not bothered, as by the time they are caught they have evaded a huge amount of duty,” said a senior Customs officer.

Customs and Revenue officers said the schemes mostly misused are the Duty Exemption Entitlement Certificate Scheme (DEEC) and the Duty Drawback Scheme.

Under the Duty Exemption Entitlement Certificate Scheme, which is also called the advance licence scheme, a person can import raw materials without paying any duty, but on condition that the material will be used to manufacture finished products for export. The scheme disallows local use of imported raw material.

However, the authorities have found that many businessmen import raw material duty free and then sell it in the local market. If caught, they approach the settlement commission, agreeing to pay the duty.

“The provision of approaching the commission only once in lifetime is quite meaningless,” said Advocate Sujay Kantawala, who handles tax cases. He said the limitation was only for the main applicant, who is the importer on paper. However, there is no limitation on the co-applicants. “The person who is caught in one case makes somebody else the importer in another company,” said Kantawala, adding that in case he is caught again, he remains a co-applicant, while the importer on paper becomes the main applicant.

Customs officials said under the Duty Drawback scheme, an exporter gets refund of the duty that he has paid on imported raw material that was used to manufacture a product meant for export. Officers said in this scheme, many groups import quality raw material to make a particular finished product but export an inferior quality product.

“This way they claim duty refund on the imported material, which is actually sold locally and an inferior material was used to make the export product,” said a senior Customs officer. He added that sometimes, the exporters even send bogus material and mis-declare it as made from imported raw material.

About approaching the settlement commission, Customs and Revenue department officers said it could be done after a show-cause notice is issued and before adjudication is done.

Officers said that the evaders prefer settling the matter in the commission as it has power to grant immunity from prosecution. It also has power to waive interest.

“Otherwise, if a case goes for prosecution the punishment ranges from three to seven years of imprisonment,” said a DRI officer adding that in court battles the cases goes on for more than five years (as sometimes it goes up to Supreme Court) while in settlement commission the cases are solved even within a month. “This is because the accused approaches here with an intention to settle the case immediately and on terms and conditions set by the commission,” the officer added.

He, however, said that cases of narcotics drugs smuggling and that of some other notified goods couldn’t be taken to settlement commission.

First Published: Nov 25, 2007 22:14 IST