Measures to provide deterrence for tax evaders in the manufacturing sector - Central Excise - F.No. 224/40/2006 - CX 6

F.No. 224/40/2006 - CX 6 Government of India Ministry of Finance Department of Revenue Central Board of Excise Customs **** December 30 th , 2006 Sub: Measures to provide deterrence for tax evaders in the manufacturing sector-reg Attention is invited to the draft circular hosted by the Board wherein certain measures were proposed to deal firmly with the problem of planned and deliberate non-compliance of tax laws, and put in place deterrent provisions to discourage default. In this regard Notification nos.30/2006 C.E (NT) and 31/2006 C.E (NT) both dated 30.12.2006 has been issued, inserting rule 12CC in the Central Excise Rules, 2002 and rule 12 AA in the CENVAT Credit Rules, 2004 and notification No.32/2006 C.E.(NT) has also been issued. The salient features of the provisions are enumerated below: 2.1. The following types of offences committed by a manufacturer or a first stage or second stage dealer or an exporter is considered to be serious to warrant the imposition of restrictions on the facilities detailed in the subsequent para. i) Removal of goods without the cover of an invoice and without payment of duty; ii) Removal of goods without declaring the correct value for payment of duty, where a portion of sale price, in excess of invoice price, is received by him or on his behalf but not accounted for in the books of account; iii) Taking of CENVAT Credit without the receipt of goods specified in the document based on which the said credit has been taken; iv) Taking of CENVAT Credit on invoices or other documents which a person has reasons to believe as not genuine; v) Issue of excise duty invoice without delivery of goods specified in the said invoice; vi) Claiming of refund or rebate based on the excise duty paid invoice or other documents which a person has reason to believe as not genuine. 2.2. Where a manufacturer is prima facie found to be knowingly involved in committing the offences as specified in Para 2.1, the following restrictions may be imposed on the facilities: i) the facility of monthly payment of duties may be withdrawn and the assessee shall be required to pay excise duty for each consignment at the time of removal of goods; ii) the payment of duty by utilisation of CENVAT credit may be restricted and the assessee shall be required to pay excise duty without utilization of CENVAT credit; However, it is clarified that a person against whom the order under sub-para (3) of para 4 of the notification has been passed may continue to take CENVAT credit, however, he would not be able to utilise the credit for payment of duty during the period specified in the said order. If the person is found to be knowingly involved in committing any one or more type of offences as specified in Para 2.1 for the second time or subsequently , every removal of goods from his factory will be ordered to be under an invoice which shall be countersigned by the Inspector of Central Excise or the Superintendent of Central Excise before the said goods are removed from the factory or warehouse. For second time or subsequent offence, the restriction specified in clauses (i) and (ii) may also be imposed. 2.3. Where a first stage or second stage dealer is found to be knowingly involved in committing the offence specified at clauses (iv) or (v) of para 2.1, the registration granted under rule 9 of the Central Excise Rules 2002 may be suspended for a specified period. During the period of suspension, the said dealer will not be able to issue any Central Excise Invoice. However, he can continue his business and issue sales invoices without indicating the excise duty component in the invoice, and no CENVAT credit shall be admissible to the recipient of such goods. 2.4 Where a merchant exporter is found to be knowingly involved in committing the offence specified at clause (vi) of para 2.1, the self sealing facility for export consignment will be withdrawn whereby each export consignment shall be examined and sealed by the jurisdictional Central Excise Officer. 2.5. The provisions of this notification shall be applicable only in a case where the duty or CENVAT Credit alleged to be involved in the specified offences is more than Rs.10 lakhs. 2.6 Attention is invited to second proviso in para 2 of the notification, which provides that any other facility available to a manufacturer or a dealer or an exporter, which has been provided by way of a circular, or an order may also be withdrawn. In this connection, the facility of payment of 80% refund/rebate on provisional basis within 15 days of filing of refund claim (refer to Circular no . 828/5/2006-CX dated 20.4.2006) may be considered. Therefore, while forwarding the proposal, recommendations for withdrawal of these facilities may also be considered. 2.7 The procedure for initiating the proposal upto the issue of an order for withdrawal of facilities has been given in para 4 of the notification, which may be carefully gone through. It may be noted that the Commissioner/ADG should forward his proposal with all the relevant evidences to the Chief Commissioner within 30 days of the detection of the case, as far as possible. The Chief Commissioner should forward the comprehensive proposal to the Member (Central Excise) within 20 days of the receipt of the proposal, alongwith the copy of the record of the personal hearing conducted by the Chief Commissioner. 3. It is emphasized that the new provisions should not be invoked in a routine manner involving all types of cases where duty or CENVAT credit involvement is more than 10 lakhs. Infact the government has made it clear in the notification that only in cases where a person is found to be knowingly involved in committing the specified offences, only in such cases, these provisions should be invoked. Therefore, the records and evidence available for a case should be examined carefully before submitting any proposal to the Board. Further, the records and evidence should, prima facie, result in a sustainable case. In order to ensure uniformity in the submission of proposals, a proforma is being prescribed, and all proposals should be forwarded in the said proforma only. It is further emphasized that the Chief Commissioner or the Director General (Central Excise Intelligence) is expected to process the proposal received by them, and grant personal hearing to the party. The final proposal should then be forwarded to the Member (Central Excise), CBEC. 4. The Board will issue the order specifying the type of facilities to be withdrawn alongwith the period of such withdrawal. The copy of the order will be sent to the jurisdictional Commissioner, who will ensure its delivery. The implementation of the order will also be the responsibility of the jurisdictional Commissioner e.g. if the facility of monthly payment of duty is withdrawn, then the jurisdictional officer will ensure that all payments of duty is done on consignment basis. Incase of any violation of the order, necessary action should be initiated, as any removal in contravention of the order issued under the new rules will be removal in contravention of the provisions of the rules. 5. *Deleted. 6. Wide publicity may be given to the new legal provisions. The Chief Commissioners the Commissioners must hold meetings with Industry and Trade representatives within the next fifteen days to explain these provisions and to clarify doubts, if any. Press release may also be given in the local newspapers.