A revenue intelligence arm of the finance ministry has unearthed excise and service tax evasion to the tune of Rs 5,700 crore in the last one year. Actions have been initiated against evaders comprising bigwigs from sectors such as telecom, iron and steel, copper, cement and plastic. Recoveries of Rs 450 crore have already been made.

The Directorate General of Central Excise Intelligence ( DGCEI )) has booked 1,200 cases of duty evasion in the financial year ending March 2011, amounting to Rs 5,708 crore, sources said.

Evasion of more than Rs 1,350 crore has been detected on account of wrongful Cenvat credit and excise duties. The highest duty evasion was, however, on the service tax front where officials have made cases amounting to more than Rs 4,300 crore. If penalty is levied, the amount to be recovered from these industries could be upwards of Rs 10,000 crore.

On service tax front, evasion has been found in the areas of import of services such as hiring of consultants and specialized services by Indian arms of telecom, business auxiliary, banking and financial sectors among others from foreign countries.

To plug the loopholes on duty evasion, the finance ministry had introduced major amendments in the Cenvat credit rules this year. It had broadened the definition of "input" goods by stating that "all goods used in the factory by the manufacturer of the final product, except those specified in the negative list and goods having no relationship whatsoever with the manufacture of final product would qualify for treatment as inputs." Almost everything used in a factory, except food consumed by employees, was brought into the tax net.

In addition, it was specified that "any goods including accessories cleared along with the final product and goods used for providing free warranty have also been included in the definition of inputs. Similarly, goods used for generation of electricity or steam for captive use also constituted inputs."

Despite these amendments, sleuths found that largescale goods were removed from some of these factories clandestinely without payment of duties. Some iron and steel industries bought scrap from local markets but manufactured fake invoices and claimed huge Cenvat credit on them showing these goods as purchase of sponge.