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Errant manufacturers in for taxing times
November, 21st 2006

Tax evaders in the manufacturing sector seem to be in for a trouble with the North Block proposing measures to punish them. The Central Board of Excise and Customs (CBEC) on Monday came out with a draft circular proposing to withdraw certain facilities granted in recent years to duty evaders.

According to the proposal, these will include withdrawal of facilities of monthly payment, instead of consignment-wise payment for a specified period as well as not granting Cenvat credit for inputs, capital goods and input services used by manufacturers. Tax authorities would also not permit 80% of provisional refund to such offenders within 15 days of filing of claim to such offenders. For dealers engaging in tax evasion, it could also mean suspension of their registration for some time.
 
These measures would be taken only for pacified offences such as removing goods without the requisite documents or duty payments, undervaluation of goods, taking of Cenvat credit without receipt of goods or on fake invoices. Issue of excise invoices by dealers and manufacturers without delivery of goods and claiming refunds based on fake invoices would also lead to withdrawal of facilities.

However, according to the proposal such measures would only be taken in cases where duty evasion is more than Rs 10 lakh.

To prevent the misuse of these measures, finance ministry intends to empower only the Member (Excise), CBEC to take such decisions. The proposal for withdrawal of facilities would be forwarded by the jurisdictional commissioner or additional director general to the chief commissioner or director general.

Tax experts feel that these measures are bound to lead to greater tax compliance by manufacturers. Principal consultant Pricewaterhouse Cooper Anta Rastogi said, These steps will surely act as a deterrent to duty evasion. However, the government must ensure that these measures are not misused by the tax authorities against law abiding tax payers, especially small manufacturers.

The proposed measures, if accepted, are likely to come in force from January 1, 2007. In recent months, tax authorities have stepped up efforts to catch tax evaders as well as to encourage greater tax compliance. According to official statistics, by September-end, the Directorate General of Central Excise Intelligence had registered 442 cases involving tax evasion of Rs 1,042 crore during the current fiscal.

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