OVERVIEW

SECTION - 1 CENTRAL EXCISE

This section contains 166 paragraphs featured individually or grouped together and two reviews with a financial implication of Rs.8485.98 crore. Some of the significant findings included in this section are indicated below :-

A.    General

The actual collections fell short of the budget estimates as well as the revised estimates year after year. Despite this, the government continued to make optimistic projections during presentation of the annual budget. The budget estimate 2002-03 was pitched at Rs.91,141 crore, an increase of 11.5 per cent over budget estimates, 22 per cent over revised estimate and 26 per cent over actual collections of 2001-02. The collections in 2002-03 fell short of the budget estimate by Rs.9,100 crore or 9.98 per cent.

(Paragraph 1.1)

A total of 67275 cases involving duty of Rs.36,495.49 crore were pending finalisation on 31 March 2003 with different authorities.

(Paragraph 1.5)

B.    Reviews

Determination of assessable value under new section 4 (transaction value)

The absence of suitable provisions in the statute helped three oil companies to avoid payment of duty of Rs.713.17 crore on the indirect sale consideration received in the form of subsidy from the government on sale of petroleum products.

(Paragraph 2.6)

Adoption of lower “mutually agreed price” for payment of duty by 12 terminals of three petroleum companies led to a revenue loss of Rs.113.79 crore.

(Paragraph 2.7)

Clearance of goods by job workers manufacturing branded as well as un-branded goods for brand name owners/principal manufacturers, at lower assessable value resulted in a revenue loss of Rs.90.53 crore to the government as the said goods were sold by the brand name owners/principal manufacturers at much higher prices.

(Paragraph 2.8)

Absence of mechanism to verify the correctness of the transaction value of assessee’s own manufactured goods as well as the cost of bought out goods and the installation cost forming part of the total value of project installed at site, led to a revenue loss of Rs.90.88 crore in 10 cases where assessees could conveniently suppress value of their own manufactured goods while inflating the value of bought out items.

(Paragraph 2.9)

Lacunae in the valuation rules permitting the assessees to determine the value of goods consumed captively at lower value despite availability of higher value of comparable goods during the relevant period, led to revenue loss of Rs.26.99 crore in seven cases.

(Paragraph 2.11.1)

Irregularities in the valuation of excisable goods due to non-inclusion in the assessable value of various elements such as equalized freight, freight and insurance, dealer’s margin, service licence fee, excess freight charges recovered, retail pump outlet charges for petroleum products and pre delivery inspection charges or service charges etc. resulted in short levy of duty of Rs.242.75 crore.

(Paragraph 2.15 to 2.20)

Call book

Intended as an interim arrangement wherein cases could be kept till they were ripe for adjudication, there has been a large increase in the number of cases being retained in the call book in the year 2001-02.

(Paragraph 3.4)

540 cases involving demands for Rs.413.58 crore in 55 Commissionerates were entered in the call book in violation of the prescribed norms.

(Paragraph 3.6)

1512 cases involving demands for Rs.349.38 crore in 31 Commissionerates were kept in the call book even though no appeals were pending in these cases.

(Paragraph 3.8)

4820 cases involving demands for Rs.2622.68 crore in 56 Commissionerates were kept pending in the call book for want of clarifications/decision by the Board.

(Paragraph 3.9)

1655 cases involving demands for Rs.1043.82 crore in 37 Commissionerates continued to be retained in the call book despite these cases no longer being in contest with audit.

(Paragraph 3.10)

C.    Non-levy/short levy of duty

Short levy/under assessment of central excise duty amounting to Rs.1445.59 crore were noticed. The more significant of these findings are as follows :

Refund of duty granted on manufacture of petroleum oil based products was withdrawn retrospectively from 8 July 1999. Non recovery of refunds granted alongwith interest from M/s. Numaligarh Refinery amounted to Rs.748.04 crore.

(Paragraph 4.1)

By notifications dated 7 May 1997 and 2 June 1998 as amended, certain exemptions were provided to pan masala which did not contain tobacco in any proportion and containing betel nut more than 10 per cent by weight. In violation of the notifications, exemption was allowed on pan masala containing tobacco thereby resulting in loss of revenue of Rs.81.78 crore.

(Paragraph 4.2)

Additional duty of excise levied on high speed diesel by Finance Act, 1999 was not collected on clearances for export or for consumption on board a ship bound for foreign port in 10 cases amounting to Rs.54.34 crore.

(Paragraph 4.3)

The Central Excise Rules/Cenvat Credit Rules allow Modvat/Cenvat credit of additional duty paid on input goods for utilisation against additional duty leviable on finished products. In contravention of the provisions of these rules, the government has allowed deemed Modvat/Cenvat credit of additional duty for utilisation against final products to manufacturers of processed fabric even though no additional duty was paid on the input goods. This resulted in loss of revenue of Rs.24.72 crore in 27 cases.

(Paragraph 4.5.1)

Incorrect availment of Modvat/Cenvat credit amounted to Rs.319.32 crore.

(Paragraph 5)

Duty amounting to Rs.47.26 crore was short levied because of incorrect application of exemption notifications relating to goods manufactured on job work, intermediate goods, finished goods, goods produced by small scale industry, national calamity contingent duty etc.

(Paragraph 6)

There were instances of incorrect adoption of value of goods sold on maximum retail price or cleared to sister concern; and also non-inclusion of cost of components, packing materials etc., in the assessable value. Duty levied short amounted to Rs.40.76 crore.

(Paragraph 7)

Duty not levied on goods consumed captively, found short in the stock, destroyed by floods and also on goods remade amounted to Rs.23.60 crore.

(Paragraph 8)

Failure to raise demand for duty or to realise confirmed demand caused a loss of revenue of Rs.14.06 crore.

(Paragraph 9)

Incorrect classification of fertilizers, Dabur lal tail etc. resulted in short realisation of duty of Rs.4.21 crore.

(Paragraph 10)

Interest not demanded or realised in cases of delayed payment of excise duty amounted to Rs.2.42 crore.

(Paragraph 11)

Cess amounting to Rs.2.34 crore was not realised from the manufacturers of cement and processed textile fabrics.

(Paragraph 12)

SECTION - 2 SERVICE TAX

This section contains a review, “Service tax on advertising services and courier services” and 42 paragraphs with revenue implication of Rs.503.00 crore. The significant findings of audit included in this section are mentioned below :-

A.    Review

Service tax on advertising services and courier services

Instructions issued by the Board for exclusion of charges towards obtaining space and time for publishing and display in the print/electronic media were contrary to the provisions of the Finance Act. Service tax of Rs.74.53 crore was foregone in 18 Commissionerates.

(Paragraph 14.5)

Measures taken by the Department to bring into tax net active service providers were ineffective and inadequate. This resulted in 1408 advertising agencies in 19 Commissionerates remaining un-registered, with loss of revenue estimated to be Rs.160.77 crore.

(Paragraph 14.7)

Due to lack of proper monitoring system, 44 registered advertising agencies in 12 Commissionerates did not file returns thereby evading tax to the extent of Rs.4.62 crore.

(Paragraph 14.11)

Ineffective assessment procedure resulted in short levy of tax to the tune of Rs.8.25 crore and Rs.3.15 crore by 94 advertising agencies in 17 Commissionerates and 14 courier agencies in 5 Commissionerates of Central Excise respectively.

(Paragraph 14.15)

B.    Non-levy/short levy of service tax

Non-levy/short levy of service tax amounting to Rs.42.21 crore were noticed. Some of the significant findings are as follows :-

Consulting engineers, clearing and forwarding agents, management consultants, Doordarshan and All India Radio, Chennai did not pay service tax of Rs.12.53 crore.

(Paragraph 15.1)

Service tax of Rs.23.08 crore on the services rendered by foreign consultants providing engineering and management consultancy in India was not collected.

(Paragraph 15.2)

Service tax from the recipients of the services of goods transport operators and clearing and forwarding agents was made recoverable by the Finance Act, 2000 but service tax of Rs.3.97 crore was not realised in 27 cases.

(Paragraph 15.3)