MUMBAI, July 15: The excise department has unearthed a major racket involving excise duty evasion to the tune of over Rs 400 crore by manufacturers and suppliers of office furniture and furnishers to various business establishments, including government undertakings.

The issue came to light when some 22 parties involved in redoing interiors and providing furniture and furnishings to a number of establishments were raided by the preventive wing of the Belapur (New Mumbai) division of the Mumbai III commissionerate of central excise. This was followed by the sealing of the Unit Trust of India's office at New Mumbai.

According to Commissioner GK Pillai, these parties were mainly furniture manufacturers and they had redone various office premises of several establishments, including Times Bank, State Bank of India, HDFC, RBI, Standard Chartered Bank, Hong Kong Bank, Grindlays Bank, ICICI, IDBI, Reliance Industries, National Stock Exchange, 20th Century Finance, and Exim Bank among others.These establishments had entered into contracts with the suppliers of furniture and other items with the manufacturers who, in turn, had carried out their jobs at the site.

The Central Excise Rules provide that excisable goods can be cleared only after the payment of duty even if the goods are manufactured outside the factory premises concerned for any reason.

The rules also define the meaning of "manufacturing activity". According to Pillai, "traditionally, manufacturing activity is assumed to be carried out at the factory premises where articles are manufactured with the help of machinery and manpower.

"Besides, he claimed that there were manufacturing activities which could be carried out at the "customer's site", including articles that are fixed to the ground or to the wall as a whole or part.

The Rules specify that all manufacturers who have crossed the turnover limit of Rs 30 lakh per annum are mandatorily required to seek registration with the central excise department and pay excise duty on finished articles that are manufactured.

However, many of these manufacturers of furniture had neither sought excise registration nor had they paid and duty. "Even if they had manufactured their finished product at the site of the user, they were required to pay central excise duty," excise officials claimed.

Pillai alleged that between 1994 and 1997, these 22 units alone evaded duty of over Rs 30 crore. Many of those raided has already deposited Rs 1.05 crore voluntarily.

He said these units first entered into a rate contract with various organisations for redoing their respective office premises. These contracts were inclusive of all taxes, including excise duty, and covered the provision of furniture like tables, chairs, cupboards, wardrobes, cabinets and counters among other things.All these articles were made at the respective sites by the contractors. Pillai pointed out that all these articles had been properly described in the Central Excise Tariff book individually and hence they attracted the duty specified-which was 35 per cent in 1994.

The duty was reduced to 20 per cent in 1995 and now stands at 18 per cent. Since none of the manufacture-suppliers of these articles had paid excise duty on the articles provided to their various clients by manufacturing those at the site, these articles are liable for confiscation under Central Excise Rules.

By invoking these rules, the commissionerate sealed the UTI office at New Mumbai in order to recover the duty. However, most of these client parties have now reportedly claimed that they were not at fault as their contracts with the contractors were for the supply of articles inclusive of all taxes, including excise duty. So far at least Rs 30 crore worth of duty evasion by these 22 parties has been detected. Pillai indicated that the commissionerate had already identified 50 similar units involved in such duty evasion.

All these parties can be subjected to excise duty for the past five years apart from a fine and penalty, which can run to over Rs 400 crore. Officers indicated that several cases have come to light where smaller branches of nationalised banks had entered into similar kinds of contracts for redoing the premises and all such cases will now be scrutinised closely.

Meanwhile, irritated by the excise action, the fraternity of interior decorators has formed an association called "Turnkey Interior Contractors Association" which has already issued advertisements in select media claiming that the excise department was harassing their members and clients by raiding them.

The ads also claimed that those raided were being coerced to pay excise duty without following the due process of law.

They claimed that site contractors have never been charged excise duty in the last 50 years and hence the question of duty evasion did not arise.However, Pillai and his officers maintain that the law is clear and they are subject to payment of duty. The department is determined to recover its ``legitimate dues'' from the erring parties involved.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.