The new dispensation at the centre is likely to face a severe funds crunch, at least for the first three months in office. The reason: the virtually empty coffers the new government will inherit, coupled by unprecedented credits due to trade and industry. The credits that have been disallowed in the current fiscal will be availed of by trade and industry in the next year. This will, in turn, provide no fresh cash earnings to the government.Indications of empty coffers have been visible for quite some time now. The situation has worsened to the extent that it has forced the revenue department to withhold credits of revenue disbursal to trade and industry. The amount of credit carried forward will have to be paid in the next fiscal. This will lead to a situation when no manufacturer will pay any excise duty, and exporters will have to be paid the drawbacks that were withheld in the current year.
The last government had projected net revenue through indirect taxes of over Rs 1.10 lakh crore, of which the finance ministry had envisaged Rs 55,000 crore from central excise and another Rs 55,000 crore from import duty. While the import-duty shortfall for the current fiscal is estimated at over Rs 15,000 crore, the excise revenue shortfall is yet another Rs 20,000 crore, sources say. The recession worldwide forced almost all the excise field formations to claim that the sanctioned budgetary estimates (SBEs) to all the commissionerates at the field level could not be met mainly because the industry availed itself of modvat credit. Sources claimed that many commissionerates had allegedly reported that the modvat availament exceeded more than the duty realised in cash on the clearances of finished goods. In these areas, it is believed that the duty realisation came down drastically.
The ratio between the availament of modvat and duty payment in cash tilted heavily in favour of the former. This was repeatedly raised as a plea for revenue shortfall and forwarded to the CBEC. The reiteration forced the board to disallow modvat credit to the industry in the last three months.According to trade sources, the revenue shortfall situation alarmed the revenue department to the extent that even legitimate refund claims are being delayed so that it does not eat into the revenue that has been earned. On their part, bureaucrats in the field formations have been resorting to this tactic almost every year. Last year, almost all customs commissionerates had instructed the field staff to clear all the imports `provisionally'.
In other words, this meant that the imports -- however wrong -- were allowed on payment of import duty. Since the goods were released provisionally, the department retained the right to recover the duty.
However, in the normal course, the nexus between the field formations and the importers has never helped in any such recovery.
Declaration of non-availament of modvat was required to be made at more than six stages. In many cases, exporters, especially those operating under the value-based advance licence scheme, wrongly claimed that they had not availed of the modvat benefit and enjoyed the zero-duty benefit on their imports. The governing notification provided for recovery of import duty at full rate along with penalties. Both the union commerce and finance ministry were fully aware that exporters operating under the scheme had enjoyed modvat credit exceeding over Rs 10,000 crore between 1992-95. They were also aware that the same exporters had also enjoyed the zero-duty benefit while sourcing their raw materials from the international market. As prescribed by the notification, the revenue department was required to recover the import duty at full rate from such exporters-turned-importers. However, trade and industry made a hue and cry over the prospects of such recovery of import duty as it was fully aware that the import dutywould exceed the modvat credit they had wrongly availed themselves of at the manufacturing stage. Representatives of the exporting organisation also pressed for allowing reversal of modvat credit already enjoyed so that they could retain the higher benefit of import duty. However, the modvat rules did not permit such reversals.
In the case of some exporters operating under the advance licence scheme, there was no genuiness, but a deliberate attempt to suppress facts. Hence, there was no provision for allowing them modvat reversal. The only solution was the recovery of customs duty at full rate on all such imports. According to rough estimates, as against the wrongful availament of modvat worth Rs 10,000 crore, the recoverable customs duty exceeded Rs 40,000 crore.
However, finally a mere letter allegedly signed by the minister at the fag end of the Exim Policy 1992-97 overrode the provisions of the governing notification. Then, the revenue department claimed to have recovered wrongly-availed modvat credits. However, it did not reveal that if they had recovered customs duty, the revenue figure would have far exceeded the current revenue shortfall. Thus on one hand, the revenue department wrote off a large amount of recoverable customs duty; today, it is punishing others for revenue shortfall by denying legitimate modvat credits and drawbacks.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
