The subsidiaries could soon to defined as "another person" independent of the parent company for calculating excise liabilities of local operations. Additionally, the government intends to plug a loophole in a notification issued in June 1998, which enables the subsidiaries to claim excise relief, which should normally be claimed only by small-scale units.

"We are looking at the `another person' concept for defining the relationship between a subsidiary and a parent company," a top excise official said. Excise authorities had recently found that subsidiaries of certain multinationals were claiming excise exemption allowed by the June 1998 notifications in the first year of operation for goods cleared from their premises.

Further, these subsidiaries maintain that parent and subsidiary are the "same person" for using the brand nameowned by the foreign company, and yet are eligible for the excise relief provided under the notification.

The exemption extended vide notification on June 2, 1998, stated that the units were eligible to clear certain notified goods manufactured by them at nominal or no duty subject to certain conditions. Though the government had meant to provide relief specifically to the small-scale units, the notification did not state that explicitly.

In the consumer-goods sector, washing machines manufactured by small-scale units can claim the excise exemptions. In a specific case which came to the authorities' notice, a subsidiary of a well-known Korean conglomerate manufacturing washing machines in India was found to claim the exemption.The authorities said that the exemptions claimed by such subsidiaries were not illegitimate under the notification's provisions. But the government is losing a few crores of rupees on this account.

Under the notification, small-scale units were permitted two options to claimexcise relief on goods manufactured by them.Under the first option, they units could clear goods worth Rs 50 lakh in a financial year without paying any excise duty. Thereafter, for clearance of the subsequent lot of goods valued up to Rs 50 lakh, the units would have to pay 5 per cent duty ad valorem irrespective of the effective duty leviable on such goods.