Circular No. 460/26/99-CX, dated 11/6/1999

F.No. 216/03/99-CX.6
Subject : Recommendation of the Standing Committee on Finance on Demands-for-Grants (1999-2000) of Ministry of Finance for multi-pronged strategy to check evasion of central excise duty - Instructions -

I am directed to say that the Standing Committee on Finance on Demands-for-Grants (1999-2000) of Ministry of Finance (Department of Revenue) in its Twenty First Report emphasized the need for evolving a multi-pronged strategy to check evasion of central excise duty.

2. In this regard, it is stated that the Board has issued several instructions to streamline and strengthen the anti-evasion activity of the field formations and for ensuring proper coordination by the Directorate General of Anti-Evasion in respect of major anti-evasion initiatives. The anti-evasion measures certainly provide buoyancy to the revenue collection though the same is not quantifiable in real terms. Recognising this fact, the Standing Committee on Finance has stressed upon evolving a multi-pronged strategy to check evasion of duty. Accordingly, the Board has decided the following strategy :

1. Creation of database and profile of each manufacturing unit/assessee by the Commissionerates to facilitate scientific "risk assessment" and a selective but focused scrutiny of the activities and accounts of assessees falling in the high risk zone.

2. A separate Action Plan in respect of the small scale units should be drawn by the Commissionerates with the following micro-level strategy :-

i. Close watch on the SSU Units whose turnover was very close to the threshold limit specified in the exemption notification availed by them and ensuring that they are legally entitled for exemption in the current financial year,

ii. Effective intelligence gathering of SSI units who are likely to fragment their unit or create dummy unit or have already done so, to avail exemption,

iii. Survey of the SSI units working below the threshold limit, whether declarant or not, to ensure that the value of clearances are not kept artificially low to illegally avail the exemption.

(A senior officer, not below the rank of an Assistant Commissioner shall directly supervise the operations)

3. Greater emphasis on gathering of intelligence, its process and dissemination to concerned offices for action shall be made, apart from initiation of action in cases of multi-commissionerates ramification by the Directorate General of Anti-Evasion.

4. Evasion prone commodities will be identified by the DGAE and circulated to all Commissionerates.

5. Evasion prone areas will be identified by each Commissionerate and surveillance should be kept to prevent evasion,

6. Periodical road checking, patrolling in evasion-prone industrial areas, and surprise stock-verification in units manufacturing evasion-prone commodities (but keeping the track record of a unit in mind) should be done.

7. Periodical Special drives should be done for checking Modvat availment and utilization especially physical verification of stocks of finished goods we well as the inputs and capital goods to ascertain that the goods mentioned on the documents (on the basis of which Modvat credit was availed) were actually received and utilized/stocked in the factory.

8. Scientific auditing of units selected on the basis of data and activities of a unit should be done.

9. A Selective but in-depth and scientific scrutiny of Monthly Returns, especially by the senior officers to ensure zero-error assessment should be done. Revenue trends of units for a period of three years should be analysed and the units not showing the expected growth should be taken for in-depth scrutiny or audit or preventive checks.

10. The Regional DGAE office should hold quarterly meetings with the Commissioners of each zone falling in their jurisdiction to chalk out the micro level strategy and to identify any systemic modus operandi requiring a coordinated simultaneous action to defect cases of evasion.

11. Prompt reporting of any novel modus operandi by the Commissioners to the Director General of Anti-Evasion should be done who in turn will issue "alert" to all concerned and ensure quick action.

Sd/-
(P K Sinha)
Under Secretary (CX.6)

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