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K.R. Srivats
Harish Damodaran

New Delhi , Aug. 9

DIPPING excise collections have forced the Finance Ministry to tighten audit procedures in order to plug possible sources of evasion. For the first time, all export-oriented units (EOU) have been placed under the category of mandatory audits to be undertaken every year.

The Central Board of Excise and Customs (CBEC) has approved a revised Audit Excise Manual that, among other things, makes it compulsory for the revenue authorities to undertake audit of all the 1,600-odd functional EOUs in the country every year.

Hitherto, audit of EOUs for excise purposes was done on a discretionary selection basis mainly to units located outside export processing zones or special export zones.

But now, any EOU granted approval by the concerned Board of Approval or Development Commissioner will be subjected to mandatory excise audit.

According to officials, putting EOUs under the mandatory audit regime has been done, keeping in view reports of alleged excise evasion arising from sale of goods in the domestic tariff area (DTA) in excess of prescribed limits.

As on March 31, 2002, there were 6,001 EOUs approved by the Government, of which 1,621 were functional, with the combined value of their exports during 2001-02 reckoned at Rs 18,743.45 crore (11 per cent of the country's manufactured exports).

Currently, EOUs are permitted to make up to 50 per cent sales in the DTA, even if they are formally called `100 per cent' EOUs. DTA access is, in turn, allowed provided the unit pays the excise duty on the goods sold in the DTA.

In the event of the unit sourcing its raw material indigenously, the duty payable on the goods sold in the DTA would be equal to the excise duty normally leviable on such goods.

If the raw materials were imported, the goods sold in the DTA would attract duty equal to 50 per cent of the customs duty applicable on similar goods when imported.

Goods that are exported, on the other hand, do not attract any excise duty.

Officials said that there were instances of EOUs under-reporting sales, leading to leakage of revenues. "Our audits will seek to ascertain whether the benefits of customs and excise exemptions have been availed only on admissible items listed in the notifications; whether the goods imported/ indigenously procured duty free are required and conform to the declaration submitted to the Development Commissioner; whether such goods are available in the factory or otherwise accounted for," they added.

The audits will also look into whether units have obtained permission for DTA sales and, if so, whether the details of foreign earnings and utilisation, supplied to the Development Commissioner tallies with the records of the units; whether, the goods under DTA sales have been correctly valued and whether the DTA sale is within the prescribed limit and made on the basis of physical exports or deemed exports (the latter is not permitted).

The Finance Ministry latest move comes even as the Centre's excise collections have registered a sharp 16.6 per cent decline during the first quarter of the current fiscal, from Rs 15,871 crore to Rs 13,237 crore. This is as against an 18.6 per cent growth budgeted for 2003-04.

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To counter dip in collections — Excise audit for EOUs made mandatory

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