Somebody famously said, “It is easy to give up smoking. I have given up several times”. One can say same thing about compounded levy: “It is easy to introduce compounded levy. It has been reintroduced several times”. The government has introduced a new system of levy called compounded levy on Pan Masala. The purpose — to curb evasion — is most unlikely to be served since this system is equally or even more evasion-prone than the normal system. It has also been tried several times on several commodities but without much success.
The normal process is to pay duty on the basis of actual production. The compounded levy system is to pay duty on the basis of deemed production. It is deemed that if there is one machine manufacturing Pan Masala or any other commodity, it shall produce so much of quantity in a month and the duty has to be paid on the basis of the number of machines installed. So what has been done for Pan Masala from July 1, 2008, is that the Pan Masala containing tobacco commonly known as Gutka has been made liable to duty under the deemed scheme of compounded levy.
The rules regarding the levy have been given separately, known as Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008. These Rules provide that the factor relevant to the production of notified goods shall be the number of packing machines in the factory of the manufacturer. The quantity of Pan Masala as indicated in the table is deemed to have been produced by the use of one operating packing machine per month.
If a manufacturer declares 10 machines as installed during the month, and if two of them go out of order, the production will be deemed to have been made for the whole month for all the ten. This is an anti-evasion measure in order to check the prevailing practice of declaring a machine out of order in between the month. However, there are other rules which nullify this precaution. Rule 13 relating to additional removal of packing machines provides that in case a manufacturer does not intend to further operate a machine, he shall send intimation seven days in advance and it will be uninstalled and sealed by proper officer under his physical supervision. However, it can be kept in the same premises if it is not feasible to remove it. Therein lies the hole in the system.
Once it is simply uninstalled in the beginning of the month by disconnection of electricity, and even removed out of the premises, nothing prevents the manufacturer to bring it back as soon as the officer leaves. Sealing the machine is hardly a precaution as the manufacturer need not break the seal but open out the wire somewhere else. From my personal experience as a junior officer in the department regarding centrifugals producing khandasari sugar, I can say that it is most impracticable to enforce the rule about closure of machines.
There is also undeniably a helping hand extended by some undisciplined officers. The system has been tried for iron and steel sector regarding re-rollers and induction furnace, textile processors and utensils made of steel and aluminum but nowhere the system could continue for long, realising that the evasion was more than in the normal process. Regarding pan masala, it was much better to have a higher rate of duty at 14 per cent. Reducing the duty to 8 per cent and introducing compounded levy has not a been wise move at all. The apparent anti-evasion measure will be quite an aid to evasion. smukher2000@yahoo.com