Cenvat misuse under revenue dept scanner

Concerned over misuse of the Cenvat credit scheme, the revenue department has put under the scanner many service tax and excise assessees along with dealers giving higher credit to manufacturers.

The department has circulated to all its commissionerates the nationwide duty payment trends in cash and Cenvat credit utilisation for 2005-06 and 2006-07.

The commissionerates have been asked to prepare a list of assessees separately for excise and service tax in their jurisdictions based on parameters listed above and identify nine units each for service tax and central excise audit in each quarter.

This follows recent statements by finance minister P Chidambaram that manufacturers are not paying excise duty "honestly". For the first time ever, duty payments, made by manufacturers through Cenvat credits, exceeded the actual cash paid towards duties in 2006-07. The Cenvat credits utilised by companies rose 34 per cent to Rs 128,698 crore while net cash collections was up only 5.8 per cent to Rs 117,088 crore in 2006-07.

The main reasons cited by the revenue department for higher Cenvat utilisation includes higher tax credit available to manufacturers on taxes paid on input services and tax credit permitted on dealers' invoices.

Under high impact service tax audits, the department's audit wing will probe service tax assessees providing both dutiable and exempted services and assessees paying more than Rs 1 crore service tax, who have not been audited for past three years. Service tax assessees with central registration and input service distributors, who have passed service tax credit of Rs 20 lakh in a year will also come under scanner.

In case of excise audits, the investigation is focusing on manufacturing units with the ratio of dealer's credit to total Cenvat credit of more than 10 per cent and units availing more than Rs 20 lakh credit on input services in a full year. Units manufacturing both exempt and dutiable goods and units processing goods for others as well as manufacturing their own goods will also be probed.

Similarly, units manufacturing commodities showing adverse Cenvat credit to total duty payment behaviour at all India level and adverse revenue trend in a zone contrary to all India trend will be scrutinised.

High impact audits are those conducted under the direct supervision of an assistant or deputy commissioner. These were introduced in the last quarter of 2005-06 for central excise and is being introduced this fiscal for service tax assessees. In fact, investigations have revealed that some firms have claimed Cenvat credit using fake invoices. Steel and gutka industry are seen prone to excise duty evasion, official sources said.