Minimising exemptions quite practicable

EXPERT EYE

One of the reasons why tariffs in Customs and central excise are quite unworkable for easy clearance of goods in spite of there being a wide spread computer network in all offices of Customs is the existence of not only a large number of exemptions but a large number of conditions attached to the exemptions.

In Customs, there is one general exemption giving the effective rates, which has got 458 serial numbers with 98 conditions and 45 lists. There are other exemptions also.

However, this omnibus exemption has a condition number 5 which alone occurs 45 times spreading over 13 chapters. If this condition number 5 alone can be reviewed and the spread reduced, it will go a long way in improving the exemption structure.

Condition No.5 envisages a requirement that the exemption will be allowed only if the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996, are complied with.

These rules require that the importers who import goods at concessional rate will register themselves with the Central Excise Office under whose jurisdiction the factory is located.

The importer has to follow a strict regimen laid down by the central excise office, which also entails sending of documents from Customs to central excise, regarding the import.

All these interactions between the Customs office, central excise office and the importer create a stranglehold on the importer at every point of time of use of the goods.

The earlier system was simply to take a bond from the importer that he will produce a certificate from the office of the central excise that the goods have been used. There was no such elaborate procedure. For the importers, it is a situation of from the frying pan into the fire.

I am writing to say that neither the bond nor the bondage is necessary but a simple declaration should be sufficient. If we examine the exemptions where this condition No.5 has been imposed, we find that the situation does not demand such rigorous bondage.

These concessions are usually availed of by actual users and declaration by them that they will use the goods for the purpose for which they have been imported should have been enough.

Importers of fertilisers or drug manufacturers are unlikely to divert the goods to other uses. Optical grade fibres and optical cables manufacturers are few and well established ones.

Manufacturers of plasma volume expanders are also very limited and well established. Goods for making catalytic converters or public mobiles are also similar. Textile machinery imported has a similar bondage system, which is wholly unnecessary.

Another condition is there for parts of set-top box for use in the manufacture of set-top box. If the importer can satisfy Customs that it is a part of set-top box, then there cannot really be any need for further ensuring that it will be used for the set-top box. A mere declaration would have been sufficient.

If we analyse the nature of goods for which such rigorous conditions have been imposed, we shall notice that practically all of them are specially meant for the end products. There may be just a few items like resins or general chemicals which may have diverse uses.

The difference in duty between the tariff rate and the exempted rates is only 2-½% or 5% in most cases. So it is not exactly profitable to avoid the duty of such a small amount when the corresponding risk involved is high.

The revenue department has its intelligence departments, which can very well detect such cases of violation if this job is entrusted to them. Such organisations may be strengthened which is a much better solution than imposing rigorous conditions.

The conclusion is that accepting declaration and depending on the intelligence department to detect violation is a far better system than the present system of too many conditions and rigorous procedural requirements.