The Central Board of Excise and Customs is examining files from different commissionerates to assess the factual reports following allegations of duty evasion by some pharmaceutical companies by accumulating Central Value-Added Tax (Cenvat) credit in an irregular manner. The authorities have also warned of strict action against the erring companies, after the suspected erosion of Rs.91 crore duty in the last few years in this manner.
Sources said many companies, without naming any, are under scanner following audit reports pointing out several instances of excessive use of Cenvat by pharma units took place in the last few years. “The matter is under investigation and the authorities have already collected factual reports from the concerned commissionerates,” a senior official with the Central Board of Excise and Customs said.
Central auditors have found as many as 227 cases of incorrect availing of Cenvat credit with duty impact of Rs.91.79 crore. After preliminary scrutiny, the department also accepted some of the observations. In 140 of these cases, involving duty was Rs.6.34 crore and recovered Rs.3.00 crore in 130 cases. In another 23 cases the department has issued show cause notices for Rs.11.02 crore.
The Board is ascertaining the reasons for increasing incidence of duty payment by Cenvat credit and will suggest corrective action to the Finance Ministry. The Cenvat to `personal ledger account’ (PLA) ratio, based on the figures in the past may be considered as a risk factor and measures will be taken, sources indicated.
Assessees pay excise duty either in cash by debiting their PLA or by reducing the accumulated Cenvat credit in their Cenvat credit account. There is a potential risk of duty evasion by accumulating Cenvat credit in an irregular manner. Therefore, instances of excessive payment through Cenvat credit account compared with PLA account are being examined.
According to the available figures with the authorities, there was an increasing trend in the use of Cenvat credit for all commodities. Pharmaceutical products showed a slight decrease in 2007- 08 but had a net increase during the subsequent three years. The percentage of Cenvat credit to cash was 74.17 during the year 2005-06 and jumped to 113.30 during the year 2006-07. The sudden rise by 52.75 per cent in one year is also being examined by the department.
Some companies falling under Vadodara I and Rohtak commissionerates, are specially under scanner of scrutiny as the percentages of Cenvat to duty paid in cash in respect of pharmaceutical products during the year 2006-07 were as high as 1,718.02 per cent and 739.53 per cent, respectively. Similarly, in Siliguri and Indore commissionerates, the same percentages, during 2007-08, were as high as 626.66 per cent and 498.03 per cent respectively.
During 2005-06, the total duty paid through PLA stood at Rs.2074.72 crore by 1379 pharmaceutical units in the country while the duty paid through Cenvat was Rs.1538.89 crore. During 2006-07, as many as 1428 units paid a duty of Rs.1995.89 crore through PLA and Rs.2261.41 crore through Cenvat, making a clear tilt to the latter pattern. The duty from 1426 units in 2007-08 through PLA further went down to Rs.1647.43 crore, but the duty through Cenvat also declined to Rs.1775.37 crore. The total duty also declined from Rs.4257.30 crore in 2006-07 to Rs.3422.80 crore during 2007-08, as per the figures compiled by the authorities.