The Hindu Business Line : When ad-hocism pays

The MRP based excise regime may at first blush, like most of the presumptive taxation schemes, appear ham-handed. But even the industries and products roped in by the regime are not complaining what with generous abatement varying from product to product serving to smother resentment, if any, resulting in a regime that is as much conducive to easy administration as it is just and fair to the manufacturers.

Ironically, income-tax law, which was the harbinger of gradual adoption of presumptive taxation by other fiscal laws as well, has not met with even a modicum of success as the MRP based excise regime has — its flagship scheme targeting the retailers continues to be scoffed at despite the magnanimous offer to target but 5 per cent of their turnover if it did not exceed Rs 40 lakh during the relevant financial year.

Simplifying the excise regime

Be that as it may, it is time the excise authorities borrowed another leaf out of the income-tax law, this time around to simplify the excise regime in respect of products not coming under the purview of Standards and Measures Act, a prerequisite for being subjected to MRP based excise regime.

Despite adoption of transactions value as the base for imposing excise duty ad valorem, the excise computations and assessments continue to be beset with, and plagued by, problems.

Depot sale was at once a necessity and stratagem. It was a necessity inasmuch as not all companies can possibly sell all their goods at the factory gate itself. And it was a stratagem inasmuch as it afforded scope for duty evasion — transferring the goods to depots at an artificially low notional price that did not reflect the ultimate price at which they were sold to the customers.

To checkmate this strategy, the excise law now provides that if the place of removal is not factory itself, excise duty would be paid with reference to the prevailing price charged by the depot on the date of removal from the factory.

While one can understand the exchequer’s anxiety, the assessment has admittedly become complicated — zeroing in on the ‘greatest aggregate quantity’ often becomes cumbersome and the bone of contention where goods are sold at the depot at different prices at a given point of time. Similarly, price variation clause in a contract sets in motion vexatious hair-splitting as does the year-end discounts that necessitate reassessment, practically.

Paying in advance

The income-tax law is much better in design and operation in this regard though it is otherwise demonised perhaps with reason. Taxes during the course of the year are paid ad hoc in advance either by way of advance tax or by way of TDS and assessment made when the actual results duly audited are before the assessee as well as the department. This is as it should be.

The Revenue safeguards its interests by demanding interest for short-payment or non-payment of advance tax either by design or accident. There is no reason why the same drill cannot be followed in the context of central excise.

As it is, the excise authorities keep a close tab on the factory — despite having practically done away with the physical removal regime and ushering in the Self Removal Procedure — with each transaction coming under their lens. Is it worth all the trouble? Let the manufacturers pay advance excise from time to time.

The income-tax law demands advance tax in four instalments from the corporates — 15 per cent of the tax due on or before June 15, 45 per cent of such tax on or before September 15, 75 per cent of the tax due on or before December 15 and the entire tax on before March 15 even before the year runs out. A schedule akin to this can be made for excise duty advance payment.

It can even be a monthly instalment if quarterly instalments are perceived to be anti-Revenue on the ground that the time gap between transactions and collection of tax would be unreasonably long. The point however is, ad hoc payments do away with nit-picking without marginalising the exchequer’s interests — interest on short payment would be a deterrent enough against taking liberties.

In such a regime where assessments are made when the dust has settled down with all the events having played out — the figure of year-end discounts being transparently available vide the audited accounts, the actual price charged by the depots once again being available as reflected in the audited accounts — there would be no scope nor any need for numerous vexatious provisional assessments.

To be sure, the income-tax authorities found it difficult to base their assessment completely on audited financial accounts which is why tax audit that gave a tailor-made version of accounts to satisfy the income-tax authorities’ perspectives became necessary. A similar mandatory tax audit drill can be prescribed for excise purposes.

Positives of ad hocism

Ad hocism is generally decried but in certain matters it works. In taxation matters when things take time to play out it would be futile to demand a here and now compliance. Issues are sorted out more amicably when passions cool down.

In the world of taxation too confronting taxpayers for here and now compliance would not be fair when the transactions in all their ramifications are yet to pan out. For example, the nitpicking regarding depot sales would become redundant in such a milieu because post factory expenses such as transportation to depot, etc — which the excise department feared evaded tax — would be an integral part of total turnover exigible to excise duty at the prescribed rate.

(The author is a Delhi-based chartered accountant. blfeedback@thehindu.co.in)

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