EXPORT-import frauds and corporate crimes are thriving due to UPA’s over-indulgence in trade liberalisations and its reluctance to come down heavy on political and corporate criminals.
“The scenario in economic crime has undergone a sea change” following economic liberalisation since early 1990s and due to other policy changes, according to an official document.
“There has been a decisive shift from commodity smuggling to trade related commercial frauds necessitating a drastic reordering of priorities,” says the document that has the stamp of approval of Central Board of Excise and Customs (CBEC).
This and other shocking disclosures are buried in this 1630-page document comprising three volumes. Named Draft Preventive Manual 2009, the document is an updated version of sorts of two old documents, Draft Customs Preventive Manual 2000 and the Customs Preventive Manual 1987.
CBEC’s Directorate of Revenue Intelligence (DRI) has asked customs officials to give their feedback on the latest draft manual by January 31.
DRI has separately disclosed elsewhere that the total customs duty evasion detected by it more than doubled to Rs 1528.59 crore in 2008-09 from Rs 726.46 crore in 2007-08.
Some economic analysts believe that this is only a tip of duty evasion iceberg.
The total revenue evasion, direct and indirect taxes combined, would run into thousands of crores of rupees per annum, enough to feed the people below poverty line without enactment of illusive food security law.
If one takes into account the revenue foregone by the government in form of numerous tax benefits or preferences to influential segments of the society, the total revenue sacrifice can finance all the basic needs of the poor people, analysts say.
UPA had foregone a whopping Rs 4,18,095 crore, which was 68.95 per cent of the aggregate tax collections in 2008-09, according to budget documents for 2009-10.
The Manual says: “The scope and range of Customs Commercial Fraud is extremely dynamic in character being predicated upon factors such as policy provisions, tariffs, incentives and special and concessional duty regimes. In India‘s earlier high tariff regime under-invoicing and mis-declaration of imported goods accounted for a major percentage of duty evasion related violations. With the rationalization and reduction of tariffs, the incentive to mis-declare description in order to misclassify goods has declined substantially. However, mis-declaration of description, often in conjunction with mis-declaration of country of origin, is still resorted to evade levies such as anti-dumping duties. There has also been no let-up in the under valuation of goods to evade duty.”
It continues: “While the evasion of import duties remain an area of concern, export related frauds have, in a sense, come to occupy centre stage in recent years. The obvious motive is to corner ineligible export benefits through a variety of modus operandi. These range from the creation of entirely fictitious transactions to the misdeclaration of value, quantity, specifications, destinations, etc. Running parallel to these are large-scale hawala transfers. Frauds of this nature consequently involve the convergence of customs offences and exchange control violations and also constitute a potential for large-scale money laundering.”
Other types of commercial frauds that are gathering momentum are misdeclaration of country of origin/value addition of goods under preferential and free trade agreements (PTAs and FTAs) to evade anti-dumping and safeguard duties.
The Manual says: “The Indo-Sri Lanka Free Trade Agreement has been misused on a significant scale with regard particularly to imports of copper ingots and products, cloves and areca nuts, while anti-dumping duties on certain imports from China have been attempted to be evaded by misdeclaring the description of the goods or the country of origin.”
Indian industry sources say that such frauds would multiply fast with UPA rushing to sign FTAs or PTAs with different countries and regional trading blocks to make up for its diplomacy failures.
Apart from misuse of PTAs and FTAs, the other commercial frauds include undervaluation, misdeclaration of either quantity of traded goods and/or the nomenclature/classification of the goods, misuse of duty drawback scheme, misuse of export promotion capital goods scheme, misuse of export-oriented units (EOUs) and special economic zone schemes.
The Manual points out that duty concessions under the EOU scheme provide scope for misuse, apart from defaults in fulfillment of export obligations.
Dubious EOUs divert duty-free raw materials, resort to clandestine sale of their products in domestic market, dispose of duty-free imported machinery, import duty-free raw materials in excess to sell surplus in the domestic market, under-invoice permissible domestic sales to pay lesser duty and mis-declare domestic sales.
“There are instances noticed of blatant violation of the EOU scheme,” the Manual says.
The foreign trade has developed into a multi-facet operation spanning many new products, new routes, new destinations and differential tariffs for goods originating from different countries.
This has stretched the resources of CBEC. It has bifurcated its manpower and other resources into two wings—revenue collection and preventive that deals with collection of intelligence and pre-emptive action to prevent violations of the laws.
The pressure on airport customs has also increased due to increase in number of airlines, flights, passengers and cargo.
As for smuggling, DRI has noted that perennial offences such as drug trafficking, currency smuggling, illicit trade of ozone-depleting substances, trade-related money laundering and trading of prohibited goods witness new modus operandi, new routes and new operators. The customs officials have thus come out with new responses to cope with smuggling dynamics.
The security tightening along the Jammu & Kashmir and Punjab borders has led smugglers to operate through the Rajasthan border from across Pakistan.
As regards corporate frauds falling under the domain of Ministry of Corporate Affairs (MCA), UPA is yet to act on crucial recommendations of expert committee on issues concerning Serious Frauds Investigation Office (SFIO). It has incorporated some provisions in the Companies Bill 2009 to effectively prevent and tackle frauds.
Recommendations relating to enacting a special legislation on frauds, strengthening of SFIO including a separate statute for SFIO and setting-up of a high-powered, inter-agency committee for investigation and monitoring of frauds remain unimplemented. The committee submitted its report in April 2009.
MCA has opted for soft options such as “Corporate Governance Voluntary Guidelines” that it unveiled on December 21, 2009.
Instead of affirming its role as strict policy-maker and regulator, MCA last month resorted to unprecedented initiative of celebrating corporate week every year in third week of December.