Excise Duty Structure For Ssis To Be Recast

The government is slated to amend the existing excise duty structure for small-scale industries by allowing Modvat (modified value-added tax) to be availed by the small-scale units in the second and third tiers, which are below the exemption limit of Rs 3-crore annual turnover.

The policy amendment envisages a rollback of Modvat to the small-scale units whose turnover ranges between Rs 30-50 lakh and Rs 50 lakh-Rs 1 crore in a financial year. Under the present policy, these units, which cannot avail the Modvat, have to pay a flat rate of three per cent and five per cent of their turnover as excise duty respectively.

 

The policy change, which is expected to be formalised shortly, will have adequate safety clauses to check misuse of Modvat facilities, senior revenue officials pointed out.

One of the options being considered is to increase the rate structure with Modvat inclusion.

However, there would be a stringent penal clause attached with the new scheme. If the excise department detects an evasion case, then the particular unit would have to pay the regular rate and not the concessional rate. Besides, there is also a mandatory penal provision wherein a duty non-payer would have to pay up 100 percent of duty evaded as penalty.

According to top revenue officials, the change in the duty structure is being considered after various chambers of commerce and industry bodies put tremendous pressure on the government to extend Modvat to these units which have been faced with innumerable problems after the government introduced a reduced flat rate of excise duty with no Modvat facility.

According to industry sources, the introduction of a minimum flat rate with elimination of Modvat has created problems between the manufacturers and the buyers since lack of Modvat credit extension to the buyers acts as a serious disincentive for them.

The flat rate excise duty for these small scale units was introduced by the 1997-98 annual budget after large-scale misuse of Modvat among these units had been detected by the revenue officials.

According to revenue department officials, under the previous excise duty strucuture which allowed Modvat to be availed by the SSIs, systematic misuse of the scheme had been prevalent wherein false invoices were produced by the manufacturers to claim MODVAT credit.

In fact, the income generation of these SSIs have been much higher than their relative contribution to the revenue, emphasise revenue officials.