Rs 2000cr Claims Slapped On Exporters For Modvat Fraud

While the total Modvat credit illegally availed was Rs 300-350 crore, the customs' demand notices are about six to seven times the amount. This is because the customs authorities are demanding full duty payment on all inputs, 100 per cent penalty and interest on late payment.

As per the policy, advance licences for duty-free imports are issued on the condition that no drawback or Modvat will be claimed on the inputs. However, the authorities found that several exporters had claimed Modvat despite importing at zero duties.

The issue threatens to snowball into a major controversy, with exporters taking up the matter with the core group of the finance ministry. They are also consulting lawyers on the action that can be taken. For instance, one Delhi-based company had availed Modvat amounting to Rs 1.2 crore despite using Vabal licences for imports. It has been issued a show-cause notice for Rs 16 crore.

 

When the misuse came to light in 1993-94, exporters were asked to return the Modvat credit they had claimed illegally. Approximately Rs 220-250 crore of the Modvat credit has been reversed.

The matter was referred by the finance ministry to the law ministry which said the exporters had erred and were liable to penal action. Exporters, however, say that the finance ministry had assured them that those who reversed the credit would be granted a one-time amnesty.

Despite this, the customs authorities are going ahead and issuing show-cause notices on the grounds that mere reversal of credit does not absolve the exporter of the misdeclaration. Therefore, they insist, entire imports under advance licensing should be treated as tainted.

Sources said the finance ministry had again referred the matter to the law ministry. However, the customs authorities argue that as the law ministry has already said that the exporters were in the wrong, they were going ahead.

Customs sources said their Mumbai, Madras and Calcutta offices had already issued the notices. The Delhi customs also confirmed its intention to issue the notices in 30-odd cases. The Delhi customs said they have written to the erring exporters and asked them to give evidence that they have not claimed Modvat. Only in cases where no response was received would the notices be issued, said sources. They added the numbers were far larger in Mumbai and Madras.

Exporters, however, are arguing that Modvat was claimed on inputs which cannot be imported under the Vabal licence. Says S K Kapoor, vice-president, corporate and international trade, Bhilwara group: "Advance licences only cover principal raw materials. For instance, packaging will use local material.