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Author: Navin Upadhyay
Publication: The Pioneer
Date: November 24, 2006
Why is Govt dragging its feet on recovering huge tax dues?
Damning allegation involving a Vedanta group company is back to haunt Finance Minister P Chidambaram.
Documents with *The Pioneer* reveal that the Finance Ministry has dragged its feet on recovering huge amounts of Central Excise and Custom Duties from the Aurangabad-based Vedanta group company, M/s Sterlite Optical Technologists Ltd (SOTL).
Mr Chidambaram represented the company in the Bombay High Court in 2003, before he became the Finance Minister. He was also a member of the board of directors of the company.
An anonymous letter sent to a number of politicians earlier this year disclosed that M/s SOTL, a 100 per cent Export Oriented Unit (EOU), sold its entire supply through its domestic unit in the country, and defrauded the Government of huge amounts of Central Excise and Custom Duties. M/s SOTL was also alleged to have capitalised on import duty exemption on exported-oriented capital goods, which was used for manufacturing.
The letter showed that SOTL imported capital goods worth Rs 122 crore and raw materials on executing bond on Rs 145 crore, which covered the amount of duty-free imports. As per clause (4) of the notification No. 53/97, which allows duty free imports, all 100 per cent EOUs are required to export their entire production.
On a tip off, Central Excise officials raided M/s SOTL's premises on September 3, 2002 and discovered fibre optics manufactured in the EOU having been moved to the adjoining domestic unit. The excise officials also found that "huge quantities of goods were cleared from EOU without payment of any duty." It was also found that raw materials imported duty free, were not actually used in the production of goods for export.
When the probe was underway, M/s SOTL filed a writ petition (No. 5884/02) in the Bombay High court seeking stay on the tax proceedings. Mr Chidambaram and his wife, who is also a lawyer, represented Sterlite in the court, which dismissed the petition without relief on August 13, 2003.
After completion of the investigation, the Excise and Customs Commissioner of Aurangabad directed M/s SOTL to pay Rs 240.4 crore of Central Excise and Rs 9.26 crore of Customs Duty including fine and penalty on July 11, 2003. On Sterlite's appeal, the Central Excise component was brought down to Rs 199 crore.
However, so far M/s Sterlite has not cleared the tax liabilities. In reply to a letter from Samajwadi Party general-secretary Amar Singh, who followed up the matter when it was brought to his notice, the Finance Minister said on November 9 this year that the matter was subjudice and the court had stayed the demand made on M/s SOTL. The Mumbai court had also transferred the case to Aurangabad Bench. Incidentally, Mr Chidambaram had argued for the stay and was successful in obtaining it.
While the Finance Minister has claimed that the department instructed the counsel to file an application before the Chief Justice of the Bombay High Court seeking transfer of the matter to a bench of the High Court dealing with revenue matters on a regular basis, it is not clear when the instruction was issued and when it was complied with. It is also apparent that the Finance Ministry has not taken any serious steps to get the stay vacated and recover the dues.
Second, since Sterlite has been accused of using imported capital goods for manufacturing domestic products, it may have been liable to pay duty of Rs 69 crore on capital goods and Rs 6.93 crore on raw materials. But the Custom and Excise Commissioner passed no order to recover the amount.
The Commissioner also did not enforce the bond of Rs 145 crore, executed by M/s SOTL to cover the amount of duty involved in bringing in duty free imports.
Touching this aspect in his reply to Mr Amar Singh, the Finance Minister has stated that the Director General of Foreign Trade (DGFT) will decide the issue before the customs authorities could pass a fresh adjudication order. Mr Chidambaram says that he has requested the DGFT to make an early 'determination' so that further action could be taken to re-adjudicate the Customs Duty liability.
It is baffling that, DGFT, which comes under the Finance Ministry, has been dragging its feet despite Mr Chidambaram's claim of personal interest in expediting the matter!
While he cannot be faulted for taking up any case as an advocate when he was not the Finance Minister, it is surprising that since assuming ministerial office Mr Chidambaram has not initiated any significant effort to recover the massive dues to the Government. The matter has now been brought to the notice of the Prime Minister, the Chief Vigilance Commissioner (CVC) and the CBI. They have acknowledged receipt of the complaint and are presumably inquiring into it.
In the Monsoon Session of Parliament, the Finance Minister was in the line of fire from the Samajwadi Party, the AIADMK, and TDP over disclosures in a book, Vedanta's Billions, that he had served as a director of a company Vedanta Resources, and drawn huge perks. Mr Chidambaram reportedly drew US $ 70,000 annually as non-executive director of the company.
The author of the book, R Poddar, also claimed there was a 1,000 per cent rise in the share of Sterlite during 2003 when Mr Chidambaram was on the board of Vedanta Resources.
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