Is excise duty collection drop due to manipulation, under-reporting?

India's stuttering manufacturing growth has opened a can of worms in the finance ministry. The government's excise duty collections, the second biggest source of revenue after direct taxes, has fallen in line with industrial degradation in India. The tax on manufacturing now contributes less than half of what it did a decade ago to the government's coffers.

Budget receipts show that government revenues from excise duty have fallen over Rs 13,000 crore in 2013-14. The finance ministry had to beef up the figures by including education cess worth Rs 6,756 crore in the final excise duty collections. The rot in India's excise tax collections extends much deeper. The government was unable to realise Rs 49,795 crore in excise revenue despite raising it from manufacturers. A significant amount of that money is under dispute while the rest of it is simply 'unrealisable'.

The Comptroller & Auditor General (CAG) of India estimated that the government was bleeding money trying to recover the tax from Indian industries. The government spent close to Rs 2 lakh crore to extract tax worth Rs 170,000 crore from manufacturers. The finance ministry terms the tax bleed as 'revenue forgone'. At almost Rs 2 lakh crore, it could fund PM Modi's pet project Swachh Bharat Abhiyan one-and-a-half times over for the next five years.

What is even more curious is that the top 100 manufacturers still continue to contribute 70% of the excise duty collected. In the top 100 too, petroleum majors like Reliance Industries Ltd and the oil marketing PSUs like Indian Oil Corporation (IOC) & Hindustan Petroleum (HP) among others, along with India's Big Tobacco (ITC, Godfrey Phillips & others) contribute 75% of the excise money. The auditor had also noted that excise tax collectors showed a proclivity towards entering the premises of smaller manufacturers to audit their accounts (Category C & D). When it came to auditing the big players (Category A businesses), which contribute more than Rs 3 crore in excise, the excise tax commissioners and the enforcement wing comprising inspectors and havaldars were not too enthusiastic. "It is tough for smaller players to set up a factory in India. Acquiring land is a nightmare," says Anjan Roy of Federation of Indian Chambers of Commerce & Industry (Ficci).

The Central Vigilance Commission (CVC) has in the past pointed out the gullibility of excise tax officers to endemic corruption when they go to the field for excise valuations and audits.

Industrialists say there is more to it than meets the eye. Manufacturing in 2014 was a black mark on the Indian economy managing to grow at 1.2% for the better part of the year. "But tax collections should not have fallen so drastically" says Anjan Roy. "The veracity of the figures being quoted by the finance ministry needs to be thoroughly checked."

What Roy is referring to is the mystery of the 'missing' Rs 742 crore of excise money in the books of the Indian government. The figure is high enough to be more than just a statistical variation. Arun Jaitley gave two distinct figures of the actual excise duty collections by the government – Rs 170,197 crore and Rs 169,455 crore- in the same budget. Sources in the finance ministry indicate that a massive exercise is underway to check the veracity of figures with the Department of Revenue. The ministry has asked Gen (Retd) VK Singh led ministry of Statistics & Programme Implementation (MOSPI) to clean up its data collection mechanism. MOSPI, meanwhile, has been quick to throw the ball in the court of the Controller General of Accounts (CGA). When contacted, Ashish Kumar, Director General of the Central Statistical Organisation (CSO) said, "All the data is on the website of the CGA. It is the duty of the revenue department to maintain figures for excise duty collections." dna is yet to receive a response from revenue secretary Shashikanta Das on the issue. "This has neither been brought to my notice nor am I aware of it," says Mahender Dev, a member of the National Statistical Commission.

Even as PM Modi pitches for 'Make In India', the ground reality as borne out by the dismal budget numbers point to turbulent times ahead. "Manufacturing is the backbone of economies like China but it is dead in India. India is not producing enough goods for its own people. There is also massive under-reporting of excise duty collections and it is always possible that the numbers are being manipulated," says economist Jagdish Shettigar.
PM Modi's 'Make In India', it seems, would have to begin with a massive cleanup or 'Swachh Abhiyan' in the finance ministry.