Subject Group on Administrative And Legal Simplifications

Report on
Implementable Action Plans in the area of
Administrative and Legal Simplifications.

> Rs. 100 crs. through MoU/LoI Route

List of Clearances Required for Power Projects

The Board of Investment of Thailand (BOI) has been actively promoting industrial investment in Thailand – from both Thai as well as the international business community – for more than 3 decades. It has been extremely successful in its role of promoting and facilitating investment in the country mainly due to its business friendly policies and one-stop service concept.

The Board of Investment is the central agency entrusted with the responsibility of promoting investment in Thailand and accordingly, it

Formulates the Government’s investment promotion policy in consultation with other Government agencies (Ministries of Industry, Finance, Commerce and National Economic and Social Development Board etc.)

Studies all the segments of the economy, compiles the demand-supply data on macro basis with details of availability of vital inputs in the country and provides this information to all interested parties.

Acts as one-stop service agency to take care of all approvals which any one wishing to set up an industry in Thailand needs such as

Permission to bring expatriate employees for project-study/project implementation and/or project operation work.

Permission to buy land for the project (Foreigners/Foreign cos. are not allowed to buy land in Thailand).

Permission to import machinery for the project without payment of import duty.

Tax holiday permission for the project.

Providing tariff protection for BOI promoted project depending on the merits of the case.

Providing reduction exemption from import duties on raw material required for the project.

Coordination with other Government agencies/departments for any matter to help the investment/project – such as environment control agencies, ministry of industry, etc.

Providing link up with suppliers and customers in the supply-chain etc. etc.

In a nutshell – project promoter can receive all necessary approvals from BOI or with the help of BOI. Once approved by BOI, all the other Government agencies (such as Ministry of Industry, Land deptt., Revenue deptt., Customs deptt.) without questioning or further investigation provide all the privileges/benefits approved by the BOI.

The BOI has set out and published all its investment policies, various promotion privileges, their eligibility criteria and other services provided by it to ensure transparency and clarity in its working. Moreover, there are detailed written procedures for each service with time limits within which BOI has committed itself to clear the applications. All these systems are working effectively and efficiently at all levels in real practice.

The role of BOI does not end with giving necessary approvals through one-stop. If the promoted investment is facing any genuine difficulty or unfair competition in its business, BOI is empowered to provide suitable relief to the project on a temporary basis. BOI has been using this power very judiciously to promote the quality of investment in Thailand. This help can be availed by a promoted project at any time during project’s life.

Board of Investment is an independent Government agency under the Office of the Prime Minister of Thailand. Minister of the Office of Prime Minister is in-charge of BOI. The Prime Minister chairs the meetings of the main board of BOI and all relevant ministers (ministers of Finance, Industry, Interior, Commerce, Science & Technology, Labour etc.) are members of the main board. All issues relating to investment in the country which any ministry may have are discussed and decided in the main board of BOI. The Secretary General of BOI is the senior-most official of BOI responsible for its working under the office of the minister of PMO.

The economic & industrial development of Thailand has taken place only due to the existence and working of BOI as a single-window investment promotion and facilitating agency. The BOI route can be used for all investments greater than or equal to Thai Bhat 1 million.

BOI gives many incentives to industry such as:

Tax holiday for up to 8 years for new projects, as well as for relocation of existing industry to rural areas.

Exemption from import duty on project machinery.

Exemption from import duty on vital raw materials not manufactured in the country.

Additional tariff protection for promoted projects in case of need.

Permissions for expatriate persons.

All these incentives are given promptly and as a result, Thai as well as international investors go only to BOI with their investment proposals.

In conclusion, we may say that BOI is the main agency responsible for Thailand’s success in attracting all the foreign and domestic investment in the country for the last 30 years. BOI does every thing for the project, for example, it gives all the approvals, arranges environmental clearance from National Environment Board, arranges operation licence from Ministry of Industry. One does not have to go to any other Government agency in Thailand. BOI is a true one-stop service centre for industrial investment in Thailand.

Attachment IV
Approval Process of Board of Investment of Thailand

Time Frames For Project Consideration And Related Procedures

Attachment V
Specific Issues Relating to Administration of Taxes and Duties of Concern to the Industry

Before exporting goods, sealing has to be done in the presence of Central Excise officers : Recently this condition has been relaxed for export houses, star trading houses. This facility can be extended to all registered manufacturers registered with respective Export Promotion Councils who have a good track record in the payment of Central Excise dues and compliance with statutory regulations.

Goods meant for trading are presently not allowed to be brought into the factory without approval of Principal Collector : Duty paid goods meant for trading can also be allowed to be brought into the Factory and kept in separate identified places. This will reduce handling losses, delay and also the necessity to have a separate dealer license.

Availability of 100% modvat against 95% as provided in last Central Budget : Prior to the Central Budget (1998-99), the Excise Duty paid on specified products for the production of specified items was fully modavatable and the CV duty equivalent to Excise Duty leviable on the imports of such items was also fully modvatable. However, in the current budget, the modvat credit has been restricted to 95% of the duty paid on the input items. This measure has lead to an additional burden to the extent of 5% on the net modavatable part of Excise Duty paid on the inputs.

Modavat of inputs supplies to job workers for further processing : Presently, modvat credit on inputs are not allowed with respect to inputs sent to job workers for further processing under Rule 57F(4) of Central Excise Rules 1944 unless such inputs are sent from the factory premises of the manufacturer of the final product. In practice, sometimes inputs are required to be sent to job workers directly from the supplier of such inputs to reduce transportation cost. However, in such cases modvat credit is not allowed in respect of duty paid on such inputs. There is no rationale for restricting modvat of duty paid on such inputs, whether supplied directly from the premises of manufacturer or supplier and therefore, such restriction should be waived.

Amendment in definition of machinery under Rule 570 of Central Excise 1944 : In the present international market, maintaining proper quality of exported goods is a basic requirement to sustain long term presence vis-à-vis other competitors. In order to achieve such high quality, it is very necessary to control various environmental factors like moisture, humidity, etc. in the plant, so that international quality of goods are manufactured. Therefore, it is very necessary for the manufacturer to install an Air Conditioning Plant, Cooling Tower and Advanced Computer controlled machinery to achieve this objective. In view of this, the present rule 570 of Central Excise may suitably be amended, to include such machinery being installed in their factory premises.

MODVAT on Capital Goods regarding Components, Spares & Accessories item 5 of Table covered under Rule 57 Q(1) : Due to non clarification of chapter heading, the Excise Department is not allowing MODVAT on items of non-specified chapters. Components, spares and accessories falling under Chapter 1 to 97 of the specified goods should be allowed Modvat credit

Acceptance of private records in lieu of statutory records : Presently under rule 57A/G and 57Q/T the manufacturer has to maintain raw materials and capital goods accounts in RG23A and RG23C statutory records. The units which are paying more than Rs. 5 crores as Excise duty and which also have ISO registration may be exempted from maintaining the statutory records and their private records may be accepted in lieu thereof.

Modvat – inclusion of Inputs/Capital Goods : At present the interpretation of "in or in relation to manufacture" is very rigidly followed by the lower authorities even though the High Courts and Tribunals have taken a rather lenient view in this regard and have given ample scope. But the lower authorities do not take this view which results in a number of litigations. The words ‘in or in relation’ should be given a clear cut scope, to do away with all ambiguity and should be framed in such a way that the assessee gets the maximum benefit.

Modvat benefit for Cement, Structural-Steel and other items required for civil work : At present Modvat benefit is denied to the above items. The law must be amended to provide for these items in Capital Modvat.

Extension of Rewarehousing period : Central Excise authorities send demands/show cause notices, if re-warehousing certificates are not submitted within the stipulated period of 90 days in terms of Rule 173N read with Rule 156B. This period should be extended further.

Removal of capital goods for test / repairs / reconditioning : In case of major break down, Capital Goods are required to be sent for repairs in emergencies. Intimation to Assistant Commissioner and obtaining dated acknowledgment of the same is necessary before removal of every capital goods. On certain occasions capital goods are required to be removed immediately. Removal is not possible on the days Central Excise Office remains closed. Central Excise Divisional Office are often located at distant places from the plant. Either requirement of filing intimation be dispensed with or the period of 60 days be extended to 180 days for return of Capital goods as applicable for inputs under rule 57F(4).

Modvat credit based on transporter’s copy of invoice : As per the prevailing regulations, transporter’s copy of invoice has to be submitted to the excise authority for claiming modvat. However, such transporter copies, which passes through a number of hands, including various check posts and is carried by the truck drivers, is misplaced in many cases. It becomes difficult to get modvat in such cases, as each time the industry has to depend on the discretion of the excise department. Such modvat claim should be considered valid if supported by a copy of the suppliers invoice with the declaration to the effect that the transporters copies have been misplaced. Further, modvat credit may be made available on the basis of the invoice available with the buyer (buyer’s copy).

Modvat on Power Plant Machinery : Rule 57Q of Central Excise Rules, 1944, specifically allow modvat on all the capital goods falling within the schedule of the Central Excise Tariff Act, 1985 (5 of 1986). This rule has also specifically allowed all the goods falling under Chapter 84, which includes Power Plant Machinery used for generation of electricity which is out of the purview of the Central Excise Tariff. However, as per provisions of Rule 57R Subrule 2 proviso, excise authorities are not allowing modvat on Power Plant Machinery to the assessee.

Modvat Credit should be allowed to CPP irrespective of their location : Presently Modvat Credit on Inputs and Capital Goods is denied to CPPs if they are located outside the premises of the industry manufacturing goods from electricity generated by CPPs. CPPs are located elsewhere on account of factors such as land availability and proximity to Coal and Water. Electricity is treated as an intermediate product in terms of Rule 57D of the Central Excise Rules and adjustment of Modvat Credit should be allowed against final product.

Modvat Credit on Diesel and Furnace Oil : Presently the Central Excise Duty on Light Diesel Oil and Furance Oil is levied @ 15% ad valorem. Indian Oil Corporation was allowing a deduction of 5% to consumers as a result of which the Duty incidence was reduced to 10% ad valorem. Recognising that a deduction was being allowed by IOC, the Excise Department issued Notification No. 14/97CE(NT) dated 3.5.97 by which consumers could avail Modvat Credit to the extent of 10% only. However, with effect from 1.4.98 IOC has withdrawn the deduction of 5% but Notification No. 14/97CE(NT) dated 3.5.98 has not been rescinded. Hence Excise Duty is being levied @ 15% whereas consumers can avail Modvat credit only to the extent of 10%.

Appeal to Tribunals in respect of Modvat Credit : This should also be provided in the law. A provision to Section 35-B to the Central Excise Act includes matters against which no Appeal may be filed. The Finance Act of 1998 has added to this proviso whereby no Appeal may be filed in matters related to Modvat Credit. The Appellate Tribunal has long been regarded as a body with the expertise and knowledge in dealing with proper and acceptable interpretation of Excise law dealing with Modvat Credit, and has provided considerable relief to Assessees. Clause (d) of the First Proviso to Section 35-B of the Central Excise Act should be deleted.

Issuance of Show cause notices : Vide circular No. 299/15/97 dated 27.2.97, powers have been delegated to the Range Superintendent for issuance of Show Cause Notices in all matters excluding suppression of facts / wilful misstatement/fraud where Commissioners are empowered for signing such Show Cause Notices. To minimise the litigation, aforesaid powers should be vested to a Committee in the office of the Jurisdictional Commissioner. Committee should first review the contents of draft Show Cause Notices. Only after thorough scrutiny and approval of the Committee, Show Cause Notices should be issued to the assessee.

Quick Passing of Orders in respect of Show Cause Notices : The Government should stipulate a time period for passing of orders by the Central Excise Authority in respect of Show Cause Notices (SCNs) issued by them. Presently there are considerable delays in passing of such orders even after the Assessees have submitted replies and appeared for personal hearings. In the interim period similar SCNs relating to subsequent periods are issued.

Delegation of Authority : Authority should be delegated to the Assistant Commissioners of Central Excise to grant permission to retain or bring back duty paid goods. Presently as per Rule 173H of the Central Excise Rules, this authority is vested with the Chief Commissioner of Central Excise. Grant of permission is delayed on account of the heavy burden of work with the Chief Commissioner. Authority to grant permission for removal of finished excisable goods or semi-finished excisable goods for certain purposes should be vested with Assistant Commissioners having jurisdiction of the factory of the manufacturers. Presently this power is vested with the Commissioner, Central Excise which results in delays.

Customs Duty Issues

Anomalies in classification of goods under Customs Act : Based on the experience gained so far and in the light of Court Judgements, Government should review the existing classification system and simplify the operation so that there will not be any room for different interpretations.

Non transferability of DEPB License to Ports other than notified Ports : Discretion should be given to DGFT Officers to allow transfer of DEPB licenses to Ports other than notified Ports, like in the case of Advance License where TRA can be issued to different ports.

Lowering down of custom duty on spare parts : Spare parts duty should be lowered and be made equivalent to capital goods duty itself. This will help continuous upgradation of plant and machinery by the industry.

Discharge of Import cargo : Permission for discharge of cargo from the vessel is delayed until boarding of the Custom officials, especially in minor ports. In this procedure, a lot of time (1 to 5 days) is wasted. On the completion of assessment and payment of duty, immediate permission for discharge of the cargo should be granted.

Overtime payment during export and import cargo : Overtime payment is required to be made to Custom officials for custom clearances during export and import of cargo beyond office hours. Bulk Material has to be loaded/unloaded in the ship on continuous basis. Adequate Custom staff should be posted on recovery basis especially at minor ports and no overtime should be charged for working days. It is the normal duty of the custom officials to clear the goods, so overtime charges should be done away with.

Duplication of Procedure : The procedure for monitoring of licenses under DEPB & DEEC is duplicated at Customs Department and DGFT. The duplication of procedure should be done away with by online information sharing at DGFT and Customs Department.

Delay in obtaining GR Form : Obtaining GR forms from Customs Department is delayed due to various formalities. Procedure for issue of GR form should be simplified to handover the GR form on the same day.

Duty on Shore Tank Ullage : At present, refining industry is required to pay duty on the quantity supposed to have been discharged by the ship based on its ullage report rather than on the quantity supposed to have been received in the shore tanks. Technically, there are so many factors which affect the ship’s ullage and cannot therefore by considered exact. Hence Customs Duty should be paid on shore tank receipts. The law should be clearly amended to levy duty on shore tank receipts.

Finalisation of provisional assessments : The time taken for finalisation is anywhere between one year to three years in spite of submission of documents. This period should be brought down drastically so that where ever refunds are due, the same can be received in reasonable time. Alternatively, interest at market rates should be paid on refunds delayed due to delayed finalisation.

EPCG Issues

Lowering down of threshold limit of Rs. 20 crore for zero duty EPCG license : In case of agricultural and allied product, the Govt. has already reduced Rs. 20 crore limit. In case of some products, the limit has been reduced even to Rs. 1 crore only. Certain industries need modernisation on a war footing. However, the present limit of Rs. 20 crore is very high and therefore the industry is not in a position to avail the benefit under present EPCG scheme to its fullest extent. This limit should be lowered down from Rs. 20 crore to Rs. 5 crore, at least for those Industries, where required machinery are not indigenously available and therefore, it will not be a threat to the Capital Goods Industries in the country.

Export obligation fulfillment period under EPCG Scheme : The export obligation fulfillment period is 8 years from the date of license. In case of mega projects, the gestation period is large (4 to 5 years), thus effective export obligation fulfillment period is drastically reduced. For new projects, export obligation fulfillment period should commence from the start of production.

Miscellaneous Issues

Sales tax on DEPB license : DEPB license is not an incentive, but merely a mode of refund of duty involved on inputs used in export product. So, there is no reason for levy of Sales Tax on sale of DEPB license.

Refund of various local duties and taxes being imposed on inputs used on exported product : In our present tax structure various taxes such as Sales Tax, octroi, service taxes are being levied on various inputs and raw materials being used in the manufacture of export product. Though, certain direct taxes such as Custom Duty, Excise Duty are allowed to be exempted or refunded under present Exim Policy, various local taxes as mentioned above are not refunded to the exporters, which leads to increase in cost of production of the goods exported from our country. Some mechanism may be developed vide which such incidence of taxes being collected by State Government and local authority is refunded to the exporting community to increase their competitive edge in the international market.

Central Sales Tax Declaration & Certificates : Generally it is observed that around 80% to 90% of sales are to the Registered dealers who are eligible for issuing declarations prescribed in the Act and the Rules for availing the concessions. Issue and collection of sales tax forms is a non-value added activity and as such Government should consider abolition of the requirement to produce production of declaration forms by prescribing one uniform rate of tax for all sales whether made to dealers registered under the Act or not.

If for some reason sales through dealers registered under the Act are to be taxed at the lower rate, a mere certificate issued by the purchased certifying, that he is registered under the Act and is eligible for making purchase at the concessional rate should serve the purpose. This will help Trade and Industry to a great extent and also it would help the Government with respect to printing and supplying of the blank stationery to the dealers.

Assuming that for any reason the requirement of the declarations and certificates has to continue, it is suggested that the dealers should be allowed to print their own stationery in the prescribed forms. The Government can exercise required control by prescribing the terms and conditions for granting such permission. In this context, it would not be out of place to mention that similar simplifications have already been made in the Income Tax Act and the Central Excise Act. If this suggestion is implemented:-

Non-availability of the blank stationery will no more be a problem for issuing declarations and certificates.

The dealers would be in a position to maximise the use of IT for issuing the forms. The related records can also be computerised.

We strongly feel that considering the volume of forms to be issued and collected, the Government would consider this suggestion as an administrative simplification.

Law on Works Contract : Clause (b) of Article 286 of the Constitution of India provides that levy of tax on Indivisible Works Contracts, Lease Transaction and Hire Purchase transactions shall be subject to such restrictions and conditions as a Parliament may by law specify. It is observed that no law has been made by the Parliament in exercise of its power under Article 286(3)(b). The Parliament should have made the Law – atleast after the Supreme Court making observations in this regard in the case of Gannon Dunkerly & Co. Vs State of Rajasthan. This is suggested with a view to bring uniformity in the system of taxation by various States. Presently, divergent practices are followed by each of the States and there is no certainty about the incidence of tax.

The Supreme Court in the case of Builders’ Association of India Vs. UOI (1989) 73 STC 370 and Gannon Dunkerly & Co Vs State of Rajasthan 1993(88) STC 204 has ruled that deemed sales of goods involved in the execution of works contract which are in the nature of inter-State sales or sales in the course of impot or sales outside the state falling in Section 3, 4 & 5 respectively and as such cannot be subjected to tax by the State.

The Court has clarified that this restriction on the power of the State is applicable irrespective of whether the charging section or the definition section under the Central Sales Tax Act is amended or not. To avoid the ambiguity about the taxability of such deemed transaction of sales, it is desirable that CST Act is appropriately amended. In this context we would like to add that in the erstwhile CST Act, similar provision was there.