G. Chandrashekhar

Mumbai , Aug 4

THE ingenuity of the edible oil importers to beat the system to evade customs duty seems to have no limit. After exploring possibilities such as invoice manipulation (under-invoicing of imports) as also mis-declaration of goods and quality, they have hit upon a new way of evading customs duty on imported edible oil.

As it comes to light, the modus operandi is simple and seeks to manipulate or misuse the duty exemption scheme that allows duty-free imports of raw material for production of a finished product meant for export with specified value addition.

Vegetable oil trading firms that are 100 per cent EOUs (Export Oriented Units) purchase imported oil on high-sea sales basis ostensibly for value addition and re-export purposes. The export obligation is met in terms of quantity, but with little value-addition in reality. The export invoice is inflated with an artificially high price.

A part of the imported oil is then diverted for sale in the domestic market on which the importer pays only 50 per cent customs duty. The basic rate of duty is much higher for palm group of oils. For instance, on refined palmolein the rate of duty is 91.8 per cent inclusive of education cess.

The exchequer loses huge revenue on imports under the duty exemption scheme as players try to exploit loopholes and take undue advantage of the laxity of revenue officials. It is reported in the vegetable oil trading circles that such a practice is prevalent more in Chennai port and exploited by some 100 per cent EOUs in Tamil Nadu, among others.

Several inconvenient questions relating to enforcement of rules and monitoring of import-export activity arise. It defies logic what kind of value addition is possible in imported refined palmolein, a finished product by itself.

It is also believed, one type of oil is imported (say, refined palmolein) and another type of oil is exported (say, groundnut oil) to meet the export obligation.

Many in the trade believe such misfeasance is not possible without the connivance of revenue officials and others charged with the responsibility to oversee or monitor import-export activities.

Certain importers have reportedly brought in refined palmolein declaring it as `fortified vegetable oil' and sold the same in the domestic market.

Such malpractices not only rob the exchequer of legitimate revenue, but also set an unhealthy example in trade circles.

In the marketplace, honest traders are unable to compete on merits with manipulators who evade duties and taxes by devious means.

"An investigation into edible oil imports under the duty exemption scheme over the last two years will throw up many surprises and shocks for the Government," asserted a trade intermediary who spoke to Business Line on condition of anonymity.

The flips side is that high rates of customs tariff create conditions for evasion and manipulation.

No doubt, the Government is duty bound to protect the interests of domestic producers and therefore, has to fix customs duty to harmonise the interests of various stakeholders.

However, in case of vegetable oil, there are far too many categories of oil and far too many rates of duties. There is both need and scope for rationalising tariffs on vegetable oil imports.

All said and done, there is no alternative to strict vigilance by customs officials if the Government is keen to plug revenue leakage.

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