[This column from Business Standard of 27 May 2003 is based on the experience of a real businessman. It is our own governments, not the Chinese, that defeated our businessmen in their attempt to conquer world markets]
A cautionary tale
Ashok V Desai
Suppose you want to do something constructive for your
country; suppose you establish contact with a Paris boutique and get a contract
to supply it with fashion garments. Land as well as labour are cheaper across
the border, so you decide to set up a factory in NOIDA, also known as the city
of Gautama the Buddha. Before you start, let me give you a preview. You will
think I am fantasizing; but every one of the experiences I describe below
happened to a real, flesh-and-blood exporter like you.
You call in a contractor to build you a factory. Make
sure you deduct tax at source from whatever money you give him. The money is
not for you; before the seventh of the next month you had better rush to the
nearest Central Government treasury and deposit it.
Before you step into your factory, you had better
register with the UP Trade Tax Department. Nowadays it is called a sales tax,
but it is governed by the UP Trade Tax Act of 1948. Go and get Form XV and
apply to a Trade Tax Officer for registration under Section 8.A (1) and Rule
54. Compared to what will follow, this form is simplicity itself; it asks for
particulars and addresses of the owners and directors of the business. After
suitable persuasion the Trade Tax Officer will grace your establishment with a
visit, and give you a Certificate of Registration under Rule 55.
Now you find that you have to source all your fabric from
Delhi. You had better make sure that every shipment from Delhi is accompanied
by a bill, a challan, and – most important – Form XXXI in triplicate. It must
contain first the name, address and registration number of the supplier, then a
description of the goods including their quantity, weight, value in figures,
value in words, challan Number and date; and finally, the registration number of
the truck, the name and address of its owner, and – most important – the
driver’s full name, parentage and driving licence number. All three copies must
be signed by the supplier in Delhi, the receiver in NOIDA, and – most important
– the truck driver. If your supplier forgot to send Form XXXI with the goods,
they will be impounded. The Trade Tax Department of UP will release the goods
on payment of 40% of the value. It would save money if you make an informal
understanding with the concerned officer.
Suppose your Form XXXI is in order and the goods arrive
at the factory. Do not, for goodness’ sake, throw it away. Within 48 hours of
its crossing the border, it must be delivered intact to the Trade Tax
Department. The clerk may hesitate to certify that it was so delivered – you may have to make a bargain with him.
If you survive a year of form-filling and visits to
government offices, you will get a notice from the Trade Tax Department, asking
you to give details of purchases (including bill numbers, dates, amounts, names
of suppliers, quantities, weights, value of goods etc) from registered dealers
within UP, from unregistered dealers within UP, of purchases from outside the
state (bill numbers, dates – well, you have got the idea) – to be accompanied
by Form C, of goods worth less than Rs 5000 from outside UP, and work
contracted out (name and address of contractor, amount of contract, tax
deducted, date on which it was deposited, etc), details of opening stocks, purchases
and closing stocks of raw materials, work-in-progress and finished goods
(distinguished by material, design, quantity, rate and amount), and of sales,
distinguishing between sales in UP, sales in India outside UP and sales outside
India. When you do this, the assessing officer will tell you that you siphoned
off some of the raw material and sold it in the market to avoid sales tax. You
may give him a demonstration of input-output coefficients and show that the
finished goods produced must have exhausted the raw materials used. Then he
will accuse you of not showing the entire production in the books and selling
off a part without paying sales tax. You may want to start all over with the
demonstration. But he may not have the patience; an informal arrangement may be
preferred. You do not have to pay the tax on exports, for which you must
produce more details, such as challan, transport receipt, airway bill etc; but
if the pretty Paris boutique owner does not send the money within six months,
the Trade Tax Officer will ask you to pay tax on the exports.
When you have satisfied all the babus and are just about
to rest, you will get a phone call from government auditors in Lucknow. They
will call you over to Lucknow and accuse you of the same things as the Trade
Tax Officer. Having satisfied him will not satisfy them; informal understanding
must be reached with them separately.
Suppose now that the beautiful boutique is not satisfied
with the sequins you sewed on, and sends you ones to put on the next consignment.
You will have to pay duty on those expensive sequins; but you can get a refund.
For this drawback you must apply in another form, which must be attested by the
Customs at the port of shipment. Chances are that the customs officer will
write on the form:
“Inspected lot and examined 5%. Checked description, qty.
Checked AEPC validity. Fabric does not seem to be made of fibre claimed. TM of
sequins does not seem to be French. Value, stated at 80 Fr Francs, appears on
high side; Rs 80 may be closer. If approved, RS sample may be sent to
Verification Sec. Signed L.K. Hungry, Dty AO. Countersigned I.M. Greedy, AO.”
Well, you have had it; that shipment will not reach the
buyer in time, who will not pay you, and you will have to close down. You
should have had the foresight to reach an informal understanding with the
customs before they got their claws into your lovely dresses.
If you survive that, your journey has just begun. For
soon you will receive a notice from the central Excise Department asking you to
register yourself, for the finance minister lowered the threshold for small
textile firms in the last budget. You may ask for exemption saying you are an
exporter. But that shipment that customs held up: where will you sell it but to
a kabadiwallah? And that will make you subject to excise duty – or CENVAT as
they call it these days. Get ready to fill Form A-1, and make sure your
registration is in Form RC-1; it will take some gentle persuasion to get it.
You will have to file excise returns by the fifth of every month – opening
stocks, closing stocks, purchases, sales etc in agonizing detail. And when you
export, you had better call the Range Excise Officer to seal the packages. He
will need to be persuaded, as also the customs officer, from whom he will want
a certificate that the goods have left the country. Lucky goods. Unlucky you.
