The finance ministry has asked its commerce counterpart to change rules that severely restrict its officers from questioning the value of consignments within special economic zones (SEZs) when they suspect shady fund transfers from abroad. The ministry has said it has no effective power to investigate suspected transfer pricing violations in SEZs.
The violations include illegal fund receipts by an SEZ unit from abroad by showing a higher export value and similar fund outflow to a foreign entity by overvaluing its imports. The ministry fears this channel is prone to be abused for money laundering and terror financing.
SEZ rules do not allow revenue department officials to examine consignments within these special zones or collect samples unless they have ?specific adverse intelligence? about wrongdoing. In fact, SEZ rule 28 (5) stipulates that the assessment of imports and domestic procurement by a developer or a unit shall be on the basis of self-declaration and shall not be subjected to routine examination.
?This rules out the possibility of random consignment checking to ascertain the veracity of the declared value. In ports outside SEZs, Customs authorities follow the World Customs Organisation norms and randomly check 10% of the consignments to ensure that the declared value is correct,? a person privy to the development told FE.
Such checks are done when the merchant has no past record and the commodity concerned is sensitive. The rule further says if an examination becomes essential based on ?prior intelligence?, it can be done only after securing written permission from the Development Commissioner of the zone?an officer who is in charge of the SEZ and is responsible for its development. However, securing permission from the DC is not easy, a field officer of the finance ministry told FE, quoting a recent denial of permission to examine some consignments at the Kandla SEZ in Gujarat.
Revenue officials wanted to inspect the consignments of a plastic processing unit which was suspected to be importing used plastic waste for recycling in violation of the foreign trade regulator?s (DGFT) rule that only virgin plastic waste can be imported for recycling. Plastic scrap from a factory is an example for virgin plastic waste, while waste from a hospital can be used plastic waste. The firm was allegedly getting a fee from a Dubai-based entity for processing the waste, which helped it meet the ?net foreign exchange earner? status that SEZ units are required to have, said the person, who asked not to be named. Customs officials were denied permission to take samples, he said. Manipulations in the pricing of goods exchanged between related parties such as an offshore parent and a local subsidiary are major concerns for revenue authorities across the globe. It is now getting amplified considering the sharp increase massive in terror attacks, for which at some point in time, money travels through the official channel.