Bengaluru-based Himalaya Drug Co has come under the indirect tax department’s scanner for alleged tax evasion and wrong availment of input tax credit. The drug manufacturer, the department’s investigation has revealed, evaded excise duty to the tune of `19 crore between April 2013 and June 2017 by miss-classifying a product to claim lower excise liability. Besides, the company has claimed and obtained undeserved input (service) tax credit of around `10 crore — it was outsourcing production of the goods concerned but claimed to be manufacturing them at their own facilities and that certain services also went into the goods as inputs.
The sources said that “baby wipes” are classified under chapter 33 of the Central Excise Tariff Act which attracted 12.5% duty for being “perfumed papers and papers impregnated or coated with cosmetics, whether or not perfumed”. However, the company had been selling the product under Chapter 96, which attracts 6% excise. The mis-classification of the article continued in the GST regime as well, which is also being investigated by the department.
Under GST, Chapter 33 items are taxed at 28% while Chapter 96 products fall under a much lower 18% bracket. The department recorded the statements of company officials on March 22 and also recovered relevant records under summon proceedings. A provisional investigation report has been submitted by the Bangalore zonal unit of the Directorate General of GST Intelligence even as further investigation is underway. The company could soon be served with a notice once the investigative process is over.
The preliminary report also noted that Himalaya Drug Co had ‘short-paid’ an amount under the Cenvat Credit Rules for the same period cited above, by availing input service credit for manufacturing excisable goods but failed to pay excise duty on the sale of these items. This accumulated credit amounting to `10 crore was transferred as transitional credit into the GST regime.
Sources said that the department found the excise duty evasion during detailed verification of transitional credit claimed by the company. In April, the government had identified the top 50,000 assessees in terms of the transitional credit claims detailed verification as the department believed that claims made were ‘unusually high’.
Nearly 9.5 lakh assessees have claimed a massive `1.6 lakh crore as such credits till the December 27 deadline. The process required the companies to produce records of sale, stock statement and a copy of the Trans-I form, used for claiming such credit. In the GST regime, businesses are allowed to claim credit for central taxes (excise and service tax) paid on the stock bought in the pre-GST regime but sold after July 1, when the GST came into existence.
UPDATE: In response to this story, a Himalaya Drug Company spokesperson said: “The Himalaya Drug Company is a tax compliant organisation and we follow a structured approach towards the same. Kindly be informed Himalaya has always been a tax abiding organisation. We always take appropriate advice from the tax experts for our tax compliance. The present issue appears to be some misunderstanding from the tax department regarding our product “Baby Wipes” and its classification proposed by them. As regard our product “Baby Wipes”, the same is in the market since 2007 and has followed the correct classification since launch and there is no short payment of any central excise duty. We affirm that till date there has been no notice nor any classification dispute on this product.”