Performance Audit on the Project Imports Scheme, Union Government (Indirect Taxes — Customs)

Findings

1. Clearance of goods under a scheme built for speed took between 3 and 1,149 days, which the audit reads as inefficiency in coordination, document processing and system approvals, undermining the National Trade Facilitation Action Plan's targets.

   “Audit observed substantial delays in the clearance of goods under the Project Import (PI) Scheme, which is contrary to the objective of procedural simplification and expeditious cargo movement. Such delays (ranging from 3 to 1,149 days) point to inefficiencies in coordination, document processing and system-level approvals within the Project Import framework. Not adhering to prescribed timelines adversely impacts project implementation schedules and undermines the targets envisaged under the National Trade Facilitation Action Plan (NTFAP), thereby affecting the ease of doing business.”Executive Summary

2. The regulations set no time limit either for registering a project or for completing imports under a registered contract, which the audit says weakens control over compliance and may lead to duty evasion and goods going unaccounted.

   “The Project Import Regulations (PIR), 1986 do not prescribe specific timelines for registration of projects or for completion of imports under registered contracts. The absence of defined timeframes impacts project implementation schedules, reflect procedural inefficiencies and further weakens control over import compliance, and may potentially lead to duty evasion, not accounting of goods, and loss of revenue to the Government.”Executive Summary

3. In 57 of 383 finalised cases across eight commissionerates, contracts were closed without the mandatory installation certificate, without the prescribed plant site verification and without reconciliation statements, bills of entry, invoices or final payment certificates.

   “Audit scrutiny of 383 finalised Project Import cases revealed that in 57 cases across eight Commissionerates, contracts were finalised without obtaining mandatory Installation Certificates, conducting the prescribed Plant Site Verification (PSV) and obtaining other prescribed documents such as Reconciliation Statements, copies of Bills of Entry, invoices, and final payment certificates.”Executive Summary

4. Concessional treatment was extended to projects that were not notified and to ineligible machinery, which the audit attributes to deficient eligibility verification at assessment and to notification provisions not being followed.

   “Extension of Project Import benefits to not notified projects and ineligible machinery/goods indicates deficiencies in verification of project eligibility at the assessment stage and not adhering to notification provisions, leading to loss of revenue.”Executive Summary

5. Over the five years, 485 contracts worth ₹1.34 lakh crore were registered, ₹10,567.09 crore of revenue was collected and ₹6,704.55 crore of duty was foregone; new registrations fell 78.10 per cent and their value 77.45 per cent, largely because duty rates elsewhere had come down.

   “As per the DG Systems' data, during this period, a total of 485 contracts were registered under the Project Import Scheme with CIF value of ₹1.34 Lakh crore. The total revenue collected under the scheme amounted to ₹ 10,567.09 crore and duty foregone on account of concessional assessment under the scheme stood at ₹ 6,704.55 crore… the proportion of new contracts registered under the scheme decreased significantly by 78.10 per cent and the value of the contracts by 77.45 per cent.”Executive Summary

6. The audit's findings carry a revenue implication of ₹128.58 crore and procedural irregularities of ₹2,979.33 crore across 36 observations.

   “This report contains 36 audit observations and 11 recommendations. The performance audit has revenue implication of ₹128.58 crore along with procedural irregularities involving ₹2,979.33 crore.”Executive Summary

7. 139 of the 915 sampled cases, involving imports worth ₹15,818.11 crore across nine commissionerates, were never made available to the audit.

   “Out of the total 915 selected cases, 139 cases involving a CIF value of ₹15,818.11 crore pertaining to nine Commissionerates were not made available to Audit.”Executive Summary

8. Bank guarantees and bonds were not renewed where finalisation of contracts was still pending, and confirmed demands went unrecovered long enough that limitation periods may expire or importers become untraceable.

   “Audit observed instances of not renewing of Bank Guarantees and Bonds in cases where finalization of Project Import contracts remained pending, indicating deficiencies in monitoring and weak internal controls… Prolonged delays or failure in recovery not only result in blockage of government revenue but may also lead to difficulties in realization due to expiry of limitation periods or not traceable of importers.”Executive Summary

Fact-checks citing this report

• ◑Lacks contextWe will ensure that a conducive, enabling environment is created making 'doing business' in India easy. We will focus on cutting the red tape, simplifying the procedures and removing the bottlenecks… Our attempt will be to move towards a single-window system of clearances.