There are four variants of false invoicing, viz. under/ over invoicing of exports/ imports, informs Ajay Kumar Gupta in ‘Risk Management in Imports/ Exports in India’ (www.cchindia.co.in). These false invoicing practices can take place in quantity and/or value, he adds.
“Of these four, two are of high risk. These are under-invoicing of imports and over-invoicing of exports. They are risky not only from the perspective of the Customs penal regime but are also mechanisms of illegal capital transfer between countries.”
Under-invoicing of imports
There are many good reasons why under-invoicing of imports is not advisable, the author notes. For example, “as the undeclared money has to be sent to the seller through illegal channels, it adds to the cost and reduces the margins further.” Also, the Customs Department may reject the declared under-invoiced value and enhance the same for duty purposes.
Another reason is the NIDB (National Import Database) with comparable values for imports. If the declared value is less than the comparable value of the import, the cargo may be confiscated by the Customs, which can only be redeemed by paying fine and other penalties.
As a strategy to deal with the problem of undervaluation among the third world countries, the tariff duties in the case of many sensitive items are not on ad valorem basis but on quantity basis, informs Gupta. “For example, in the case of textile fabrics, the duties are levied on either square metre basis or on kg basis thus practically doing away with the duty evasion due to undervaluation.”
Over-invoicing of exports
The other high-risk practice is that of over-invoicing exports, which is on the increase in the recent past, rues the author. He finds that duty drawback and other export incentive schemes which are value-based or computed on the net foreign exchange earnings encourage over-invoicing of exports. “There are no Customs Valuation Rules for exports. Moreover, Indian Customs does not pay much attention if the over-invoiced exports do not avail of any value-based export incentives.”
Instructive material.
