Police dept extends Rs 3.82 cr undue benefit to contractor - Eastern Mirror
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Police dept extends Rs 3.82 cr undue benefit to contractor

By EMN Updated: Jul 30, 2014 12:22 am

Principal Correspondent

PROJECT Engineer, Police Engineering Project (PE-PEP) Chumukedima extended undue benefit of Rs 3.82 crore to a contractor on account of addition cost escalation, short deduction of works contract tax and non-deduction of income tax at source.
The Comptroller Auditor General of India (CAG) report for the year ended March 31, 2013 which was tabled in just ended State Assembly revealed that the work for construction of Permanent Headquarter of the 9th Nagaland Armed Police (Indian Reserve) Batallion at Saijang consisting of eight different types of residential buildings was awarded on February 2006 to M/s Sing Construction on Turn-Key basis at a negotiated item rate without calling for open tenders at a total cost of Rs 39.95 crore.
The negotiated item rates were 85% above Nagaland Schedule of Rate (SOR) 2004 for all items, the report said while adding that the department reverted the Turn-Key basis contract into a normal contract in June 2007 due to the objection raised by the Nagaland Contractors and Suppliers Union.
As per the new terms and conditions of contract, the contractor was allowed to execute works at 20% above SOR 2004 and also entitled for escalation of cost as per RBI price index for the remaining portion of the amount to be paid w.e.f. from 2006-07 onwards, it pointed out.
However, the report maintained that scrutiny in May 2013 of Measurement Books and Running account Bills etc of the PE-PEP Chumukedima revealed that the work commenced in March 2006, was completed in October 2008 and the contractor claimed Rs 39.34 crore (the amount of work done Rs 32.54 crore and cost of escalation Rs 6.80 crore) of which an amount of Rs 39.04 crore was paid by the PE in eight bills between April 2006 and December 2010.
Further scrutiny of escalation bills revealed that the admissible cost of escalation to be paid to the contractor on the value of executed (Rs 32.54 crore) was only Rs 4.73 crore. However, the PE irregularly paid Rs 2.07 crore as additional escalation charges which was contrary to the terms of the work order, the CAG exposed.
Thus, the department paid an excess of Rs 2.07 crore to the contractor due to faulty calculation of cost escalation which needs to be recovered, the CAG maintained.

Short deduction of WCT
In the same case, the CAG revealed that the contractor executed works valued at Rs 39.34 crore and as per the provisions of Nagaland Value Added Tax (NVAT) 2005, an amount of Rs 140.52 lakh was to deducted from the contractor’s bill as Work Contract Tax (WCT). However, the report said the division deducted only an amount of Rs 43.20 lakh resulting in short deduction of Rs 97.32 lakh.
Thus, the report said, by not deducting the work contract tax at source from contractor’s bill while releasing the payment, the PE extended an undue benefit of Rs 97.32 lakh to the contractor resulting in a loss to the exchequer to that extent.

Non-deduction of income tax at source
The CAG report also maintained that during scrutiny of records of the PE, it was seen that the contractor was paid Rs 39.04 crore, including the cost of escalation, against the construction of works. Further scrutiny revealed that the income tax of Rs 78 lakh at the rate of 2% which was required to be deducted at source was not deducted by the PE during payments.
This resulted in undue benefit of Rs 78 lakh to the contractor, the report said, adding that non-deduction of income tax at source in violation of the IT Act is fraught with the risk of escaping notice of the tax assessing authority, Government of India. Thus, the CAG said, there was a consolidated undue benefit/excess payment of Rs 3.82 crore to the contractor in three cases against the project.
Meanwhile, the report also stated that in reply during September 2013, the Nagaland government stated that the reply furnished by the PE was thoroughly examined by the government and that it had agreed with the reply that there was no irregular payment of additional escalation as the contractor had completed the work within the stipulated time.
The CAG pointed out that regarding short deduction of WCT, the government stated that short deduction, if any, would be deducted from the final bill payment. As for non-deduction of Income Tax, the government stated that the question does not arise since the firm had produced the Income Tax clearance certificate at the time of payment, it said adding that however, the reply from the PE was not forwarded.
The CAG maintained that the reply is not tenable as there was no provision for providing escalation for delay in payment of a portion of bill amount in the work order or in public works account code.
It also said the claim of the government that the short deduction, if any, would be deducted from the final payment also holds no substance as the balance amount to be paid to the contractor was only Rs 30 lakh.
The CAG also justified that the government’s claim about submission of IT clearance certificate to the contractor at the time of payment was also not true as the IT clearance certificate indicated only the amount of tax paid by the contractor prior to that and it would never include a payment which was due to contractor. Moreover, the IT clearance certificate was not shown to the audit, the CAG remarked.

By EMN Updated: Jul 30, 2014 12:22:14 am