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Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT A NTI E VASION M EASURES I N VAT Best Practices In Maharashtra Presented by-

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1 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT A NTI E VASION M EASURES I N VAT Best Practices In Maharashtra Presented by- Shri. J.P.Dange Chairman, 4 th State Finance Commission & Former Chief Secretary to the Government of Maharashtra 14/08/2013 1

2 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT TOPICS FOR DISCUSSION  What is Sales Tax?  Revenue Receipts under VAT  Functional Branches  Types of evasions  Evasion Cases  Policy options on fraud  Anti Evasion Measures 2

3 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT O RGANISATIONAL S TRUCTURE  Council of Ministers  Finance Minister  Finance Secretary  Commissioner of Sales Tax (1)- Cadre Post IAS  Special Commissioner of Sales Tax (1)- Cadre Post IAS  Chief Vigilance Officer (Special IGP) (1)- IPS  Additional Commissioners of Sales Tax (9)  Joint Commissioners of Sales Tax (72)- IAS 3  Deputy Commissioners of Sales Tax (401)  Assistant Commissioners of Sales Tax (590)  Sales Tax Officers (1191) 3

4 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax S ALES T AX  In its present form, Sales Tax, a tax on transactions of sales, came into existence after First World War.  The taxable event in case of Sales Tax is the sale of goods as in case of Customs is bringing of the goods into India and in case of excise, the manufacture of goods.  The powers are derived by State Governments from Entry 54 of State List (List II) of the Seventh Schedule to the Constitution of India and they are subject to Entry 92A of Union List (List I) 4

5 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax W HAT I S I NPUT T AX C REDIT (ITC)  Input Tax Credit (ITC)- amount of tax credit  Tax charged on the purchased goods  Credit can be adjusted against the VAT payable on sales  Balance of VAT has to be paid to the Government;  Any registered dealer who not opted to pay tax by way of composition  Generally set-off for the full amount of tax paid on purchases,  Including capital assets, raw material, trading goods, packing goods, parts, components, spares, purchases debited to profit and loss account is available  Subject to retention in specified contingencies or other than on goods covered by a negative list; 5

6 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax MAHARASHTRA: FROM ST TO VAT (… CONTD.)  Comprehensive Sales Tax Act, viz, Bombay Sales Tax Act, 1946, from 1 st October 1946 and tax on goods dispatched to other States introduced in  Constitution came into effect from 26 th Jan  Powers of State to levy tax came to be controlled by Entry 54 of State List  Bombay Sales Tax Act, 1953 was enforced from Mar 1953 whereas Bombay Sales Tax Act, 1959 came into effect from 1 st Jan  Replaced by Maharashtra Value Added Tax Act, 2002 from 1 st April

7 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax MAHARASHTRA: FROM ST TO VAT  Generally guided by best international practices with regard to legal framework  Operating procedures and eliminates cascading impact of double taxation.  Self-policing, self-assessment system  Improved control mechanism for better compliance  Comprehensive legislation covering works contract, lease transactions etc with Standard VAT rate 12.5% 7

8 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax SIMPLE VALUE CHAIN R ETAILER Pays tax on sales to consumer Claims ITC on purchases from Wholesaler W HOLESALER Pays tax on sales to retailer Claims ITC on purchases from Manufacturer M ANUFACTURER Pays tax on sales to wholesalerClaims ITC on purchases 8

9 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax WHO PAY VAT TO GOVERNMENT  Manufacturers  Importers  Wholesalers  Distributors  Retailers  Works Contractors  Lessers 9

10 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax B ENEFITS O F VAT O VER S ALES T AX (… CONTD.)  Lower and stable rates of tax (no frequent changes)  Rationalization of tax burden  Great reduction in number of rates of 5% and 12.5%  Goods 5% to be specified and  Rest of others liable to 12.5%  Less scope for litigation and full set-off taxes paid at every stage 10

11 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax B ENEFITS O F VAT O VER S ALES T AX (… CONTD.)  Transparent system, greater reliance on self assessment and voluntary compliance by dealers;  Schedule A (tax free goods), B (gold, silver and precious stones), C (goods of national importance, industrial raw material, IT products), D (liquor and petroleum products) and E (goods not covered elsewhere) are lists of goods for which rates of tax Nil or 0%, 1%, 5%, 20% or above and 12.5% respectively. 11

12 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax REVENUE RECEIPTS TREND ( SOURCE : STD WEB SITE ) 12 Revenue receipts FY Rs. 160 crores BSTMVAT

13 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax COMPARATIVE TAX COLLECTION ( VAT ) YEARMAHARASHTRA (Actual)WEST BENGAL (Actual) FY FY FY FY FY FY

14 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax FUNCTIONAL BRANCH EXPECTED WORK Survey- New Branch under VAT Identify unregistered dealers, follow them up for getting registered & bring them into tax net, collating data collected from outside agencies, door to door or survey in selected areas Registration (threshold limit Rs 5 lakhs) Registration of dealer- Bring evidences about business & businessman on record in proper manner- PAN based TIN Returns Monitor periodic filing of returns, Ascertain Non filers and Short filers; follow them up Advisory – New Branch under VAT Educate dealer about provisions of law, monitor initial filing of returns and risky category cases Central Repository- New Branch Issuance of declarations under CST Act (Form C, H, F, EI, EII) with proper scrutiny 14

15 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax FUNCTIONAL BRANCH EXPECTED WORK Refund – New Branch Carry out Refund Audit to ascertain correctness of excess ITC claim over payable VAT and grant refunds Business Audit- New Branch Carry out audit of business- cases identified on various risk based criteria Investigation Detection of cases of concealment of sales and purchases, gather market intelligence, study modus operandi of evasion of taxes RecoveryRecovery actions under Land Revenue Code Issue Based Audit- New Branch Scrutiny of only communicated particular issue 15

16 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax VAT FRAUDS  VAT fraud a “SCHEME”  Avoid paying VAT on sales and  Claim refunds of VAT never paid by procuring bogus purchase invoices  Actualize criminal intents using different methods  Investigating and checkmating VAT frauds costly  Huge amounts of money required 16

17 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax TYPES OF VAT FRAUDS  Under reported sales;  Inflated Refund Claims;  Fictitious Traders;  Domestic sales disguised as Inter State Sales;  Failure to get registered;  Misclassification of commodities;  Taxes collected but not remitted;  Goods coming from outside the State escaping tax;  Credit claimed for VAT on purchases that are not credible;  Bogus traders 17

18 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax UNDER REPORTED SALES  Conceal actual sales in domestic market  Evade obligation to pay VAT  Enables to claim more refunds (credit) than they deserve  Has the potential of boosting the business of such traders  Will encourage patronage due to relatively cheap goods 18

19 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax INFLATED REFUND CLAIMS (HAWALA BENEFICIARIES)  Traders acquire invoices for purchases they never make  Intent is to claim inflated refunds than they deserve  Acquire fake invoices needed to claim refunds  Give evidence of merchandise purchase on which refundable VAT is paid  Established crime network (HAWALA) dealing in such fabricated invoices  “purchased” to defraud Government 19

20 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax FICTITIOUS TRADERS  Traders set up unreal enterprises  Get themselves registered for VAT  Creating fictitious traders of themselves  Issue fake sale invoices and  Prepare ground for VAT refund claims  Before being exposed, make fast profits and disappear quickly 20

21 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax LOCAL SALES AS INTER STATE SALES  Traders sell goods in local market but claim to have sold them in Inter State Trade  For this purpose,  fake invoices  Fake transport documents  Fake declarations under CST Act are arranged  Concessional rate of CST applies and  VAT paid on purchases become refundable  Instead of accruing incremental tax 21

22 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax FAILURE TO GET REGISTERED  Small businesses operating close to the threshold level of turnover  At which registration becomes compulsory  Failing to get registered  Saving VAT as well as VAT compliance costs  Mainly retailers predominate this group 22

23 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax MISCLASSIFICATION OF COMMODITIES  Sales liable to tax at different rates, or  Being goods exempted from VAT  May reduce tax liability  By exaggerating the proportion of sales in the lower tax categories 23

24 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax TAX COLLECTED BUT NOT REMITTED  By false accounting or  By engineering bankruptcy before tax is paid or  “missing trader” fraud wherein registered business disappears 24

25 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax GOODS COMING FROM OUTSIDE THE STATE ESCAPING TAX  Levy of tax accounts based  No tax levied at the State border  No record of goods entering into the State  Scope for goods coming from outside the State escaping the tax  No machinery to check that goods meant for Inter State Resale entering State have gone out without being unloaded 25

26 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax INPUT CREDIT CLAMES THAT ARE NOT CREDIBLE  in two forms:  business supplies variety of outputs- subject to VAT and exempt there from;  incentive to allocate inputs to production of the taxed items;  than the exempt;  Ineligible Inputs misrepresented as eligible;  VAT liability reduced. 26

27 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax BOGUS TRADERS  Businesses set up solely to “generate invoices” to allow recovery of VAT;  Invoice prima facie evidence, unless otherwise proved, that earlier tax has been paid;  “invoice mills” exploit practical impossibility of crosschecking;  Frauds known as “Hawala” in India and as “carousel fraud” in western countries. 27

28 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax SIMPLE HAWALA OPERATION H AWALA Hawala Operator issues fake Tax Invoice for consideration- No taxes paid into Government Treasury or no intention of doing so Hawala Beneficiary claims ITC on this Invoice H AWALA B ENEFICIARY Hawala Beneficiary claims ITC of taxes never paid into Government Treasury State Exchequer defrauded E FFECT Genuine tax payers cheated 28

29 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax BASIC “CAROUSEL FRAUD” Company C “Buffer”: Buys goods from B at VAT inclusive price, and sells to D charging VAT C may be unaware of fraud Company D: Pays VAT on purchases from Company C. Exports goods to company A in France and claims refund for VAT on exported goods. In effect reclaims VAT not paid by B Company A: Exports goods to company B in another member State (UK) Export sale is VAT zero rated Company B: The Missing Trader: Purchases goods from Company A in member State 2 (France). Paid no VAT on purchase. Charges VAT on sale to Company C. Disappears without remitting VAT 29

30 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax UNETHICAL PROFESSIONALS DECLARATION MISUSED BY WHOMMODUS OPERANDI Form C under CST Act during Sales Tax period Sales Tax Practitioner (STP) In moffusil areas, Sales Tax offices are located at District Headquarters. A STP, coming from a Taluka on a State boarder used to appear before Registering Authority & submit application on behalf of dealer of Taluka place for registration under BST as well as CST Act. Immediately after receipt of CST RC No, he used to submit application, already with him on which signature of the said businessman was obtained by fraud, for declarations in Form C. These declarations then were sold to those who want them for a consideration. Later on he was caught and prosecuted. 30

31 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax UNETHICAL PROFESSIONALS DECLARATION MISUSED BY WHOMMODUS OPERANDI Form BC under BST Act during Sales Tax period Chartered Accountant (CA) Units from backward areas of the State were given Sales Tax Incentives, either by way of deferment of taxes collected on sales or exemption from payment of taxes, for dispersal of industries. To claim exemption from payment of taxes while purchasing the raw material required by the unit, declaration in Form BC was required to be issued. Units were required to get the forms printed on their own and get blank forms authenticated from Assessing Authority concerned. A Chartered Accountant got forms printed, used fake Seals and Stamps of authorities as well as units operating in Beed District and sold forms for consideration. Was caught during cross checks and prosecuted. 31

32 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax EVASION METHODS & MEASURES EVASION METHOD EVASION PURPOSE ANTI EVASION MEASURES BY WHOM Imaginary name & TIN, such Fabricated Tax Invoices accounted for in books of accounts To defraud exchequer by claiming wrong ITC ITC verification report will flag such cases Hawala Operator will issue Tax Invoices, as per requirement. No tax deposited into Govt Treasury. To defraud exchequer by claiming wrong ITC ITC verification report will flag such cases Genuine Tax Invoices fabricated to alter amounts or multiply their numbers To defraud exchequer by claiming wrong ITC ITC verification report will flag such cases Local sales claimed as Inter State Sales Pay 2% CST and claim ITC at a rate which is higher than 2% BCP to monitor movement of goods outside State, Central Agency 32

33 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax EVASION METHODS & MEASURES EVASION METHODEVASION PURPOSE ANTI EVASION MEASURES BY WHOM ITC claim on purchases more than tax liability shown by seller To claim incorrect amount of ITC Analysis of VAT Audit Report as well as ITC report to flag such cases. Confirmation from seller required for allowance of such claims ITC claim on purchases from particular dealer but seller not showing any sales to the claimant To claim incorrect amount of ITC Analysis of VAT Audit Report to flag such cases. Confirmation from seller required for allowance of such claims ITC claim more than tax liability disclosed by seller in his return for corresponding period To claim incorrect amount of ITC ITC verification report to flag such cases. Confirmation from seller required for allowance of such claims 33

34 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax EVASION METHODS & MEASURES EVASION METHODEVASION PURPOSE ANTI EVASION MEASURES BY WHOM Concealment of Sales & Purchases To deprive exchequer of its legitimate tax Can not be detected by analytical tools being unrecorded transactions. Answer Investigation visits. Local sales claimed as stock transfer/consignment sales outside State To claim NIL tax liability as these are Non Sale Transactions BCP to monitor movement of goods outside State. You run business but all property in the name of spouse. Intention of defrauding the state Legal issues. Misclassification of purchases for claiming ITC To claim wrong ITCAt present manually only 34

35 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax POLICY OPTIONS ON FRAUDS  Essence of fraud that money is made quickly  Time gap between sale transaction & remittance of tax to Government  Once money disappears, tracking & recovering unjustified credit time consuming & costly  Audit or Investigation post transaction, while important, unlikely to forestall loss of revenue  Difficult balance to strike- Ensure not to impose excessive burden on business in general but system not unduly exposed to fraud  More bureaucratic measures may reduce VAT frauds but may have less desirable side effects 35

36 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax POLICY OPTIONS & RISKS OPTIONSRISKS Slowing down VAT refunds relative to collection of VAT due Will impose severe cash flow burden on legitimate business Higher checks on firms seeking to register for VAT Only genuine business may be affected. Requiring guarantee in dubious cases Dubious case will have to be defined & invite protests Adopting or strengthening joint & several liability rules by which trader held responsible for fraud elsewhere in the chain they are expected to be aware of Will invite protests 36

37 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax TRANSITION: BST TO VAT ERA  During Sales Tax era, cross verification of ITC or Set-off non existent. Claims allowed without question. Limitations of manual process. With advent of computerized systems, cross checking of every single transaction possible. Hawala transactions flagged;  Transition not without protests- all kinds of excuses made to stall transition- Government tackled protests skillfully but went ahead with them. Armed with High Court decision- that process being carried out electronically & no manual interference or subjectivity, in favour, there is no looking back;  Earlier Inter State Sales or Stock Transfer/ Consignment Sales claims allowed on production of documents, no independent authentication of them. Now BCP & Central Agency acting as Clearing House will map them. 37

38 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax RATIONALE FOR BCP  CST Receipts during FY CST Rs Cr. Size of Inter State Sales effected by registered dealers only work out to Crore.  Add to this transactions of unregistered dealers of which no precise figures are available.  Add to this, transactions claimed as stock transfers or consignment transfers outside the State for which no consolidated data available other than individual case;  Stock transfer transactions no less than Inter State Sales considering Maharashtra as leading manufacturing State. 38

39 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax O BJECTIVES : B ORDER C HECK P OSTS  To capture real time data/ information of incoming & outgoing goods and capture real time movement of goods vehicles;  Verify whether turnover of all taxable goods imported into State by the dealer is disclosed in the returns and corresponding taxes have been paid;  THIS IS AN ENTIRELY NEW MEASURE ADOPTED  22 BCP: common to State Transport Department, State Excise & Sales Tax: Cost 1000 crore;  8 BCP exclusively for Sales Tax covering Mumbai Port Trust, JNPT, Mumbai Air Port & Railway Terminus 39

40 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax WHY BCP WHAT ACTUALLY HAPPENS WHAT IS PRETENDED OBJECTIVE Goods sold locally Claimed as ISS, 2% CST paid & ITC on input claimed (which is higher than 2% ) Ascertain whether goods have moved outside State & receipt outflow by way of ITC is genuine Goods sold locally Claimed as Non Sale transactions like Stock Transfer or Consignment Sales Ascertain whether goods have moved outside State Imported goods at JNPT sold locally Goods imported at JNPT were transported to other State Ascertain whether goods have moved outside State Goods meant for export at JNPT & coming from other States sold locally Goods meant for export at JNPT Ascertain whether goods are really exported 40

41 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax HOW BCP WILL WORK ENTITY INVOLVEDPROCESS INVOLVED Registered Dealer of Maharashtra dealing in Inter State Sales/ Purchases Will upload Way Bill on BCP website using TIN & authenticated on Mahavat website Unregistered entity dealing in Inter State Sales/ Purchases Will upload Way Bill on BCP website using PAN/UID/TAN. PAN to be authenticated on NSDL website on real time basis Transporter To be enrolled first. User ID allotted. Will upload Transporter’s Way Bill/ Transit Pass along with Transaction ID of RD/ URD Transit Pass for dealers outside Maharashtra Transporter will upload declaration for Transit Pass on BCP website 41

42 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax TRANSIT PASS  Transit of goods by road through the State require transit pass u/s 68 to be delivered at last check post or barrier before exit from State;  Failure to comply, to attract penalty equal to twice the amount of tax leviable on the goods transported 42

43 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax ITC VERIFICATION: A UDIT R EPORT  Matching of VAT Audit Report of Seller and Purchaser:  disclosed tax liability by seller in respect of a dealer matched with ITC claim by purchaser in respect of that seller.  Claimant purchaser given opportunity to prove claim by obtaining confirmation from seller in case of discrepancies, otherwise claim to be disallowed. 43

44 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax ITC VERIFICATION: R ETURN S TATUS  Seller doing business with number of entities.  Tax payable by seller, as per return, must be equal to greater than ITC claim of claimant for the said corresponding period.  In case of discrepancies, confirmation from seller dealer required for allowing ITC;  If no returns furnished by seller disclosing his tax liability, confirmation required for allowing ITC;  Purchases from identified Hawala and from  TIN cancelled cases are flagged in the verification report. 44

45 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax ITC VERIFICATION: AREAS NOT COVERED BY ANALYTICAL TOOLS  There are certain areas which are not covered by analytical tools and has to be dealt with manually currently;  Ineligible Inputs for ITC (NEGATIVE LIST) covered by rule 54;  Retention, u/r 53, under contingencies the specified ;  Goods purchases of which debited to Profit & Loss Account or Trading Account-Gifts or other as Sales Promotion expenses;  Misclassification of commodity for claiming ITC. Example: Software, being goods of incorporeal or intangible nature, are eligible for ITC to traders only. Purchasers classify them as Computer Spares to avoid detection and claiming ITC. 45

46 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax ELECTRONIC DATA  Major internal data sources:  e-Registration;  e-Returns;  e-Payments;  e-704 Audit Reports;  e-501 Refund Applications;  Central Repository  Major external data sources for exchange:  Central Board of Excise and Customs (CBEC);  Central Board of Direct Taxes (CBDT);  Customs for Import data;  Central Excise & Service Tax; 46

47 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax E CONOMIC I NTELLIGENCE U NIT (EIU)  Audit Form (e-704) data analysis;  Inter State data analysis;  Registration data analysis;  Return analysis;  Dealer Profiling (Star Rating) & commodity analysis  Analysis of Profession Tax;  Package Scheme of Incentives;  Data Management & feedback analysis;  Cyber Forensic;  360 Degree analysis;  Business Intelligence & Data Warehouse 47

48 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax E -704 (… CONTD.)  Electronic Audit Reports from FY  Facility to upload e-report available 24*7;  2 lakh dealers liable to file report out of 6.61 lakh registered dealers, others to file annexure  Details of sales and purchases which become available help cross checking electronically;  Dealer wise Input Tax Credit claim is matched with the tax liability disclosed by the seller;  Detection of hawala operators easier; 48

49 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax E -704 (… CONTD.)  Mandatory to the dealers:  Having turnover more than 60 lakhs;  Liquor dealers;  Dealers enjoying benefits under Package Scheme of Incentives  Audit Report by Chartered Accountant or Cost Accountant;  Auditor to advise dealer on his findings of audit on the tax liability of the dealer 49

50 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax E -A NNEXURE  For dealers not filing e-704 VAT Audit report;  This way entire data of sales and purchases carried out by every dealer is captured electronically;  Tax Deducted at Source (TDS) Certificates received and issued by the dealer  Declarations under Central Sales Tax Act received and yet to be received by the dealer  Declarations for sale in the course of export (Form H) received by the dealer  Customer wise sales  Supplier wise purchases 50

51 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax TINXSYS  TINXSYS (Tax Information Exchange System): in coordination with other States to plug revenue leakages in inter state transactions of sales, purchases or stock / consignment transfers  Exchange of data of declarations issued under CST Act to dealers for claiming reduced rate of CST 51

52 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT VAT Receipts Functional Branches Evasion Types Anti- evasion Evasion Cases Policy Options Sales Tax V IGILANCE B RANCH  Under the direct control of Chief Vigilance Officer of the rank of Special Inspector General of police (IGP);  Watchdog on complaints against employees;  Control over Investigation Proceedings on real time basis. 52

53 Anti- Evasion Measures: Best Practices in Maharashtra SALES TAX DEPARTMENT THANK YOU !


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