Regional Training Institute, Ranchi Structured Training Courseware on State Receipts Audit Audit of Sales Tax Receipts 1

Session Objectives

• At the end of these sessions, the participants will be able to – Define sales tax – Understand the mode of assessment and collection of sales tax – List the main records and registers – Detail audit checks relating to sales tax RTI, Ranchi 2

Definition of Sales

first time

Tax

• Tax levied on sale of commodities produced or imported for the • If product is sold subsequently without being processed further, it is exempt from sales tax RTI, Ranchi 3

History of Sales Tax

• Dates back to ancient times • Chief source of revenue to State even in earlier periods • Present form of sales tax evolved after World War – 1 RTI, Ranchi 4

History of Sales Tax (contd.)

• Government of India Act 1935 classified sales tax as provincial subject – No mention of inter-state sales • Central Sales Tax Act 1956 – Parliament empowered to levy tax on inter-state sales RTI, Ranchi 5

Central Sales Tax Act 1956

• Sale in course of import/export defined but exempted from Sales tax • Taxes on inter-state sale or purchase of goods to be levied by Centre – But collected and retained by States • Central Government to specify “declared goods” and set maximum limit of State sales tax on these goods RTI, Ranchi 6

State Sales Tax Acts

Sales categorized as following: • Sales within a State (intra-state sales or local sales) – Levied by State Government RTI, Ranchi 7

State Sales Tax Acts (contd.)

• Sales from State to another in India (inter-state sales or Central sales) – Levied by Centre but collected and retained by States RTI, Ranchi 8

State Sales Tax Acts (contd.)

• Sales in course of export from or import in to India (i.e. last/first sale before import or export) – Exempt from sales tax RTI, Ranchi 9

State Sales Tax Acts (contd.)

• Sales of “declared goods” (goods of special importance in inter state trade or commerce) – Concessional rate of sales tax RTI, Ranchi 10

Organizational Set up

Jt. Commissioner Headquarters Commissioner of Commercial Taxes Jt. Commissioner Investigation Jt. Commissioner/ Dy.Commr/Asst.Commr

Division Dy Commr/Asst Commr Commercial Tax Officer Circle Asst Commr/CTO Check Post RTI, Ranchi 11

Definitions & Interpretations

Sale

• There should be an agreement of sale • Sale must be supported by monetary consideration • Title to goods must pass to buyer RTI, Ranchi 12

Goods

Definitions & Interpretations (contd.) • All kinds of moveable property • Items in non-abstract form RTI, Ranchi 13

Dealer

Definitions & Interpretations (contd.) • Who sells or purchases goods for further sale – In course of a business – With a motive to earn profit – Broker/commission agent is not a dealer RTI, Ranchi 14

Definitions & Interpretations (contd.) • Sale price includes – Excise duty paid on the manufacture – Cost of packing materials and container RTI, Ranchi 15

Mode of Taxation

• Single point taxation in all States – Either first point of sale or purchase or – Last point of sale or purchase RTI, Ranchi 16

Mode of Taxation (contd.) • Some States have multi-point tax on certain commodities • Some States have introduced compounding of tax on certain commodities RTI, Ranchi 17

Other Taxes • In addition to sales tax, some States have the following taxes: – Purchase tax on specified goods – Additional tax / turnover tax – Surcharge on tax – Consignment tax on inter-branch transfers within an organization which cross State boundaries RTI, Ranchi 18

Value Added Tax (VAT) • Sales tax is payable at each point of sale, whether – From manufacturer to dealer – From one dealer to another – From dealer to ultimate consumer RTI, Ranchi 19

Value Added Tax (VAT) (contd.) • Credit given for amount of sales tax paid at each preceding stage of sale and input taxes – To avoid double taxation – To avoid cascading effect of taxation RTI, Ranchi 20

Value Added Tax (VAT) (contd.) • Detailed documentation of taxes paid to be maintained – To avail tax credits – To minimize tax evasion • VAT introduced w.e.f.1

st April 2005 in all States RTI, Ranchi 21

Classification of Goods Category – I Goods exempted from sales tax Category – II Goods to be taxed at lower rates, being declared goods and basic raw material Category – III Luxury goods, taxed at higher rates Category – IV Residuary or unclassified goods, taxed at general rates RTI, Ranchi 22

Registration Under State Sales Tax Act • Registration compulsory to carry on business – For dealers liable to pay sales tax – Registration based on minimum limit of turnover • Registration can be renewed / cancelled RTI, Ranchi 23

Unregistered Dealers • In case of non-registration by dealer – Assessing authority can assess the amount of tax – Dealer to pay penalty or amount of tax assessed, whichever is lower RTI, Ranchi 24

Registration Under Central Sales Tax Act • Different from registration under State Sales Tax Act • Dealer liable to pay tax whether registered or not • Registration will enable dealer to collect tax from consumer • No turnover limit – tax is levied on every sale • Registration allowed even if not involved in inter State sale RTI, Ranchi 25

Returns • A registered dealer is required to submit – A monthly abstract statement of sales and purchases – A quarterly return of transactions – An annual return of transactions RTI, Ranchi 26

Records and Forms Central Sales Tax • Form “C” for inter-state sale of goods to a registered dealer • Form “D” for inter-state sale of goods to Government RTI, Ranchi 27

Records and Forms (contd.) Central Sales Tax Forms • Form “F” for branch transfers across States • Form “H” for last sale prior to export RTI, Ranchi 28

Records and Forms (contd.) State Sales Tax Forms • Form for application and grant of certificate of registration / cancellation • Form for security bond RTI, Ranchi 29

Records and Forms (contd.) State Sales Tax Forms • Forms for monthly statements and quarterly and annual returns • Forms for application and grant of certificate for purchase at concessional rates of tax RTI, Ranchi 30

Records and Forms (contd.) State Sales Tax Forms • Forms for demand notice and challan • Forms for refund application and refund orders RTI, Ranchi 31

Records and Forms (contd.) State Sales Tax Forms • Statements of sales / purchases to/from registered dealers • Form of permit for transportation of taxable goods RTI, Ranchi 32

Records and Forms (contd.) State Sales Tax Forms • Forms for resale of goods, manufacture of goods for sale etc.

• Forms for sale of declared goods RTI, Ranchi 33

Registers and Records Survey Registration Assessment and Collection •Survey Register •Permanent Register •Applications •Amendments •Cancellations •Demand and collection Register •Disposal Register •Progressive collection Register •Refund Register 34

Process of Assessment • Assessment is done on the basis of the following – Monthly statements – Quarterly / annual returns – Accounts records – Ex-parte RTI, Ranchi 35

Process of Assessment (contd.) • Process of Assessment covers 3 broad aspects – Determination of gross turnover – Review of exemptions, concessions, deductions as to their eligibility – Computation of total tax payable RTI, Ranchi 36

Collection • State Government collects taxes under Local/Central Act • State Government collects tax from the dealers • Dealers collect from the customers RTI, Ranchi 37

Appellate System • Against assessments finalised at Circle level – Appeals to Joint Commissioner / Deputy Commissioner (Appeals) • Against order passed by Deputy Commissioner – Appeals to the Joint Commissioner RTI, Ranchi 38

Appellate System (contd.) • Commissioner can revise orders passed by lower authority – Either suo moto or on appeal • Against orders passed by Commissioner – Appeals to Commercial Tax Tribunal • Against orders passed by CTT – Appeals to High Court RTI, Ranchi 39

Audit Checks Survey and Registration • Are there suitable processes for conducting surveys to locate dealers liable for registration?

• Is there any lacuna in the rules/procedures to allow dealers escape from liability for tax?

• What is the trend of cases unearthed during surveys?

• Verify whether all the dealers are registered or not RTI, Ranchi 40

Audit Checks (contd.) Survey and Registration • Obtain independent data about dealers supplying goods to various Govt. organisations and verify if they are registered RTI, Ranchi 41

Audit Checks (contd.) Survey and Registration • See if the applications were submitted and registrations/renewals granted within the specified timeframe • Check if the security for tax payment was computed correctly and collected RTI, Ranchi 42

Audit Checks (contd.) Survey and Registration • Check if penalty was levied on all cases of non-registration • Where registration was cancelled, see if effective action was taken for recovery of dues RTI, Ranchi 43

Audit Checks (contd.) Assessment • See if assessment was finalised promptly and before the expiry of the stipulated period • Verify if gross turnover was calculated properly RTI, Ranchi 44

Audit Checks (contd.) Assessment • See if any amounts have been excluded from calculation of gross turnover • Check if goods were classified correctly for levying sales tax RTI, Ranchi 45

Audit Checks (contd.) Assessment • See if exemptions were granted as per rules • Check if penalties were levied for violations RTI, Ranchi 46

Audit Checks (contd.) Declaration Forms • Is there adequate control over – Printing – Storage and – Issue of declaration forms?

• Are there proper records for receipt and issue of declaration forms?

RTI, Ranchi 47

Audit Checks (contd.) Declaration Forms • Are there adequate safeguards to check misuse of declaration forms by dealers?

• For inter-state sales, cross verify sales to registered dealers in other States RTI, Ranchi 48

Audit Checks (contd.) Collections • Has the demand assessed been noted correctly in the Demand and Collection Register?

• Has the demand notice been served on time?

• Has interest/penalty been levied for delayed payment?

RTI, Ranchi 49

Audit Checks (contd.) Collections • In case of stay for disputed demands, is prompt action taken for disposal of appeals?

• Are there special squads for recovery of arrears?

• Is necessary action taken for write off of irrecoverable dues?

RTI, Ranchi 50

Audit Checks (contd.) Refunds • Are refunds claimed through specified notice within the stipulated period?

• Are refunds made promptly?

• Have refunds been allowed despite outstanding dues?

RTI, Ranchi 51

Audit Checks (contd.) Accounting • Have arrear demands been shown correctly in the Demand and Collection Register?

• Have taxes paid been noted correctly in the D & C Register?

• Are these entries traceable to the Progressive Collection Register and vice versa?

RTI, Ranchi 52

Audit Checks (contd.) Accounting • Are cheques/bank drafts received, – Noted promptly in the concerned Register?

– Sent to bank promptly? • Are all entries in the Progressive Collection Register supported by Treasury Challans?

RTI, Ranchi 53

Audit Checks (contd.) Accounting • Is there prompt reconciliation of figures with the Treasury figures?

• Are departmental figures reconciled with those of the Accountant General’s Office?

RTI, Ranchi 54