D E P A R T M E N T
T A X
S A L E S
ANTI EVASION MEASURES IN VAT
Best Practices In Maharashtra
Presented by-
Shri. J.P.Dange
Chairman, 4th State Finance Commission &
Former Chief Secretary to the
Government of Maharashtra
14/08/2013
Anti- Evasion Measures: Best Practices in Maharashtra
1







What is Sales Tax?
Revenue Receipts under VAT
Functional Branches
Types of evasions
Evasion Cases
Policy options on fraud
Anti Evasion Measures
S A L E S
T A X
D E P A R T M E N T
TOPICS FOR DISCUSSION
Anti- Evasion Measures: Best Practices in Maharashtra
2
D E P A R T M E N T
T A X
S A L E S
ORGANISATIONAL STRUCTURE











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)
Anti- Evasion Measures: Best Practices in Maharashtra
3
D E P A R T M E N T
T A X
S A L E S
SALES TAX



Sales Tax
In its present form, Sales Tax, a tax on transactions of
sales, came into existence after First World War.
VAT
Receipts
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.
Functional
Branches
Evasion
Types
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)
Evasion
Cases
Policy
Options
Antievasion
Anti- Evasion Measures: Best Practices in Maharashtra
4

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;

S A L E S
Sales Tax
VAT
Receipts
Functional
Any registered dealer who not opted to pay tax by way of
composition
Branches
Evasion
Types

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
Evasion
Cases
Subject to retention in specified contingencies or other than on
goods covered by a negative list;
Policy
Options
T A X
D E P A R T M E N T
WHAT IS INPUT TAX CREDIT (ITC)

Antievasion
Anti- Evasion Measures: Best Practices in Maharashtra
5




S A L E S
T A X
D E P A R T M E N T
MAHARASHTRA: FROM ST TO VAT

(…CONTD.)
Sales Tax
Comprehensive Sales Tax Act, viz, Bombay Sales Tax
Act, 1946, from 1st October 1946 and tax on goods
dispatched to other States introduced in 1949.
Constitution came into effect from 26th Jan 1950.
VAT
Receipts
Functional
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 1st Jan 1960.
Replaced by Maharashtra Value Added Tax Act, 2002
from 1st April 2005.
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
Anti- Evasion Measures: Best Practices in Maharashtra
6
D E P A R T M E N T
T A X
S A L E S
MAHARASHTRA: FROM ST TO VAT


Sales Tax
Generally guided by best international practices with
regard to legal framework
Operating procedures and eliminates cascading impact
of double taxation.
VAT
Receipts
Functional
Branches

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%
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
Anti- Evasion Measures: Best Practices in Maharashtra
7
D E P A R T M E N T
T A X
S A L E S
SIMPLE VALUE CHAIN
Sales Tax
VAT
Receipts
MANUFACTURER
Pays tax on sales to wholesaler
Claims ITC on purchases
Functional
Branches
Evasion
Types
WHOLESALER
Pays tax on sales to retailer
Claims ITC on purchases from
Manufacturer
Evasion
Cases
Policy
Options
RETAILER
Pays tax on sales to consumer
Anti- Evasion Measures: Best Practices in Maharashtra
Claims ITC on purchases from
Wholesaler
Antievasion
8







Sales Tax
Manufacturers
Importers
Wholesalers
Distributors
Retailers
Works Contractors
Lessers
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
S A L E S
T A X
D E P A R T M E N T
WHO PAY VAT TO GOVERNMENT
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
9
Antievasion

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 taxable @ 5% to be specified and

Rest of others liable to tax @ 12.5%

Sales Tax
VAT
Receipts
Functional
Branches
Evasion
Types
Less scope for litigation and full set-off taxes paid at
every stage
Evasion
Cases
S A L E S
T A X
D E P A R T M E N T
BENEFITS OF VAT OVER SALES TAX(…CONTD.)
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
10
Antievasion
D E P A R T M E N T
T A X
S A L E S
BENEFITS OF VAT OVER SALES TAX(…CONTD.)


Sales Tax
Transparent system, greater reliance on self
assessment and voluntary compliance by dealers;
VAT
Receipts
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 are
@ Nil or 0%, 1%, 5%, 20% or above and 12.5%
respectively.
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
11
Antievasion
(SOURCE: STD WEB
Sales Tax
SITE)
VAT
Receipts
BST
MVAT
Functional
Branches
Evasion
Types
Evasion
Cases
S A L E S
T A X
D E P A R T M E N T
REVENUE RECEIPTS TREND
Policy
Options
Revenue receipts FY 1970-71 Rs. 160 crores
Anti- Evasion Measures: Best Practices in Maharashtra
12
Antievasion
D E P A R T M E N T
T A X
S A L E S
COMPARATIVE TAX COLLECTION (VAT)
YEAR
MAHARASHTRA (Actual)
WEST BENGAL (Actual)
FY 2006-07
23574
3878
Sales Tax
VAT
Receipts
Functional
Branches
FY 2007-08
27052
4550
FY 2008-09
29809
5454
FY 2009-10
32154
6797
FY 2010-11
41512
8826
FY 2011-12
50562
Anti- Evasion Measures: Best Practices in Maharashtra
Evasion
Types
Evasion
Cases
Policy
Options
10198
13
Antievasion
D E P A R T M E N T
T A X
S A L E S
FUNCTIONAL BRANCH
FUNCTIONAL BRANCH
Sales Tax
EXPECTED WORK
Identify unregistered dealers, follow them up for
Survey- New Branch under getting registered & bring them into tax net,
VAT
collating data collected from outside agencies,
door to door or survey in selected areas
VAT
Receipts
Functional
Branches
Registration (threshold
limit Rs 5 lakhs)
Registration of dealer- Bring evidences about
business & businessman on record in proper
manner- PAN based TIN
Evasion
Types
Returns
Monitor periodic filing of returns, Ascertain
Non filers and Short filers; follow them up
Evasion
Cases
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
Anti- Evasion Measures: Best Practices in Maharashtra
Policy
Options
14
Antievasion
D E P A R T M E N T
T A X
S A L E S
FUNCTIONAL BRANCH
FUNCTIONAL BRANCH
Refund – New Branch
Sales Tax
EXPECTED WORK
Carry out Refund Audit to ascertain correctness
of excess ITC claim over payable VAT and grant
refunds
VAT
Receipts
Functional
Branches
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
Recovery
Issue Based Audit- New
Branch
Evasion
Types
Evasion
Cases
Recovery actions under Land Revenue Code
Policy
Options
Scrutiny of only communicated particular issue
Anti- Evasion Measures: Best Practices in Maharashtra
15
Antievasion
D E P A R T M E N T
T A X
S A L E S
VAT FRAUDS

Sales Tax
VAT fraud a “SCHEME”
VAT
Receipts

Avoid paying VAT on sales and

Claim refunds of VAT never paid by procuring bogus
purchase invoices

Investigating and checkmating VAT frauds costly

Huge amounts of money required
Anti- Evasion Measures: Best Practices in Maharashtra
Branches
Evasion
Types
Actualize criminal intents using different methods

Functional
Evasion
Cases
Policy
Options
16
Antievasion
D E P A R T M E N T

S A L E S

T A X
TYPES OF VAT FRAUDS








Sales Tax
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
Anti- Evasion Measures: Best Practices in Maharashtra
17
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
D E P A R T M E N T
T A X
S A L E S
UNDER REPORTED SALES
Sales Tax

Conceal actual sales in domestic market

Evade obligation to pay VAT

Enables to claim more refunds (credit) than they
deserve


VAT
Receipts
Functional
Branches
Has the potential of boosting the business of such
traders
Evasion
Types
Will encourage patronage due to relatively cheap
goods
Evasion
Cases
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
18
Antievasion
D E P A R T M E N T
T A X
S A L E S
INFLATED REFUND CLAIMS
Sales Tax
(HAWALA BENEFICIARIES)

Traders acquire invoices for purchases they never
make
VAT
Receipts

Intent is to claim inflated refunds than they deserve
Functional

Branches
Acquire fake invoices needed to claim refunds

Give evidence of merchandise purchase on which
refundable VAT is paid
Evasion
Types

Established crime network (HAWALA) dealing in
such fabricated invoices
Evasion
Cases
“purchased” to defraud Government
Policy
Options

Anti- Evasion Measures: Best Practices in Maharashtra
19
Antievasion

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

Sales Tax
VAT
Receipts
Functional
Branches
Before being exposed, make fast profits and disappear
quickly
S A L E S
Evasion
Types
Evasion
Cases
T A X
D E P A R T M E N T
FICTITIOUS TRADERS
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
20
Antievasion
D E P A R T M E N T
T A X
S A L E S
LOCAL SALES AS INTER STATE SALES


Sales Tax
Traders sell goods in local market but claim to have
sold them in Inter State Trade
VAT
Receipts
For this purpose,
Functional
 fake invoices
Branches
 Fake transport documents
Evasion
Types
 Fake declarations under CST Act are arranged
 Concessional rate of CST applies and
Evasion
Cases
 VAT paid on purchases become refundable
 Instead of accruing incremental tax
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
21
Antievasion


Sales Tax
Small businesses operating close to the threshold level
of turnover
S A L E S
VAT
Receipts
At which registration becomes compulsory

Failing to get registered

Saving VAT as well as VAT compliance costs

Mainly retailers predominate this group
Functional
Branches
Evasion
Types
Evasion
Cases
T A X
D E P A R T M E N T
FAILURE TO GET REGISTERED
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
22
Antievasion

Sales liable to tax at different rates, or

Being goods exempted from VAT

May reduce tax liability

Sales Tax
VAT
Receipts
By exaggerating the proportion of sales in the lower
tax categories
S A L E S
Functional
Branches
Evasion
Types
Evasion
Cases
T A X
D E P A R T M E N T
MISCLASSIFICATION OF COMMODITIES
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
23
Antievasion

By false accounting or

By engineering bankruptcy before tax is paid or

Sales Tax
VAT
Receipts
“missing trader” fraud wherein registered business
disappears
S A L E S
Functional
Branches
Evasion
Types
Evasion
Cases
T A X
D E P A R T M E N T
TAX COLLECTED BUT NOT REMITTED
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
24
Antievasion
D E P A R T M E N T
T A X
S A L E S
GOODS COMING FROM OUTSIDE THE STATE
ESCAPING TAX

Levy of tax accounts based

No tax levied at the State border
Sales Tax
VAT
Receipts
Functional

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
Anti- Evasion Measures: Best Practices in Maharashtra
Branches
25
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
D E P A R T M E N T
T A X
S A L E S
INPUT CREDIT CLAMES THAT ARE NOT
CREDIBLE
Sales Tax

in two forms:

business supplies variety of outputs- subject to VAT
and exempt there from;

VAT
Receipts
incentive to allocate inputs to production of the taxed
items;

than the exempt;

Ineligible Inputs misrepresented as eligible;

VAT liability reduced.
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
26
Antievasion
D E P A R T M E N T
T A X
S A L E S
BOGUS TRADERS




Sales Tax
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.
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
27
Antievasion
S A L E S
Sales Tax
• Hawala Operator issues fake Tax Invoice for considerationNo taxes paid into Government Treasury or no intention of
doing so
HAWALA • Hawala Beneficiary claims ITC on this Invoice
VAT
Receipts
Functional
Branches
HAWALA
• Hawala Beneficiary claims ITC of taxes never paid into
Government Treasury
• State Exchequer defrauded
Evasion
Types
BENEFICIARY
Evasion
Cases
T A X
D E P A R T M E N T
SIMPLE HAWALA OPERATION
• Genuine tax payers cheated
EFFECT
Anti- Evasion Measures: Best Practices in Maharashtra
Policy
Options
28
Antievasion
D E P A R T M E N T
T A X
S A L E S
BASIC “CAROUSEL FRAUD”
Sales Tax
Company C “Buffer”: Buys
goods from B at VAT
inclusive price, and sells to D
charging VAT C may be
unaware of fraud
VAT
Receipts
Functional
Branches
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
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
Evasion
Types
Evasion
Cases
Policy
Options
Company A: Exports goods to
company B in another
member State (UK) Export
sale is VAT zero rated
Anti- Evasion Measures: Best Practices in Maharashtra
29
Antievasion
D E P A R T M E N T
T A X
S A L E S
UNETHICAL PROFESSIONALS
DECLARATION
MISUSED
BY WHOM
Sales Tax
MODUS OPERANDI
VAT
Receipts
Form C under CST
Sales Tax
Act during Sales Tax
Practitioner (STP)
period
Anti- Evasion Measures: Best Practices in Maharashtra
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
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
D E P A R T M E N T
T A X
S A L E S
UNETHICAL PROFESSIONALS
DECLARATION
MISUSED
BY WHOM
Sales Tax
MODUS OPERANDI
VAT
Receipts
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.
Anti- Evasion Measures: Best Practices in Maharashtra
31
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
D E P A R T M E N T
T A X
S A L E S
EVASION METHODS & MEASURES
EVASION METHOD
Imaginary name & TIN, such
Fabricated Tax Invoices
accounted for in books of
accounts
EVASION
PURPOSE
To defraud exchequer
by claiming wrong ITC
ANTI EVASION
MEASURES BY
WHOM
VAT
Receipts
ITC verification report
will flag such cases
Functional
Branches
Hawala Operator will issue Tax
To defraud exchequer
Invoices, as per requirement. No
by claiming wrong ITC
tax deposited into Govt Treasury.
Genuine Tax Invoices fabricated
To defraud exchequer
to alter amounts or multiply their
by claiming wrong ITC
numbers
Local sales claimed as Inter
State Sales
Sales Tax
Pay 2% CST and claim
ITC at a rate which is
higher than 2%
Anti- Evasion Measures: Best Practices in Maharashtra
Evasion
Types
ITC verification report
will flag such cases
Evasion
Cases
ITC verification report
will flag such cases
Policy
Options
BCP to monitor
movement of goods
outside State, Central
Agency
32
Antievasion
D E P A R T M E N T
T A X
S A L E S
EVASION METHODS & MEASURES
EVASION METHOD
ITC claim on purchases
more than tax liability
shown by seller
ITC claim on purchases
from particular dealer
but seller not showing
any sales to the claimant
ITC claim more than tax
liability disclosed by
seller in his return for
corresponding period
EVASION
PURPOSE
To claim incorrect
amount of ITC
ANTI EVASION MEASURES
BY WHOM
VAT
Receipts
Analysis of VAT Audit Report as
well as ITC report to flag such
cases. Confirmation from seller
required for allowance of such
claims
To claim incorrect
amount of ITC
Analysis of VAT Audit Report to
flag such cases. Confirmation from
seller required for allowance of such
claims
To claim incorrect
amount of ITC
ITC verification report to flag such
cases. Confirmation from seller
required for allowance of such
claims
Anti- Evasion Measures: Best Practices in Maharashtra
Sales Tax
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
33
Antievasion
D E P A R T M E N T
T A X
S A L E S
EVASION METHODS & MEASURES
EVASION METHOD
Concealment of Sales &
Purchases
Local sales claimed as
stock
transfer/consignment
sales outside State
You run business but all
property in the name of
spouse.
Misclassification of
purchases for claiming
ITC
EVASION PURPOSE
Sales Tax
ANTI EVASION
MEASURES BY WHOM
VAT
Receipts
Can not be detected by
To deprive exchequer of its analytical tools being
legitimate tax
unrecorded transactions.
Answer Investigation visits.
To claim NIL tax liability
as these are Non Sale
Transactions
Intention of defrauding the
state
Functional
Branches
Evasion
Types
BCP to monitor movement
of goods outside State.
Evasion
Cases
Legal issues.
Policy
Options
To claim wrong ITC
Anti- Evasion Measures: Best Practices in Maharashtra
At present manually only
34
Antievasion
D E P A R T M E N T
T A X
S A L E S
POLICY OPTIONS ON FRAUDS






Sales Tax
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
Anti- Evasion Measures: Best Practices in Maharashtra
35
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
D E P A R T M E N T
T A X
S A L E S
POLICY OPTIONS & RISKS
OPTIONS
Sales Tax
RISKS
Slowing down VAT refunds relative to Will impose severe cash flow burden
collection of VAT due
on legitimate business
Higher checks on firms seeking to
register for VAT
Requiring guarantee in dubious cases
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
Only genuine
affected.
business
may
be
Dubious case will have to be defined
& invite protests
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Will invite protests
Anti- Evasion Measures: Best Practices in Maharashtra
Policy
Options
36
Antievasion
D E P A R T M E N T
T A X
S A L E S
TRANSITION: BST TO VAT ERA



Sales Tax
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.
Anti- Evasion Measures: Best Practices in Maharashtra
37
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
D E P A R T M E N T
T A X
S A L E S
RATIONALE FOR BCP




Sales Tax
CST Receipts during FY 2011-12 @2% CST Rs
3804.98 Cr. Size of Inter State Sales effected by
registered dealers only work out to 190249 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.
Anti- Evasion Measures: Best Practices in Maharashtra
38
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
D E P A R T M E N T

S A L E S

T A X
OBJECTIVES: BORDER CHECK POSTS



Sales Tax
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
Anti- Evasion Measures: Best Practices in Maharashtra
39
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
D E P A R T M E N T
T A X
S A L E S
WHY BCP
WHAT ACTUALLY
HAPPENS
Sales Tax
WHAT IS
PRETENDED
OBJECTIVE
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
Goods sold locally
Goods meant for export
at JNPT & coming from
other States sold locally
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Ascertain whether goods
have moved outside State
Policy
Options
Goods meant for export at Ascertain whether goods
JNPT
are really exported
Anti- Evasion Measures: Best Practices in Maharashtra
40
Antievasion
D E P A R T M E N T
T A X
S A L E S
HOW BCP WILL WORK
ENTITY INVOLVED
Sales Tax
PROCESS INVOLVED
VAT
Receipts
Will upload Way Bill on BCP website
Registered Dealer of Maharashtra
using TIN & authenticated on
dealing in Inter State Sales/ Purchases
Mahavat website
Functional
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
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Transporter will upload declaration
for Transit Pass on BCP website
Anti- Evasion Measures: Best Practices in Maharashtra
41
Antievasion


Sales Tax
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
S A L E S
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
T A X
D E P A R T M E N T
TRANSIT PASS
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
42
Antievasion
D E P A R T M E N T
T A X
S A L E S
ITC VERIFICATION: AUDIT REPORT



Sales Tax
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.
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
43
Antievasion
D E P A R T M E N T
T A X
S A L E S
ITC VERIFICATION: RETURN STATUS
Sales Tax

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.
VAT
Receipts
Functional
Branches


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.
Anti- Evasion Measures: Best Practices in Maharashtra
44
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
D E P A R T M E N T
T A X
S A L E S
ITC VERIFICATION: AREAS NOT COVERED BY
ANALYTICAL TOOLS
Sales Tax

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.
Anti- Evasion Measures: Best Practices in Maharashtra
45
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
Antievasion
D E P A R T M E N T
T A X
S A L E S
ELECTRONIC DATA
 Major
Sales Tax
internal data sources:
 e-Registration;
 e-Returns;
 e-Payments;
 e-704 Audit Reports;
 e-501 Refund Applications;
 Central Repository

VAT
Receipts
Functional
Branches
Evasion
Types
Major external data sources for exchange:
Evasion
Cases
 Central Board of Excise and Customs (CBEC);
 Central Board of Direct Taxes (CBDT);
 Customs for Import data;
 Central Excise & Service Tax;
Anti- Evasion Measures: Best Practices in Maharashtra
Policy
Options
46
Antievasion
D E P A R T M E N T
T A X
S A L E S
ECONOMIC INTELLIGENCE UNIT (EIU)
Sales Tax
 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
Anti- Evasion Measures: Best Practices in Maharashtra
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
Policy
Options
47
Antievasion
D E P A R T M E N T
T A X
S A L E S
E-704 (…CONTD.)
 Electronic Audit Reports from FY 2008-09
Sales Tax
VAT
Receipts

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



Functional
Branches
Details of sales and purchases which become available
help cross checking electronically;
Evasion
Types
Dealer wise Input Tax Credit claim is matched with
the tax liability disclosed by the seller;
Evasion
Cases
Detection of hawala operators easier;
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
48
Antievasion
Sales Tax
 Having turnover more than 60 lakhs;
VAT
Receipts
 Liquor dealers;
 Dealers enjoying benefits under Package Scheme of Incentives
Functional
Branches
 Audit Report by Chartered Accountant or Cost Accountant;
 Auditor to advise dealer on his findings of audit on the tax liability of
the dealer
S A L E S
Evasion
Types
Evasion
Cases
T A X
D E P A R T M E N T
E-704 (…CONTD.)
 Mandatory to the dealers:
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
49
Antievasion
D E P A R T M E N T
T A X
S A L E S
E-ANNEXURE
 For dealers not filing e-704 VAT Audit report;
Sales Tax

This way entire data of sales and purchases carried out
by every dealer is captured electronically;
VAT
Receipts

Tax Deducted at Source (TDS) Certificates received
and issued by the dealer
Functional

Declarations under Central Sales Tax Act received and
yet to be received by the dealer
Evasion
Types

Declarations for sale in the course of export (Form H)
received by the dealer
Evasion
Cases

Customer wise sales
Policy
Options

Supplier wise purchases
Anti- Evasion Measures: Best Practices in Maharashtra
50
Branches
Antievasion


Sales Tax
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
S A L E S
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
T A X
D E P A R T M E N T
TINXSYS
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
51
Antievasion



Sales Tax
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.
S A L E S
VAT
Receipts
Functional
Branches
Evasion
Types
Evasion
Cases
T A X
D E P A R T M E N T
VIGILANCE BRANCH
Policy
Options
Anti- Evasion Measures: Best Practices in Maharashtra
52
Antievasion
D E P A R T M E N T
T A X
S A L E S
THANK YOU !
Anti- Evasion Measures: Best Practices in Maharashtra