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

RTI, Ranchi2 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, Ranchi3 Definition of Sales Tax Tax levied on sale of commodities produced or imported for the first time If product is sold subsequently without being processed further, it is exempt from sales tax

RTI, Ranchi4 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, Ranchi5 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, Ranchi6 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, Ranchi7 State Sales Tax Acts Sales categorized as following: Sales within a State (intra-state sales or local sales) –Levied by State Government

RTI, Ranchi8 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, Ranchi9 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, Ranchi10 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, Ranchi11 Organizational Set up Commissioner of Commercial Taxes Jt. Commissioner Headquarters Jt. Commissioner Investigation Jt. Commissioner/ Dy.Commr/Asst.Commr Division Dy Commr/Asst Commr Commercial Tax Officer Circle Asst Commr/CTO Check Post

RTI, Ranchi12 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, Ranchi13 Definitions & Interpretations (contd.) Goods All kinds of moveable property Items in non-abstract form

RTI, Ranchi14 Definitions & Interpretations (contd.) Dealer 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, Ranchi15 Definitions & Interpretations (contd.) Sale price includes –Excise duty paid on the manufacture –Cost of packing materials and container

RTI, Ranchi16 Mode of Taxation Single point taxation in all States –Either first point of sale or purchase or –Last point of sale or purchase

RTI, Ranchi17 Mode of Taxation (contd.) Some States have multi-point tax on certain commodities Some States have introduced compounding of tax on certain commodities

RTI, Ranchi18 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, Ranchi19 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, Ranchi20 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, Ranchi21 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, Ranchi22 Classification of Goods Category – IGoods exempted from sales tax Category – IIGoods to be taxed at lower rates, being declared goods and basic raw material Category – IIILuxury goods, taxed at higher rates Category – IVResiduary or unclassified goods, taxed at general rates

RTI, Ranchi23 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, Ranchi24 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, Ranchi25 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, Ranchi26 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, Ranchi27 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, Ranchi28 Records and Forms (contd.) Central Sales Tax Forms Form F for branch transfers across States Form H for last sale prior to export

RTI, Ranchi29 Records and Forms (contd.) State Sales Tax Forms Form for application and grant of certificate of registration / cancellation Form for security bond

RTI, Ranchi30 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, Ranchi31 Records and Forms (contd.) State Sales Tax Forms Forms for demand notice and challan Forms for refund application and refund orders

RTI, Ranchi32 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, Ranchi33 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

34 Registers and Records SurveySurvey Register RegistrationPermanent Register Applications Amendments Cancellations Assessment and Collection Demand and collection Register Disposal Register Progressive collection Register Refund Register

RTI, Ranchi35 Process of Assessment Assessment is done on the basis of the following –Monthly statements –Quarterly / annual returns –Accounts records –Ex-parte

RTI, Ranchi36 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, Ranchi37 Collection State Government collects taxes under Local/Central Act State Government collects tax from the dealers Dealers collect from the customers

RTI, Ranchi38 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, Ranchi39 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, Ranchi40 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, Ranchi41 Audit Checks (contd.) Survey and Registration Obtain independent data about dealers supplying goods to various Govt. organisations and verify if they are registered

RTI, Ranchi42 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, Ranchi43 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, Ranchi44 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, Ranchi45 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, Ranchi46 Audit Checks (contd.) Assessment See if exemptions were granted as per rules Check if penalties were levied for violations

RTI, Ranchi47 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, Ranchi48 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, Ranchi49 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, Ranchi50 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, Ranchi51 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, Ranchi52 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, Ranchi53 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, Ranchi54 Audit Checks (contd.) Accounting Is there prompt reconciliation of figures with the Treasury figures? Are departmental figures reconciled with those of the Accountant Generals Office?