Regional Training Institute, Ranchi

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

2. 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

3. 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, Ranchi

4. 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

5. 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

6. 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

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

8. 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

9. 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

10. 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

11. Organizational Set up RTI, Ranchi

12. 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

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

14. 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, Ranchi

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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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.1st April 2005 in all States RTI, Ranchi

22. Classification of Goods RTI, Ranchi

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

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

30. 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

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

32. 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

33. 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

34. Registers and Records

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

36. 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

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

38. 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

39. 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

40. 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

41. 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

42. 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

43. 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

44. 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

45. 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

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

47. 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

48. 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

49. 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

50. 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