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

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Regional Training Regional Training Institute, RanchiInstitute, RanchiRegional Training Regional Training Institute, RanchiInstitute, Ranchi

Structured Training Structured Training Courseware on State Receipts Courseware on State Receipts

AuditAudit

Audit of Sales Tax ReceiptsAudit of Sales Tax Receipts

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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

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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

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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

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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

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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

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State Sales Tax Acts

Sales categorized as following:• Sales within a State (intra-

state sales or local sales)– Levied by State Government

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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

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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

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State Sales Tax Acts (contd.)

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

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Organizational Set up

Commissioner of Commercial Taxes

Jt. CommissionerHeadquarters

Jt. CommissionerInvestigation

Jt. Commissioner/Dy.Commr/Asst.Commr

Division

Dy Commr/Asst CommrCommercial Tax Officer

Circle

Asst Commr/CTOCheck Post

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Definitions & Interpretations

Sale• There should be an agreement

of sale• Sale must be supported by

monetary consideration• Title to goods must pass to

buyer

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

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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

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Definitions & Interpretations (contd.)•Sale price includes

– Excise duty paid on the manufacture

– Cost of packing materials and container

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Mode of Taxation• Single point taxation in all

States– Either first point of sale or

purchase or– Last point of sale or purchase

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Mode of Taxation (contd.)

• Some States have multi-point tax on certain commodities

• Some States have introduced compounding of tax on certain commodities

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Records and FormsCentral Sales Tax• Form “C” for inter-state sale of

goods to a registered dealer• Form “D” for inter-state sale of

goods to Government

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Records and Forms (contd.)

Central Sales Tax Forms• Form “F” for branch transfers

across States• Form “H” for last sale prior to

export

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Records and Forms (contd.)

State Sales Tax Forms• Form for application and grant

of certificate of registration / cancellation

• Form for security bond

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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

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Records and Forms (contd.)

State Sales Tax Forms• Forms for demand notice and

challan• Forms for refund application

and refund orders

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Records and Forms (contd.)

State Sales Tax Forms• Statements of sales / purchases

to/from registered dealers• Form of permit for transportation

of taxable goods

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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

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Registers and Records

Survey •Survey Register

Registration •Permanent Register•Applications•Amendments•Cancellations

Assessment and Collection

•Demand and collection Register•Disposal Register•Progressive collection Register•Refund Register

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Process of Assessment

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

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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

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Collection• State Government collects taxes

under Local/Central Act• State Government collects tax

from the dealers• Dealers collect from the customers

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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

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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

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Audit ChecksSurvey 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

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Audit Checks (contd.)Survey and Registration• Obtain independent data about

dealers supplying goods to various Govt. organisations and verify if they are registered

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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

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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

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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

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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

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Audit Checks (contd.)Assessment• See if exemptions were granted as

per rules• Check if penalties were levied for

violations

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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?

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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

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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?

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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?

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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?

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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?

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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?

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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?