Page 252 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Unit 14: Value Added Tax

Deemed assessment concept is a major feature of the VAT. If no specific notice is issued proposing Notes
departmental audit of the books of account of the dealer within the time limit specified in the
Act, the dealer will be deemed to have been self-assessed on the basis of the returns submitted
by him.

VAT presupposes that all the dealers are honest. Scrutiny may be done in cases where a doubt
arises of under-reporting of transaction or evasion of tax. Honest dealers will be protected and
fictitious or dishonest would be penalized heavily.

System of Cross Checking

In the VAT system more emphasis has been laid on self-assessment. Hence, a system of cross-
checking is essential. Dealers may be asked to submit the list of sales or purchases above a
certain monetary value or to give the dealer-wise list from whom or to whom the goods have
been purchased/sold for values exceeding a prescribed monetary ceiling.
A cross-checking computerized system is being worked out on the basis of coordination between
the tax authorities of the State Governments and the authorities of Central Excise and Income-
tax to compare constantly the tax returns and set-off documents of VAT system of the States and
those of Central Excise and Income-tax. This comprehensive cross-checking system will help
reduce tax evasion and also lead to significant growth of tax revenue. At the same time, by
protecting the interests of tax-complying dealers against the unfair practices of tax-evaders, the
system will also bring in more equal competition in the sphere of trade and industry.

Audit

In the VAT system considerable weightage is placed on audit work in place of routine assessment
work.
Correctness of self-assessment will be checked through a system of Departmental Audit.
A certain percentage of the dealers will be taken up for audit every year on a scientific basis. If,
however, evasion is detected in the course of audit, the previous records of the concerned dealer
may be taken up for audit.
Authorized officers of the department will visit the business place of the dealer to conduct the
audit. The auditors will examine the correctness of the returns vis-a-vis the books of account of
the dealer or any other information available with them. They will be equipped with the
information gathered from various agencies such as suppliers, income tax department, excise
and customs department, banks etc. Officers of the higher rank will supervise to ensure that the
audit work is done in a free, fearless and impartial manner.

Accounts to be Audited in Certain Cases

Under the sales-tax laws, tax evasion is considered to be on a large scale. The sales-tax departments
of various States have not been able to effectively check the menace of tax avoidance and tax
evasion. Therefore, apart from the departmental audit many States have also incorporated the
concept of audit of accounts by chartered accountants. The State of Maharashtra has prescribed
an elaborate list of particulars to be furnished by the dealers. These particulars have to be
verified by the VAT auditor.
However, auditing for all types of dealers may not be necessary. The selection of cases for
auditing has to be made in accordance with the criteria of the size of dealers. In such a case, the
returns supported by the audited statement can be accepted summarily. However, it might

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