Letter to Principal Secretary Revenue about VAT crime in Telangana

  Hyderabad,

                                            03-01-2017.

To The Principal Secretary (Revenue),

The Government of Telangana State, 

Hyderabad.

Respectable Sir,

        Sub: Application requesting to  Abolish the VATIS system including Form ADM-1B 

               and Form VAT 304 so that the Telangana State can get some thousands of 

               crores of rupees of VAT tax in this crucial time-Requesting-Regarding.

            Ref: 1) 2 (4), 2 (24), 20 (1), 20 (3-a,b),21 (3), 21(4), 21 (5), 43 (1), 43 (1-a), 43 (1-b), 

                        43(1-c), 43 (1-d), 43(1-e), and section 70 (1), 70 (2) of the Telangana VAT 

                          Act 2005.

                           2) Rules 3(a), 25(5), 25(6), 59(1-3), 59(1-4ii),59(1-5), 59(1-7),59(1-14) of The

                            Telangana VAT Rules 2005.   

                 3) CCT‘s Ref. No. BV(3)/ 37/2010, dated 27-08-2012.

                 4)  CCT‘s Ref. No. BV(3)/ 37/2010, dated 30-08-2012.

                 5) CCT‘s Ref. No. B-V(3)/ 37/2010, dated 10.10.2012.

                 6) CCT‘s Ref. No. B-V(3)/ 37/2010, dated 10.10.2012.

                 7) CCT‘s Ref. No. BV(3)/ 37/2010, dated 05.11.2012.

                 8) CCT‘s Ref. No. Enft/B3/75/2016, dated 10-06-2016. 

    I, Mote Raghupathi, Advocate, Convener, MOSDEM (Movement for Stronger Democracy),R/o H.No. 11-9-75/1/102, Laxminagar Colony, Kothapet, Saroor Nagar,  Ranga Reddy District, Telangana, submit that,

    The section no. 77 of The Telangana VAT Act 2005 provides that “The Commissioner may, from time to time, issue such orders, instructions and directions not inconsistent with the provisions of the Act or the rules made thereunder to his subordinate officers as he may deem fit, for the proper administration of the Act and such officers and all other persons employed in the enforcement of the Act, shall comply with such orders, instructions and directions”.

    But in the references cited from 3 to 8 the Commissioners in different times have issued instructions to the subordinate officers which are inconsistent with  the VAT Act 2005 and the VAT Rules 2005 vide references cite 1 and 2 which resulted in  thousands of crores of rupees loss to the Government.

Violations in Assessments:

    The sub-section 4 of Section 2 of The Telangana VAT Act 2005 states as following:

2(4)    ‘Assessing authority’ means any officer of the Commercial Taxes Department authorized by the Commissioner or as may be prescribed to make any assessment in such area or areas or the whole of the State of Andhra Pradesh;

    The sub-section 24 of Section 2 provides as following:

2 (24) ‘Prescribed’ means prescribed by the Rules made under the Act;

Thus there are two types of Assessing Authorities as per the Act:

Assessing Authority only Prescribed by the Rules but no authorization is needed and 

Assessing Authority to be Authorized by the Commissioner(DCs, JC/Addl.Comissioner)

As per sub-rule 1 (4-i) of Rule 59 of Telangana VAT Rules 2005 the authorities prescribed for Unilateral Assessments under Rule 25(1) are:

i) Assistant Commissioner of the division concerned in case of Large Taxpayer Unit concerned

 

                and 

ii) Commercial Tax Officer in the case of Circle concerned.

As per sub-rule 1 (4-ii) of Rule 59 of Telangana VAT Rules 2005 the authorities prescribed for Assessments of VAT dealers under Rule 25(5) are:

i) Assistant Commissioner of the division concerned in case of Large Taxpayer Unit concerned or

ii) Commercial Tax Officer in the case of Circle concerned. (These authorities don’t need any authorization from any authority to make assessments) Or

iii) Any officer not below the rank of Deputy Commercial Tax Officer in the Division concerned as authorized by the Deputy Commissioner, concerned in the case of the dealers in the territorial jurisdiction of the Division concerned,

iv) Any officer not below the rank of Deputy Commercial Tax Officer in the State as authorized by the Joint Commissioner or Additional Commissioner, empowered for this purpose by the Commissioner.

For TOT dealers:

    iv) TOT – Unilateral assessment / Best judgement assessment Deputy Commercial Tax      Officer of the circle concerned as authorized by the Commercial Tax Officer of the circle concerned the dealers in the circle concerned  under Sec.20(3) (a) &(b), 21(1), 21(3) (4) & (5)

    

Thus,                    

    In case of Large Taxpayer Unit of the division the Assistant Commissioner of the division concerned is the Assessing Authority for LTU VAT dealers. 

    Again in the case of Circle the Commercial Tax Officer of Circle concerned is the Assessing Authority for VAT dealers. And 

        Deputy Commercial Tax Officer of the circle concerned as authorized by the Commercial Tax is the Assessing Authority for Assessing the TOT dealers.    

    I further submit that,

Sub- section 1 of Section 20 The Telangana VAT Act 2005 is as follows:

    20.    (1)    Every dealer registered under Section 17 of the Act, shall submit such return or returns, [the Annexures as may be prescribed]along with proof of payment of tax in such manner, within such time, and to such authority as may be prescribed.

    As per sub-rule (3) (i&ii)  Rule 59 of Telangana VAT Rules 2005:

    In case of Large Taxpayer Unit of the division the Assistant Commissioner of the division concerned is the prescribed Authority to receive returns for LTU VAT dealers.

Again in the case of Circle the Commercial Tax Officer of Circle concerned is the prescribed Authority to receive returns for VAT dealers.

Similarly Deputy Commercial Tax Officer authorized of Circle concerned is the prescribed Authority for the purpose of Receipt of TOT returns

    Thus As per sub-rule 1 (4-ii) Rule 59 and as per sub-rule (3) (i&ii) Rule 59 (4-i) of the Telangnana VAT Rules 2005:

    In case of Large Taxpayer Unit of the division the Assistant Commissioner of the division concerned is the prescribed Authority to receive returns and  also the Assessing Authority for LTU VAT dealers.

 In the case of Circle the Commercial Tax Officer of Circle concerned is the prescribed Authority to receive returns and  also the Assessing Authority for VAT dealers.

In the case of Circle the Deputy Commercial Tax Officer of Circle concerned is the prescribed Authority to receive TOT returns and  also the Assessing Authority for TOT dealers.

Sub section 3-a&b of Section 20 of the Telangana VAT ACT 2005 are as follows:

(3)    (a)    Without prejudice to the powers of the authority prescribed under sub-section (3) of Section 21, every return shall be subject to scrutiny to verify the correctness of calculation, application of correct rate of tax and input tax credit claimed therein and full payment of tax payable for such tax period.

        (b)    If any mistake is detected as a result of such scrutiny made as specified in clause (a), the authority prescribed shall issue a notice of demand in the prescribed form for any short payment of tax or for recovery of any excess input tax credit claimed.

    The prescribed Authority may issue a notice of demand in Form VAT 213 as provided in the above mentioned sub section (b).

Sub-section 3 of Section 21 the Telanganana VAT ACT 2005 provides as follows:

    (3)    Where the authority prescribed is not satisfied with a return filed by the VAT dealer or TOT dealer or the return appears to be incorrect or incomplete, he shall assess to the best of his judgment within four years of due date of the return or within four years of the date of filing of the return whichever is later.

    Sub section 3-a of Section 20 of the Telanganana VAT ACT 2005 mandates the Authority prescribed to receive the return that every return shall be subject to scrutiny and Sub-section 3 of Section 21 the Telanganana VAT ACT 2005 mandates the Assessing Authority that he shall assess to the best of his judgment within four years of due date of the return or within four years of the date of filing of the return whichever is later if the authority prescribed is not satisfied with a return filed by the VAT dealer or TOT dealer or the return appears to be incorrect or incomplete!

    As I submitted above,

    As per sub-rule (3) (i&ii) Rule 59 and as per sub-rule (4-i)  Rule 59 of the Telangnana VAT Rules 2005:

    In case of Large Taxpayer Unit of the division the Assistant Commissioner of the division concerned is the prescribed Authority to receive returns and  also the Assessing Authority for LTU VAT dealers.

 In the case of Circle the Commercial Tax Officer of Circle concerned is the prescribed Authority to receive returns and also the Assessing Authority for VAT dealers.

In the case of Circle the Deputy Commercial Tax Officer of Circle concerned is the prescribed Authority to receive TOT returns and  also the Assessing Authority for TOT dealers.

As per The sub-section 4 of Section 2 of The Telangana VAT Act 2005:

2(4)    ‘Assessing authority’ means any officer of the Commercial Taxes Department authorized by the Commissioner or as may be prescribed to make any assessment in such area or areas or the whole of the State of Andhra Pradesh;

        Thus it is clear that for the VAT dealers the Assistant Commissioner (LTU) and the Commercial Tax Officer of Circle concerned are the PRESCRIBED Authorities to make assessment in the circle concerned without any authorization from any higher authority and Deputy Commercial Tax Officer is the authority to make assessments with the authorization of the CTO of the circle concerned for the TOT dealers of the circles concerned. 

           Also any officer not below the rank of DCTO of any other circle may make assessments in the Division as Authorised by the Deputy Commissioner of the Division concerned.

        And also any officer not below the rank of DCTO of any other circle in the state may make assessments in any circle as authorized by the Joint/Additional Commissioner Empowered for this purpose by the Commissioner.

    From the above mentioned Sections of the Act and Rules it is clear that  no authorization is needed from any higher authority  to make Assessments of VAT dealers by the CTO in his circle concerned. Similarly the DCTOs needed only the authorization of the CTO to conduct assessments of the TOT dealers of their circle and no other authorization is needed from any higher Authorities except the CTO of his circle . 

    But the higher officers like Deputy Commissioners of the Divisions and the Commissioners have been precluding the Prescribed Authorities, that is, the Commercial Tax Officers and Deputy Commercial Tax Officers to make assessments of the dealers of their circle concerned and insisting that only the authorized authorities have to make assesments.

    I submit that kindly the contents of the relevant Circular may be perused which is pasted in this application after Violations in Inspection (Audit).

Violations in Inspection (Audit):

    Though there is no word such as Audit in the Telangana VAT Act 2005 the Department using the word to denote ‘inspection and or detailed scrutiny of the books of accounts of the dealers’. 

    After Assessment the audit (‘inspection and or detailed scrutiny of the books of accounts of the dealers) is another important pillar of Tax Collection.

As per sub-sections 1 and 1-a of the Section 43 of Telangana VAT Act 2005:

43.    (1)    For the purpose of enforcing compliance of the provisions of the Act, any officer not below the rank of Deputy Commercial Tax Officer shall have the power of entry, inspection, search and seizure and confiscation and he:-

        (a)    shall have, full and free access to any premises, place, goods, books, record, computer or any electronically stored data at any time during business hours prescribed under the relevant law for the time being in force and where no such hours are prescribed at all reasonable times without any prior notice to any dealer;

This Section 43 of Telangana VAT Act 2005 provides that for CTOs and DCTOs no authorization is needed to enforce powers under this section.

Also the CTOs and the DCTOs need not issue any prior notice to any dealer and seek their permission to conduct Audit (‘inspection and or detailed scrutiny of the books of accounts of the dealers).

Sub-section4 of Section 21 states as follows:

21.    (4)    The authority prescribed may, based on any information available or on any other basis, conduct a detailed scrutiny of the accounts of any VAT dealer or TOT dealer and where any assessment as a result of such scrutiny becomes necessary, such assessment shall be made within a period of four years from the end of the period for which the assessment is to be made!!

Sub-rule 1-5 of Rule 59 Telangana VAT Rules 2005 provides as follows:

    Inspection and or detailed scrutiny of accounts and consequential assessment, resulting therefrom, if any the Authority prescribed-

Assistant Commissioner (CT) Large Tax Payer Unit in case of the dealers of LTU concerned or

Commercial Tax Officer in case of dealers in the Circle concerned 

 Any officer not below the rank of Deputy Commercial Tax Officer in the Division concerned as authorized by the Deputy Commissioner, concerned in the case of the dealers in the territorial jurisdiction of the Division concerned,

 Any officer not below the rank of Deputy Commercial Tax Officer in the State as authorized by the Joint Commissioner or Additional Commissioner, empowered for this purpose by the Commissioner.

Again sub-rule 1-14 of Rule 59 Telangana VAT Rules 2005 provides as follows:

    Entry, inspection, Search, Seizure, Confiscation-

Assistant Commissioner (CT) Large Tax Payer Unit in case of the dealers of LTU concerned or

Commercial Tax Officer in case of dealers in the Circle concerned 

 Any officer not below the rank of Deputy Commercial Tax Officer in the Division concerned as authorized by the Deputy Commissioner, concerned in the case of the dealers in the territorial jurisdiction of the Division concerned,

Any officer not below the rank of Deputy Commercial Tax Officer working in general Administration (Vigilance and Enforcement) department, or as authorized by any officer, empowered for this purpose by the Head of the General Administration (Vigilance and Enforcement) Department. 

 Any officer not below the rank of Deputy Commercial Tax Officer in the State as authorized by the Joint Commissioner or Additional Commissioner, empowered for this purpose by the Commissioner.

Thus it is clear that the Assistant Commissioner (LTU) is the PRESCRIBED Authority to conduct Audit (Inspection etc.,) for VAT dealers of of LTU and the Commercial Tax Officer of Circle concerned is the PRESCRIBED Authority to conduct Audit (Inspection etc.,) for VAT dealers of the circle concerned:

without any authorization from any higher authority and 

without any prior intimation to the dealers.

    But in violation of the above sections of Telangna VAT Act 2005 and Rules of Telangna VAT Rules 2005 the Commissioners of Commercial Taxes and other higher authorities are precluding the CTOs and DCTOs of the circle conduct Entry, inspection, Search, Seizure, Confiscation and detailed scrutiny of accounts and consequential assessment, resulting therefrom, if any, without the authorization of the higher authorities, that is, the DCs, and without the prior intimation to the dealers.

    To enforce this a system called VATIS has been introduced. As per this VATIS authorization for inspection, audit and/or assessment authorization in Form ADM-1B has to be generated and Form VAT 304 for intimation to dealers also has to be generated and issued to the authority to conduct inspection, audit or assessment.

    All the dealers are informed that no officer of the department can come to their business premises for inspection or assessments without showing to them both the Form ADM -1B and Form VAT 304. 

This act of the higher authorities is in violation of the Act and Rules.

The most serious violation:

    This is the most serious violation of the ACT. Within a circle the CTO or DCTO don’t need any authorization to conduct Entry, inspection, Search, Seizure, Confiscation and detailed scrutiny of accounts and consequential assessment, resulting therefrom, if any, as per Sections 43 (1), 43 (1-a), 43 (1-b), 43 (1-c), 43 (1-d), 43(1-e), of the Telangana VAT Act 2005 and Rules 59(1-5) and 59(1-14) of The Telangana VAT Rules 2005.

But as per the circular vide CCT’s Ref. No. BV(3) /37 /2010 has mandated that Jumbling system shall be used to allot dealers to audit officers for audit/assessment. And it is also mandated that to issue authorization of Audit in Form ADM 1B and Notification of Advisory/Audit visit to VAT dealers in Form VAT 304 through VATIS only.

    The above mentioned instructions are clearly in violation of Sections 43 (1), 43 (1-a), 43 (1-b), 43 (1-c), 43 (1-d), 43(1-e), of the Telangana VAT Act 2005 and Rules 59(1-5) and 59(1-14) of The Telangana VAT Rules 2005.

    Due to these instructions of the CCT the entire Intelligence system at circle level has become defunct. The tax evading dealers have been created a safe passage and this resulted in a huge tax evasion to the tune of thousands of crores of rupees.  A strong confidence has been infused into the minds of the dealers that they are free from any kind of inspection and assessments without their prior knowledge. This resulted in rampant sales without sale invoices and many other business malpractices.

     Many dealers use the WAY BILLS 4 to 5 times, some times even more. Hence it is not possible to ascertain the TAX liability of the dealer just by scrutinizing the Returns and WAY BILLS 

        The  Form VAT 304 gives an intimation before minimum one week time to dealers so that they can set everything right before the audit/assessment takes place. 

    The  Form VAT 304 is not prescribed either by the  The Telangana VAT Act 2005 or The Telangana VAT Rules 2005. It is introduced by the Department to help the dealers to set right their tax evasion transactions before the Officers of the Department undertake Audit/Assessment.

    This act of the higher authorities is quite anti to the very basic spirit of The Telangana VAT Act 2005 and The Telangana VAT Rules 2005.  As the Act and the Rules are intended for VAT  Tax Collection without any kind of evasion. But the act of introduction of Form VAT 304 is to protect the dealers who indulge in Tax evasion.

    The revenue loss due to violations in Audit (inspectionetc.,) is many times of the loss due violations in Assessments

    In violation of the section no. 77 of The Telangana VAT Act 2005 following circular (whixh is pasted as under) has been issued on 27-08-2012 vide CCT’s Ref. No. BV(3) /37 /2010.     

    This circular has violated the Sections 2 (4), 2 (24), 20 (1), 20 (3-a,b),21 (3), 21(4), 21 (5), 43 (1), 43 (1-a), 43 (1-b), 43 (1-c), 43 (1-d), 43(1-e), and section 70 (1), 70 (2) of the Telangana VAT Act 2005.

    This circular has also violated the Rules 3(a),  25(5), 25(6), 59(1-3), 59(1-4ii),59(1-5), 59(1-7),59(1-14) of The Telangana VAT Rules 2005.         

CCT’s Ref. No. BV(3) /37 /2010.                                     Dated :27-08-2012                    

CIRCULAR

Sri Suresh Chanda, I.A.S., Commissioner of Commercial Taxes

***

             Sub: APVAT Act,2005- Audit and Assessments –Certain instructions  

                      issued-Reg.

      Ref: 1. CCT’s Ref. No. B II (2)/ 122/ 2006, dt. 29.5.2006

                      2. CCT’s Ref. No. B II (2)/ 122/ 2006, dt. 19.6.2006

3. CCT’s Ref. No. B II (2)/ 122/ 2006, dt. 8.9.2006

4. CCT’s Ref. No. B II (2)/ 122/ 2006, dt. 16.9.2006

5. CCT’s Ref. No. B II (2)/ 122/ 2006-1, dt. 4.10.2006

6. CCT’s Ref. No. BV I (3)/ 120/ 2007, dt. 31.5.2007

7. CCT’s Ref. No. BV I (3)/ 120/ 2007, dt. 13.6.2007

8. CCT’s Ref. No. BV I (3)/ 120/ 2007, dt. 22.9.2007

9. CCT’s Ref. No. BV I (3)/ 120/ 2007, dt. 5.10.2007

10. CCT’s Ref. No. BV I (3)/ 120/ 2007, dt. 25.10.2007

11. CCT’s Ref. No. BV I (3)/ 120/ 2008, dt. 16.4.2008

12. CCT’s Ref. No. BV I (3)/ 120/ 2007, dt. 30.10.2008

13. CCT’s Ref. No. BV (3)/ 60/ 2009, dt. 11.5.2009    

14. CCT’s Ref. No. BV (3)/ 37/ 2010, dt. 29.3.2010.

15. CCT’s Ref. No. BV (3)/ 37/ 2010, dt. 5.9.2011.

16. CCT’s Ref. No. BV (3)/ 37/ 2010, dt. 21.5.2012.

17.CCT’s Ref.No.AII(1)/267/2012, dt.20.7.2012.

             

***

    The attention of all the Deputy Commissioners(CT) and Enforcement Wing is invited to the ref.2nd cited, wherein, it was already instructed to issue authorization of Audit in Form ADM 1B and Notification of Advisory/Audit visit to VAT dealers in Form VAT 304 through VATIS only. But, it is noticed that in some cases these guidelines are not followed strictly and  audit is being authorized outside VATIS without generating ADM 1B and Form VAT 304 through the software. Therefore, the following instructions are issued:-

Effective from 1.9.2012, all the Deputy Commissioners concerned and Additional Commissioner/Joint Commissioner, Enforcement shall issue “Audit  authorizations” in Form ADM-1B  with Unique No. through VATIS only. Any authorization (ADM 1B) issued outside VATIS or without unique No. shall not be a valid authorization for audit/assessment. Any officer conducting audit/assessment without valid authorization shall be liable for disciplinary action.

Jumbling system shall be used to allot dealers to audit officers for audit/assessment.

Guidelines issued from time to time for selection of dealers and allocation to Audit officers for audit/assessment shall be followed.

Audit visit notice to dealers in Form VAT 304 shall also be generated through VATIS only.

    This Circular along with many other circulars have been issued superseding the Telangna VAT Act 2005 and Telangnana VAT Rules 2005. In the above circular it is clearly mentioned that “Any officer conducting audit/assessment without valid authorization shall be liable for disciplinary action”. 

It may be kindly perused that the CTOs/DCTOs of the circle concerned are not excluded from this condition.

    It is also mentioned that Jumbling system shall be used to allot dealers to audit officers for audit/assessment.

    This provision made compulsory that no CTO or DCTO can make assessment in his circle and that they have to audit/assess the dealers of other circles of the Division as CTOs/DCTOs of the circle concerned are not exempted from this condition.

    It is clearly insisting that only the officers authorized can only conduct audit/assessment and no other officer shall conduct any audit/assessment and if they do so they shall be liable for disciplinary action. 

     Thus only around 10 percent of the total dealers are being assessed every year incurring a heavy loss of thousands of crores of rupees revenue loss to the Government.

    I request your kindness to peruse the following circular on next page which reveals that still the practice has been going on:

The Circular is on the next page…………

    It is requested that the Government may kindly:

Abolish the VATIS system including Form ADM-1B and Form VAT 304 so that the state can get some thousands of rupees of VAT tax in this crucial time,

Initiate disciplinary action against all those higher authorities, working as well as retired, who are responsible for this violation of the Act and Rules and thus causing heavy revenue loss to the Government,

Recover the amount of tax loss to the government from the responsible officers those who are working as well as retired.

I submit that by initiating the above requested actions and any other deemed to be fit for improving the VAT tax collection there by helping the Hon’ble Government to effectively implement the developmental and welfare measures which have been initiated.

Thanking you sir,

Yours Sincerely

Mote Raghupathi,

        Advocate,

, Convener, MOSDEM (Movement for Stronger Democracy),

H.No. 11-9-75/1/102, Rd. No 2            

Laxminagar Colony,

Kothapet, Saroornagar Mandal,

Rangareddy District, Hyderabad.

Mobile No. 8099057731