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Buyers, vendors join hands to evade VAT
January, 02nd 2013

As the state's sales tax department begins the use of advanced computer system for monitoring value added tax (VAT) payments, it has opened a can of worms. It has been found that even as buyers are claiming credits for the VAT paid earlier, the amount has not reached the government exchequer at all in a large number of cases.

"The scrutiny relates to financial year 2008-09 onwards which has led to notices being shot from this year. Several notices have been sent throughout the state. Though the total amount is not readily available, it is expected to be substantial," said an officer dealing with the matter in the sales tax office here.

VAT is a system of indirect tax under which each transaction is taxed, but a refund is also available for the levy paid in the previous deal.

Every time the tax is collected it has to be deposited in the government exchequer by the seller. For example, if a manufacturer buys raw material and pays VAT on it, he can claim a refund of the proportionate amount while paying tax on selling the end-product. However, there have been cases where the buyers have claimed to have paid tax but funds have not reached the government.

While the buyers claim innocence, passing the buck on vendors, the department says in certain cases their connivance cannot be ruled out.

The department has posted a list of 1,200 suspicious dealers whose names have been posted on its website. These businessmen had mainly secured a tax identification number (TIN) in the name of fictitious names or proxies.

Transactions were done in the name of drivers, servants and other persons who barely had means to conduct business on such a scale. They are supposed to be engaged in giving fake bills with no real transactions just to enable an input credit to the buyer. The list would grow as more cases are found, the source said.

The current system enables matching the returns filed by the buyer as well as the seller. So, if the purchases are recorded in one firms' books, it should be also shown as sale in other firm's accounts. A mismatch shows that the tax has not been paid and hence the input credit is denied, said a source in the department.

Notices to recover the tax are given to both the parties. However, buyers get enough time to reconcile the accounts with vendors only after which a recovery notice is slapped, the source said.

Some of the buyers have complained that the vendors are now not traceable. However, even in such cases, it leaves a room of doubt about genuineness of the purchase on the buyers' part.

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