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Online system soon to plug VAT leaks
April, 04th 2012

The current state budget proposes to put in a system of online verification of payment of value added tax (VAT) to prevent tax frauds. Under VAT, those down the line can get credit for the tax already paid in earlier transaction. For example, if a seller passes on tax component in the price charged to the buyer, the latter claims a proportionate credit while discharging his own liability. At times, it leads to refunds by the government.

There have been instances of fraud where credit was claimed even without tax being paid. Some cases were found in Nagpur too, say sources. The proposed online system will enable the purchaser to verify if the tax charged by the seller has been actually paid. The move, as usual, has its opponents among tax practitioners and traders who complain that the tax credit will only be available on confirmation of payment made by the preceding link. Some also hail the move but prefer not to be named.

The budget has also made it easier for small traders pursuing legal battles against disputed sales tax dues but also tightened grip on bigger ones moving the tribunals in similar matter. The government feels it would prevent delayed recovery of tax due to time buying tactics.

Small traders may no longer have to continue prolonged legal battles for tax related disputes against the state's sales tax department. The budget proposes a threshold limit for the government to move high court in case of a dispute. This would be a provision similar to Section 268-A of the Income Tax Act that defines a minimum limit for the department to appeal against a decision before the next higher authority. Separate limits are set for appeals in the Income Tax tribunal as well as high court. The limits for the sales tax are expected to be declared eventually.

However, another proposal has left the businessmen crying foul, who term this an oblique method of extracting dues that are otherwise disputed. The budget says that in order to expedite the disposal of appeals and curb the tendency to prolong appeals, if an appellant fails to attend the hearing or seeks adjournment three times, he shall have to pay at least 15% of the disputed tax for the stay against recovery to continue.

Chartered accountant B C Bhartia says the provision will be limited to cases being heard at Maharashtra Value Added Tax ( MVAT) Appellate Tribunal as the budget cannot have any control over high court. However, he calls it a one-sided law as a similar penalty for delay should be imposed on the deparment too. Bhartia lauded the government on the proposal to fix a threshold limit for appeals by the sales tax department.

Former president of Institute of Chartered Accountants of India (ICAI) Ashok Chandak also flayed the move on depositing 15% of the dues. "Most of the times, it is the department that seeks a later date. There have been instances when it has taken decades to settle a dispute over rates of tax applicable on a particular commodity. Such delays should also be taken into account," he said.

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