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No VAT monitoring helps tax evasion
April, 12th 2016

Even after knowing that Value Added Tax (VAT) is an important source of revenue of the Himachal Pradesh government, no instruction was issued by the Excise and Taxation department for periodic analysis of dealers below the threshold limit of rupees eight lakh to prevent unregistered dealers avoiding registration. Bringing the functioning of the government under the scanner, the Comptroller and Auditor General (CAG) of India's report -- tabled in the state assembly on Thursday -- said absence of this mechanism keeps the option open for unregistered dealers to evade payment of tax, even after crossing the threshold limit.

It has also been revealed in the report that cases pending for assessment increased from 72,524 in 2009-10 to 1,38,168 at the end of 2013-14 (an increase of 91 per cent). The percentage of disposal of cases during the period of 2009-10 to 2013-14 was between 20 and 25 per cent of the cases due for assessment. CAG Audit also noticed that the database maintained by the Excise and Taxation department of the state was incomplete, as the dealer-wise categorization according to the trade (manufacturer, traders, and dealers who fall in the lumpsum scheme) was not displayed by the system.

It was also found that the system did not display alert through pop-up of return/tax defaulters, and did not block the TIN access of tax/return defaulters. Online notices were not served to dealers relating to rectification of errors in the returns filed, and amount of tax due to be paid by them.

The report has suggested the government to set up a mechanism to monitor regularly the turnover of unregistered dealers to ensure that dealers who cross the threshold limit of rupees eight lakh are brought under the tax net. It also suggested formulation of an effective action plan and evolving a mechanism to monitor the finalization of assessment cases timely.

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