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CBEC to use third-party information to nab tax evaders
August, 19th 2014

India's indirect taxes body, the Central Board of Excise and Customs (CBEC) could start monitoring power consumption and payments towards valueadded tax in states as it proposes to use information from third-party sources to nab tax evaders.

The plan draws heavily from income tax authorities and hinges on the data shared by power utilities, stock exchanges, banks and Registrar of Companies in their information returns to verify their tax payments.

The government had in this year's budget inserted Section 15A and 15B in the Central Excise Act, seeking more information through returns for all indirect taxes and those failing to furnish it will have to face penalty. Armed with this provision, the CBEC is gearing up to effectively use the deluge of information flow.

"Third-party data can be very handy. The idea is to tap various information sources to tackle tax evasion in a nonintrusive manner," said a finance ministry official, who did not wish to be identified.

Effective use of third-party information by tax authorities had figured in discussions at the recently concluded annual conference of the chief commissioners and director generals of excise, customs and service tax departments.

Service tax authorities have already been provided with remittances received in lieu of import of services and directed to verify with service tax paid.

Third-party information system is used the world over to check evasion. The concept was first introduced in the country by the Central Board of Direct Taxes in the form of annual information returns. Banks, mutual funds, credit card issuers and property registrars are required to report transactions above a certain threshold in the prescribed format. Data is matched with taxpayers' income tax returns to detect any discrepancy in the income declared and tax paid. The information collected is also used to create 360-degree profiles of taxpayers.

Under excise duty norms, it is mandatory for manufacturers to file a statement on installed capacity, details of electricity supply connection including the total number of meters installed and sanctioned electricity load, permanent account number and valueadded tax registration number.

However, the country has not had a similar structured third-party information system in case of indirect taxes.

The Central Board of Excise and Customs now intends to make better use of IT-based information systems that will help it effectively deal with evasion, especially of service tax. The government had in 2012 detected about a million non-filers or stop filers of service tax, after which it announced an amnesty scheme to encourage evaders to come into the fold.

Experts have welcomed the CBEC's move. "This is a step in the right direction. Internationally tax authorities rely on a large of information sources to verify tax due to them," said Pratik Jain, partner, KPMG India.

The body is also launching an IT-enabled pilot for verification of cenvat credit claim on the lines of tax deducted at source in case of income tax. This will help the industry in facilitating faster credits as also the department in checking evasion.

The government has targeted collection of Rs 6.23 lakh crore towards indirect taxes during the current financial year, a growth of 25 per cent over 2013-14. Indirect taxes collections grew just 4.5 per cent in the three months to June, compared to the year-ago period, but June saw a promising 13.5 per cent growth over the corresponding month last year.

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