Nearly INR 8 crore slip past Taxes’ scrutiny

Our Correspondent
Kohima, Feb. 29 (EMN): The superintendent of Taxes had failed to detect INR 43.66 crore inter-state purchases concealed by four dealers resulting to evasion of tax of INR 7.69 crore. 

This was revealed in the ‘revenue sector’ of the Comptroller and Auditor General (CAG) of India report for the year ended March 31, 2018, for the state of Nagaland.

According to the report, examination of records revealed that the total taxable purchases concealed by the four dealers, namely M/s MK Angami, M/s LK Hardware, M/s Vizo & Sons, M/s New Kohima Agencies, amounted to INR 43.66 crore and the tax payable by them was INR 7.69 crore as per utilisation certificate of ‘C’ forms.

An audit of the accounts of the deputy commissioner of Taxes, Kohima for the period of April 2015 to March 2017 was conducted in January-February 2018. As per records, there were 1255 registered dealers/suppliers/contractors/societies (Dealers running business-339; Suppliers/Contractors/Societies-852; and non-functional business/establishments-64) out of which only 520 annual tax returns were submitted by the dealers for assessment of tax by the STs during the period in question, the CAG reported.

The audit selected 207 returns (40%) through stratified sampling method for the assessment period of 2014-15 to 2016-17. Examination of records revealed that four dealers declared a gross purchase of INR 61.34 crore during the period 2014-16 by utilising ‘C’ forms.

During cross-examination of utilisation of ‘C’ forms submitted by the dealers with the trading account and tax returns of the dealers, it revealed that the dealers had actually purchased taxable goods of INR 63.76 crore, taxable at various rates. Against the actual purchase of taxable goods of INR 63.76 crore, the dealers declared taxable purchases of INR 20.10 crore only. This resulted in concealment of taxable purchases of INR 43.66 crore and evasion of tax amounting to INR 7.69 crore, it stated.

‘Thus, it is evident that the assessing authority (AA) had assessed the tax returns without cross-verifying the utilisation certificate of ‘C’ forms in contravention of which, resulted in evasion of tax of INR 7.69 crore by four dealers. Besides, the dealers were liable to pay penal interest of INR 5.52 crore (up to December 2018) on the tax amount which had been evaded in accordance with Rule 49 of the Nagaland Value Added Tax Rules, 2005’, the CAG added.

It may be mentioned that the superintendent of Taxes (STs) are the AA and also the approving authority of all statutory forms to dealers who are in the business of manufacturing and resale of goods.

While accepting (October 2018) the facts in respect of three dealers, the department stated that as per audit recommendation, the AA issued notice under section 39 and reassessed the tax liability of INR 3.34 crore including interest. In respect of one dealer, the department stated that the dealer (M/s. LK Hardware, Kohima) had submitted a wrong trading account for the year 2014-15 and had now submitted duly corrected trading account which was scrutinised by the AA and found to be in order.

However, the reply of the department was incorrect as the total taxable purchases concealed by the four dealers were amounting to INR 43.66 crore and the tax payable by them was INR 7.69 crore as per utilisation certificate of ‘C’ forms, the CAG stated. 

The department reassessed and served demand notice to three dealers for only INR 3.34 crore, leaving INR 4.35 crore tax payable unassessed.

In the case of M/s LK Hardware, the reply that the dealer had submitted corrected trading account was not true and misleading as the AA had assessed the tax on June 15, 2016 and the revised trading account was also received by the AA on the same day (June 15 2016). Besides, the dealer purchased goods valued for INR 5.92 crore through utilisation of ‘C’ forms but tax was assessed only on INR 3.28 crore, according to the CAG. 

‘Therefore, the AA should reassess the tax payable on the concealed purchases of INR 2.64 crore by the dealer along with penal interest. The failure of the AA to ensure cross-verification of the utilisation of ‘C’ forms with the tax returns as required under the provisions of Section 28 and 32 of the Nagaland Value Added Tax Act 2005 resulted in concealment of taxable turnovers and evasion of tax’, it added.