The Finance (Taxation) Department in Assam irregularly allowed exemption of tax of Rs 1026 crore on tax paid sales without any supporting documents, says a report by the Comptroller and Auditor General of India.
The CAG review on transition from sales tax regime to Value Added Tax (VAT) regime in the State also revealed that the average growth of revenue after implementation of Value Added Tax (VAT) regime registered a decrease of 9.66 per cent as compared to pre-VAT regime.
The report that indicated a negative growth of revenue during consecutive three years from 2005-06 to 2007-08 was tabled on the floor of the Assam Assembly on the first day of the ongoing Budget Session.
The report further revealed that there was no system to verify tax deposited by the selling dealers before allowing input tax credit to the dealers to ascertain the genuineness of the claims.
“In absence of any provision for furnishing supporting documents for claiming exemption on tax paid, tax of at least Rs 1026 crore was irregularly exempted without any documentation.”
“Test check of records revealed that in 18 cases, seven dealers claimed exemption on turnover of Rs 25,650.50 crore since the sales were made at subsequent points. However, in absence of any instruction for submission on proof of payment of tax at preceding stage, the dealer did not furnish any supporting documents along with the claims. The assessing officers also did not insist on such documents, the absence of which would result in irregular allowance of exemption of Rs 1026 crore calculated at the minimum rate of four per cent,” the report added.
During scrutiny it was noticed that though the Assam Value Added Tax, Act, 2003 specifically mentions that the burden of proving that a dealer is not liable to pay tax is on that dealer, no specific instruction was issued in this regard.
“Since under VAT Acts, there is very little scope under the Acts to intercept the dealers and take up audit assessment, such absence of instruction for furnishing supporting documents in support of claim for exemption is indeed allowing the dealers undue benefit and ample scope for evasion of tax,” the CAG report said.
The Empowered Committee of States Finance Ministers that was constituted by the Centre stated in a White Paper that on introduction of VAT overall tax burden would be rationalised, other taxes, such as turnover tax, surcharge, additional surcharge etc, would be abolished, it would eliminate cascading effect due to credit of tax paid on purchase for resale or use in production, overall tax would increase and there would be higher revenue growth.
However, the CAG in its review of Assam scenario found that the average growth rate in sales tax collection the state during the from 2002-03 to 2004-05 in pre-VAT regime was 22.66 per cent while the growth rate in tax collection for 2005-06 to 2007-08 in the post-VAT regime was 13 per cent.
The percentage growth as revealed by the CAG report in 2005-06, 2006-07 and 2007-08 were 15, 13 and 11 respectively showing that there was a negative growth of revenue during consecutive three years from 2005-06.