From 1st April 2005, the Bombay Sales Tax Act, 1959 (BST Act) was abolished and as per national consensus the Value Added Tax system (VAT) was introduced. For that purpose, the Maharashtra Value Added Tax Act, 2002 (MVAT Act) came into operation w.e.f. 1-4-2005. The said new Act has many distinguishing features as compared to the earlier BST Act. One of them is change in the assessment procedure. Under the provisions of the BST Act, assessment of the dealer for each year was mandatory. It is a well-settled position that whatever position might have been shown in the returns, the dealer was entitled to put the last updated position before the assessing authority in the course of assessment. The assessing authority was also under obligation to assess the dealer as per final records produced by the dealer. Therefore, pre-assessment procedures like returns, etc., had not much effect on the final assessment. This was a very good opportunity in the hands of the dealer to get himself assessed as per law and as per books, in spite of the fact that in the returns, etc., correct position might not have been shown.
There is drastic change in the above procedure. Under the MVAT Act, there is no compulsion for carrying out assessment of dealer/s. The same is optional for the Department and if it feels necessary, then only it may take up the assessment, otherwise the position shown in return will be final. Therefore, under the MVAT Act, returns are much more important documents. The dealer has to file returns with absolute care. Normally there will not be any opportunity to correct the situation, as it was under the earlier BST Act where assessment was mandatory. If the Sales Tax Department initiates assessment, then the dealer may be in position to put up his latest position, which was not reflected in the returns. However, if there is no assessment, he will not have such an opportunity and has to remain contended with the position shown in returns.
In the MVAT Act, there is a provision for audit by an independent agency like VAT Audit by CA and Cost Accountant. However, in spite of the same, the Sales Tax Department also wants to supervise the position on its own. Therefore, the Department has brought in the concept of ‘Business Audit’. This is a new concept which has been provided by way of section 22 of the MVAT Act. When this section was originally inserted it had eight (8) sub-sections detailing various aspects of ‘Business Audit’. Subsequently six (6) sub-sections were removed and now there are only two (2) sub-sections. A few important pros and cons of the Business Audit provision can be noted as under:
(1) As stated above, initially all the procedural aspects about the Business Audit were specified in section 22 itself. After removal of such subsections, the only thing remains in section 22 is giving authority for carrying out the Business Audit and the authority of the officer during the Business Audit. Therefore, in relation to other aspects, the Commissioner of Sales Tax has issued Circular bearing no. 25T of 2008, dated 23-7-2008. Thus, a number of procedural aspects has been left to the sweet will of the Commissioner of Sales Tax. As in other cases, the Commissioner of Sales Tax has interpreted the scope of section 22 in wider way than intended by the said section.
(2) The intention of the Legislature in carrying out the Business Audit is to promote compliance of VAT Law by the dealers. Therefore, it is in the nature of guiding the dealers. To serve the real purpose, it is expected that the Business Audit will be carried out for initial year of the dealer, whereby he will be able to note his noncompliance at an early stage and will be able to correct it at the earliest. In fact, it should be at the beginning of the year, so for rest of the year, as well as in future, he will get guided. However, experience shows that the Business Audits are being carried out very late. Like a Business Audit from 2005-06 onwards is being done in 2010-11. This completely demolishes the real purpose of the Business Audit. By such late action, the non-compliance gets accumulated for past number of years and if it is attracting liability, it gets multiplied. The Sales Tax Department should think over making the above provision more dealer friendly.
(3) The Business Audit appears to be a pre-assessment verification of the records. If the Business Audit officer is satisfied with the compliance, there will not be any further action. If he is not satisfied, he will give intimation in form 604 for correcting the position. If the dealer agrees to the same, the Business Audit may be closed. If the dealer does not agree, the officer may initiate assessment.
In the above whole process, it is seen that the Sales Tax Department is using the provision only to find out additional liability. It seems to be a misunderstanding of the provision by the Department. The intention of the Legislature is that the Business Audit should be carried out for promoting compliance of the provisions of the MVAT Act. The provisions include various beneficial provisions in favour of dealers, like set-off. Therefore, if in the course of the Business Audit, the officer finds out any short claim of set-off by the dealer, he is duty bound to give opportunity to the dealer to correct the said position and grant additional set-off. However, no such instructions are given in the Circular, nor is it done practically. It shows that the provision is being used in unfair manner and against the real purpose of the Business Audit provision.
(4) In the Circular No. 25T of 2008, the Commissioner of Sales Tax has given certain aspects of scope of audit. Some of the items mentioned cannot fall in the scope of Business Audit under the MVAT Act. A few of them are as under:
(a) It is mentioned that the Business Audit Officer will be entitled to look into other Acts also like Profession Tax Act. This appears to be incorrect, as Profession Tax Act does not refer to the MVAT Act for procedural aspects and hence such substantial provision of the MVAT Act cannot be used for the Profession Tax Act.
(b) The provision in section 22(5) suggests that the dealer should afford necessary facility for inspection of books, etc. Therefore, there cannot be compulsion about any of the matters. In any case, the Business Audit Officer cannot have power of Civil Court about proof of facts by affidavit, summoning and enforcing the attendance, etc. This is so because the Business Audit Officer is not assessing the dealer, so as to pass final order of liability. He is only verifying the records for looking into compliance by the dealer. If after noticing irregularities, he wants to initiate assessment and to decide the liability as per statutory provision, then he may get the above powers for determining the facts before passing order of liability. Therefore, granting such powers, in the course of Business Audit, appears to be pre-mature and excessive.
(c) In the Circular No. 25T of 2008, it is mentioned that the Business Audit Officer can also come without intimation if he wishes to carry out surprise audit. This power also appears to be beyond the scope of section 22. Whenever the Sales Tax Department wants to carry out surprise checks, there are separate powers of investigation u/s. 64 of the MVAT Act. The Sales Tax Department can utilise the said powers for surprise visits. If section 22 powers of Business Audit are used for such purpose, it will amount to circumventing requirements of section 64. As per section 64, a surprise visit can be given, if there is ‘reason to believe’ for tax evasion, etc. Thus, there is burden upon the Sales Tax Department to record the reasons about tax evasion and then to take out surprise visit. There are cases where investigation actions have been struck down by Courts, if it is established that the investigation action is without discharging burden of establishing ‘reason to believe’. Now, because of above mentioned Circular, investigation action may take place u/s. 22, without discharging the burden of establishing ‘reason to believe’. This appears to be overuse or misuse of powers granted u/s. 22. This is also contrary to intention of the Legislature.
(d) In the above Circular, it is also mentioned that wherever necessary, the Business Audit Officer can seek intervention by the Investigation Branch. Thus, this again is a situation of avoiding necessary parameters of section 64 and beyond the scope of section 22 of the MVAT Act. It is expected that such unintended and unauthorised instructions should be withdrawn, if the provision is really to be used for the intended purpose i.e., guiding the dealers.
There are many other aspects for which detailed deliberations need to take place. At this juncture, we just wish that the provision should be administered in a fair manner and within its legislated scope.
