In exercise of the powers Conferred under Sections 34 and 37 of the Jharkhand Value Added Tax Act, 2005 (Jharkhand Act 05, 2006), read with Sub rule (1) of the Rule 33 of the Jharkhand Value Added Tax Rules, 2006, the Commissioner of Commercial Taxes hereby determines the following criteria and guidelines for selection of the dealers for conducting the VAT Audit and Audit Assessment under the Act :-

Part (I) CRITERIA FOR SELECTION OF DEALERS FOR THE PURPOSE OF AUDIT ASSESSMENT AND TAX AUDIT THEREOF

(a) Subject to other clauses, where volume of turnover of such dealers exceeds Rs. ten Crores and;

(b) Where the Taxable goods are consigned by the dealers to outside the State as well as within the State by a reason, "otherwise than by way of sale";

(c) Where the refund claims are arising due to "Input Tax" exceeding "Output Tax" Payable or;

(d) Where dealers, either manufacturer/trader/works contractor are involved in purchasing the inputs taxable @ 4% or 5% as well as 10%/ 12.5% / 14% and reflecting the closing stock of the goods taxable @ 10%/ 12.5% / 14% or;

(e) Where dealers engage in substantive changes in trade practices- e.g. excessive stock transfers, material decline in inter-state purchases, material increase in exports/sales to exporters or;

(f) Where dealers have claimed monthly input tax of Rs. 50 thousand and above in respect of evasion-prone commodities such as timber, plywood, glass, rubber iron and steel, spare parts, electrical and electronic goods, readymade garments, footwear, home appliances, etc. or;

(g) Where dealers have collected output tax of 1 lakh and above, but have paid tax either Nil or below 75% of the output tax collected every month or;

(h) Where the returns filed show sharp fall in taxable turnover, in spite of increase in purchase continuously for two tax periods or;

(i) Where there are 'NIL' sales, but a credit is arising from inputs or;

(j) Where newly registered dealers are claiming credit against the Output Tax payable or;

(k) Where for the purpose of trading dealers, the Input Tax is exceeding Output Tax on account of any post sale discount or;

(l) Where Input Tax Credit claims appear peculiar - e.g. Rs. One lakh (a round figure) without any fraction of an amount or;

(m) Where claims are identical or similar to previous credit return or;

(n) Where dealers deal in evasion prone commodities such as edible oil, civil construction goods, electronic goods, electrical goods, mobile phones, readymade garments, timber, plywood, motor parts, paper, kirana goods, liquors of all varieties and descriptions, cement, marble, tiles, sanitary fittings etc or;

(o) Where specific information regarding attempted evasion of tax has been gathered from other agencies like Central Excise, Customs, Income Tax, or information gathered from other big manufacturing/trading dealers, located inside or outside the State or through vehicle checking or;

(p) Where attempts of evasion of tax have been detected through vehicle checking or inspection of business premises or though verification of extracts taken from the aforesaid sources or;

(q) Where dealers against whom departments like Central Excise, Income Tax etc have also booked cases or;

(r)Where dealers are having substantial and continuous transit sales u/s 3(b) read with Section 6(2) of the Central Sales Tax Act 1956 or;

(s) Where the dealer's total turnover for the current year is below the admitted turnover during the corresponding period of the previous year under the VAT provisions or;

(t) Where history of the dealers reflect previous offences or;

(u) Where dealers have been given notice under Section 30 to file return or have filed revised return or have failed to file the same.

(v) Notwithstanding anything contained in this part, the Commissioner may determine any other criteria as he/she may deem appropriate.

Part (II) GUIDELINES/ MANNER OF VERIFICATION IN COURSE OF AUDIT ASSESSMENT, TAX AUDIT AND AUDIT VERIFICATION

All such dealers, who have been identified for audit assessment/audit/audit verification based on the said criteria should be served upon a notice in Form JVAT 304 for the purpose of conducting an audit assessment/tax audit/ audit verification.

Where under Section 18 of the Act , input tax credit is allowed against output tax payable for any return period, and if input tax is not fully set off against output tax, the amount of input tax remaining unadjusted against output tax is carried over to the subsequent return period and if the returns filed show excess input tax over output tax, it could be indicative of sales suppression or reduction of sale price through post sale discounts.

The prescribed authorities, before conducting any tax audit/audit assessment must acquire basic knowledge about the nature of the trade or industry. In the case of a manufacturing concern, the officers should study the manufacturing activities involved, the raw materials used and consumed, the input output ratio etc; and

ascertain whether the dealer is maintaining computerized accounts, the systems of accounting, the software which has been declared by the dealers; and

Further ascertain whether there is any change in the system subsequent to such declaration; and

The actual procedure to be followed, during audit visit may vary from trade to trade and from industry to industry depending on the purpose of the visit, size of the business, manufacturing process involved, complexity of the accounts, reputation of the dealer etc, which the officers may finalise, in consultation with the Commissioner/ Additional Commissioner/ Joint Commissioner of Commercial Taxes, on the basis of the guidelines specified below:-

(A) (i) Before selecting such dealers for the purpose of audit, the authorities must verify the details of the returns, where Input Tax is exceeding Output Tax on account of any post sale discounts. In this situation all such discounts other than for "goods returned or supplied free of price under any incentive scheme/ price adjustment" require careful examination;

(ii) The officers must examine whether the deductions claimed as discounts are actually permissible.

(iii) The definition of "sale price" u/s 2(xlviii) specifically mentions "Sale price means the amount payable to a dealer as valuable consideration in respect of the sale or supply of goods, and shall not include tax paid or payable under this Act, by a person in respect of such sales."

The explanation-II of the definition of "sale price" u/s 2(xlviii) specifically stipulates that "Sale price shall include any amount charged by the dealer for anything done in respect of the goods at the time of, or before delivery thereof to the buyer;"

In view of this, while granting any such post sale discount, such discount can be applicable to the "Sale price" component only and not on the "Tax component". [Refer Section 24(4)]

(Any increase/ decrease in the input tax paid or claimed and output tax paid and claimed should be entered in Annexure "A" attached to the Audit Form appended to this notification)

(B) When the Taxable goods are consigned by the dealers to outside the State, as well as within the State by a reason, "otherwise than by way of sale"; the officers must examine such transactions and verify the volume of eligible Input Tax Credit, in the light of 

(i) Section 18(8)(ix);

(ii) Rule 2(vii);

(iii) Rule 26(5)  which enumerates the formula for calculating the Input Tax Credit. [(AxB)/C]

The calculation of eligible Input Tax Credit must be undertaken for each rate of Input Tax separately. Further, for the purpose of 'B' such value of turnover should be taken into consideration, which are eligible for ITC u/s 18(4) of the Act. Any transfer of stock within the State does not qualify for ITC.

(iv) Rule 26(9), 26(10)

(The eligible input tax credit as computed should be entered in Annexure "B" attached to the Audit Form appended to this notification.)

Note - Annexure B should not be filled up where the transactions are not covered by the aforesaid provisions of the Act and the Rules.

(C) Input tax credit under section 18(4) was provided in order to prevent cascading effect on account of goods already subjected to tax u/s 8 and 9 of the Act. Transactions of such dealers should be examined in detail.

(D) The authorities should do random verification of the declarations/invoice filed at the check posts or those collected during checking of goods/ vehicles at places other than check posts and see whether the sales declared are commensurate with the import of goods into the state.

(E) Bureau of Investigation should gather information regarding unregistered dealers having large volume of business.

(F) Consumers get first hand information regarding the evasive tactics of dealers and can be of help to the department in arresting evasion of tax. They should be encouraged to inform the department about dealers who follow evasive tactics (failure to issue bills for sales, under value the sales, show the sale bills as estimates, maintain undeclared godowns, smuggling goods into or out of the state etc.)

(G) Returns where there are mathematical errors in calculation of tax.

(H) Returns where the dealers have claimed rebate on capital goods without the Application under Form JVAT 118 and certificate under Form JVAT 406;

(I) Returns where the dealers have claimed incorrect transition relief on opening stock as compared to the entitlement certificate, issued in Form JVAT 402;

(J) Details available with the officer should be cross verified with reference to the records maintained by the dealer to see whether the statements already furnished tally with their accounts.

(K) The officers should ensure that the returns and other statements submitted before the circles have been signed by a person duly authorised in this behalf.

(L) The audit team should verify the invoices to see whether the correct rates of taxes are applied.

(M) The team may take extracts from the accounts or other records which, in the opinion of the officer, are to be included in the dealer's folder.

(N) The officer should verify whether the dealer is adopting any dubious methods for evading tax which, in the opinion of the officer, would necessitate a further detailed investigation or inspection. In such cases the officer should not seek any clarification from the dealer (as evidences may be lost) nor should he mention anything in the reports. This should be kept confidential for further confidential investigation or for making any surprise inspection. However, such matters must be reported in writing to the Commissioner / Additional Commissioner/ Joint Commissioner of Commercial Taxes for further action.

(O) The Audit officer should also inspect the stock of goods, verify the receipt, and consumption of raw materials and records relating to placing and receipt of orders for goods etc.

(P) If goods are appropriated for non-business purposes but no reverse tax has been applied, the transaction should be verified.

(Q) All cases of audit may not lead to Audit Assessment. Section 37 of the Act provides for audit assessments only when any discrepancy is noticed in audit. In the event of no irregularities being detected, copy of the audit certificate to this effect must be furnished to the dealer in the Prescribed Form or Proforma appended to these guidelines/ notification.

(R) In course of the audit assessment, if the prescribed authorities are satisfied that there is no malafide intention to evade or avoid payment of taxes, no coercive action should be initiated.

(S) On conclusion of audit the Audit officer should inform the dealer about the defects noted during audit and steps to be taken for rectification.

(T) Indications about malpractices, forgery etc noticed should not, however, be given, since further verification or investigation may be adversely affected.

(U) The prescribed authorities must furnish the report to the Commissioner / Additional Commissioner/ Joint Commissioner of Commercial Taxes, the very next day of such audit or audit assessment or verification thereof in the Form appended to this notification.

(V) Notwithstanding anything contained in this notification, the Commissioner may determine any other guideline/manner as he/she may deem appropriate.

Part III Form of Audit verification appended to this notification

By the order of the Governor of Jharkhand

Sd/-

(Alka Tiwari)

Secretary-cum-Commissioner,

Commercial Taxes Department,

Jharkhand, Ranchi.

GOVERNMENT OF JHARKHAND

COMMERCIAL TAXES DEPARTMENT

Proforma for Audit Assessment, Audit and verification

See Rule 33(1)

(Please enter the respective entries as obtained in course of verification)

Please tick : whether the dealer is manufacturer / trader / works contractor / miner /Others

1. Name & Address of the Dealer .............................................................................................

Following Boxes should be filled on the basis of verification thereof .

5. Details of Goods Returned / Received by the Purchaser or the Seller: in the 12-Months Period *

* Calculates the Output Tax Payable during the year, after the adjustment if any by Debit or Credit Notes as per the audit guidelines and please fill the Annexure 'A' attached to this form.

Please See Section 8(6), 8(7) and 8(8) of the CST Act 1956 read with Rule 12(11) of the CST Rules 1957

** Attach Annexure 'B'

*** Please see Section 9(5)

14. Details of Transactions executed by the Works Contractor (in case the Dealer being a Works Contractor)

For prescribed deductions see Section 9(4)(c) read with Rule 22.and 23

16. Details of the Refunds claimed

22. Details of Tax deposited

(a) Attach the list of Challans in Form JVAT 205 by which the VAT was deposited into the Government Treasury.

(b) In case of Deduction of Advance Tax u/s 44 or 45 of the Act, attach the copies of Certificate in Form JVAT 400.

Memo No. ………………… dated …………………

Copy forwarded to the Commissioner of Commercial Taxes, Jharkhand, Ranchi for information.

GOVERNMENT OF JHARKHAND

COMMERCIAL TAXES DEPARTMENT

Annexure A

TO BE ATTACHED WITH THE AUDIT REPORT IN THE CIRCUMSTANCES OF ADJUSTMENT IN

PRICES

[Refer Section 24(4) and Rule 30]

(I)

Total Net Increase / (Decrease) in purchase prices : [A (-) B]

(II)

Total Net Increase / (Decrease) in prices : [C (-) D]

GOVERNMENT OF JHARKHAND

COMMERCIAL TAXES DEPARTMENT

Annexure B

COMPUTATION OF INPUT TAX PAID AND CLAIMED

(1) Computation of Input Tax Credit of VAT dealers: having any of the following Transactions, -

a) Sales of Exempt Goods (goods mentioned in Schedule I of the Act);

b) Stock Transfers / Branch Transfers / Consignment Sales: "Exempt Transactions"

c) Sales in course of Export out of Country

(2) Tax Period

(I) Details of Turnovers for the Tax Period

(II) Details of Input Tax Paid and claimed in the Tax Period

(1) Specific Input Tax means: the Input Tax Paid on Specific Taxable Purchases and sold specifically in the same Rate, i.e. if purchases are for @5%, the Goods in question are also sold against 5% Taxable Sales. [See Rule 26(7)]

(2) Common Inputs means: Inputs Tax Paid and consumed commonly for "Taxable Sales" as well as for "Exempt Transactions" and "Export sales". [See Rule 26(8), (9), (10) & (11) and compute the eligible ITC accordingly]

(3) Apportion of 5%, 10%, 12.5%, 14% tax into 4% and (+) 1%, 6%, 8.5%, 10% "Portions", as well as of 4% only, if you have any "Exempt Transactions" or / and "Export Sales".

(4) The total eligible Input Tax Credit as computed, by the aforesaid formula shall be entered in Box 8(r). The eligible Input Tax Credit; as arrived and entered in Box 8(r), shall stand adjusted against the total of Output Tax as entered in Box 9(p).

Note:

1. To claim eligible Input Tax Credit Tax Rates of 1%, 4%, 5%, 10%, 12.5% and 14% the 1%, 6%, 8.5% and 10% portion - the following calculation is to be made:

A x B For abbreviations please see sub-rule (5) of Rule 26.

C

2. Where there are no "Exempt Transactions" and "Export Sales" in the Tax Period, apply the above Formula for entire 5%, 10%, 12.5%, 14% for arriving at ITC eligible.