DVAT Compliance Scheme

Discussion on Delhi Tax Compliance Achievement Scheme, 2013

DVAT department has launched an Amnesty Scheme ( Delhi Tax Complaince Achievement Scheme,2013 hereafter it will called DTCAS) on 20.09.2013 vide Notification No.F.3(16)/Fin.(Rev-I)/2013-14/dsVI/786 dated 20.09.2013. It is almost like Service Tax Amnesty Scheme launched by CBEC recently. Let us first analyse/discuss provisions of DTCAS. 

1. Applicability date-    

It is applicable from the date of its publication in the official Gazette i.e. 20.09.2013. 

2. Who can apply ( who can be declarant )-    

Every dealer ( registered or unregistered) can declare under this scheme who has any tax due for the specified period. Even if order of assessment has been issued or case is pending in objection/appeal/tribunal/high court/supreme court etc. 

3. Period for which declaration can be made-     

Declaration can be made for following period(s) if tax due for these period is pending ( fully/partly) on 31.08.2013:      

(i) 01.04.2005 to 31.03.2013- For  DVAT Act, 2005 or CST Act,1956 and Delhi Sales Tax Act, 1975  or Delhi Sales Tax on Works Contract Act,1999 or Delhi Sales Tax on Right to use goods Act,2002 or Delhi Tax on Entry of Motor Vehicles into Local Area Act,1994.     

(ii) Period prior to 01.04.2005 to 31.03.2013- For CST Act,1956 and Delhi Sales Tax Act, 1975  or Delhi Sales Tax on Works Contract Act,1999 or Delhi Sales Tax on Right to use goods Act,2002 or Delhi Tax on Entry of Motor Vehicles into Local Area Act,1994. 

 (iii) 01.04.2005 to 31.03.2013- For  a person whi required to deduct TDS as per Sec 36A of DVAT Act,2004.

4. Benefit to declarant- 

Like Service tax amnesty scheme here also dealer/ person will get immunity  from interest, penalty and other proceedings. But also like service tax it seems more beneficial for unregistered dealers as this scheme does not cover cases of notice of assessment of penalty issued without having any relation to tax deficiency. So if any order has been issued for late return filing or late registration application or non/delay filing of details in STOCK-1 for any registered dealer then it seems that this penalty is not covered under the scheme and immunity is not available. But for unregistered dealer immunity from penalty for non-registration and non-filling return in time specifically allowed. 

Tax deficiency has been defined in Sec 86 (1) of the DVAT Act,2004 as "'In this section "tax deficiency" means the difference between the tax properly payable by the person in accordance with the .provisions of this Act and the amount of tax paid by the person in respect of a calendar month.

Explanations~l - 'Tax properly payable' includes the amount of tax assessed under section 32 of the' Act',
2, Due tax paid after the period specified in sub-section (4) of section 3 of the Act, is also a tax deficiency." 

5. Calculation of Tax due-    

For better analyses and understanding of calculation of Tax due we are dividing transaction into 3 parts- Works contract, TDS, others ( sales, right to use etc.) :

(i) WORKS CONTRACT- 

It covers Tax due under DVAT Act,2004 and Delhi Sales Tax on Works Contract Act,1999 both. 

       (a) Works contract where contractor is constructing any building, residential unit, commercial complex etc and selling them before completion of construction and value of land is included in total consideration then tax due will be calculated @ 1% of total consideration ( including value of laboure, services etc.)

       (b) In all other cases of works contract ( including construction contract mentioned above but value of land is not included in total consideration) tax due will be calculated @ 3% of total consideration ( including value of laboure, services etc.).

(ii) TAX DEDUCTED AT SOURCE

It covers only DVAT Act,2004

Here one point to be noted that these calculations are applicable only where neither contractor has paid due dues and nor contractee has deducted TDS as required.

Tax due will be calculated @ 3% of total sum paid for works contract or amount actually deducted whichever is higher less amount deposited towards such TDS.

Here a great relief to contractor/ contractee as the case may be is that if a contractee if declaring tax due in respect of a ( or more) works contract awarded to a contractor then such contractor will also be treated as declarant and get immunity from such contract and vice versa . For example- If  A Ltd. has awarded a contract of Rs.50,000/- to Mr. X on which TDS is applicable and both of them have not included this contract in their vat return/ TDS return then if A Ltd. declared this contract under the scheme then Mr. X will also be treated as declarant and get immunity from penalty, interest etc. in relation to such contracts only and vice-versa.

(iii) SALE, RIGHT TO USE ETC.

It covers all acts mentioned in point 3 (i) above except Works contract and TDS.

As per scheme these are divided into 2 parts, first where order of assessment u/s 32 of DVAT Act,2004 has not been served  and second where order of assessment u/s 32 has been served. 

      (a) where order of assessment u/s 32 has not been served- In such case formula is

                         ( TAXABLE TURNOVER x RATE OF TAX IN SCHEDULES) - TAX PAID

           This formula is to be applied commodity wise. 

      (b)  Where order of assessment has been served -  Tax due will be 

                               TAX + INTEREST AS PER NOTICE OF ASSESSMENT - TAX/INTEREST PAID

6. Provisions for unregistered dealer- 

 If an unregistered dealer is making declaration under the scheme then such dealer shall obtain registration. Also also file the return for the period "from 01.04.2013 to the date of registration"  and pay taxes in DVAT-20 and furnish these to the authority at the time of furnishing  declaration under the scheme. Also in clause 5 (4) mentioned that "No proceeding shall be instituted within 48 hours of securing a registration, provided, the registrant declares his intent of opting under the Scheme at the time of applying for TIN/ TAN". Purpose of this sub-clause not clear. If the declarant has informed his intention to opt for this scheme at the time of registration then what proceeding will be instituted after 48 hours. We have to wait for clarity from department or does it mean that such dealer has to furnish declaration within 48 hours of registration, hopefully this should not be interpretation of this sub-clause.Such unregistered dealers who get registered and furnish declaration under the scheme will get immunity from penalty of non/late filling of return and non-registration. A question here comes that if registration is effective from the date earlier than 31.03.12 then whether penalty for submission of Form Stock-1 will also be waived off. Need clarification from department. 

7.Procedure for making declaration and payment of tax dues- 

 Procedure related to submission of declaration, payment etc is herebelow: 

  (i)  Declaration will be made in Form DSC-1 on or before 31.01.2014. This declaration will be made online.

  (ii)  Minimum 50% of tax dues must be paid before making of declaration and attach of same will be attached with Form DSC-2. Remaining part of tax dues will be paid till 21.01.2014. If declarant does not pay full or part of tax dues, then suhc tax dues shall be recoverable under the provisions of the Act.

  (iii) Acknowledgment for Form DSC-1 will be issued by the designated authority in Form DSC-2 within 15 days of furnishing of declaration.

  (iv) Declarant shall furnish details of payments of tax dues time to time to the designated authority with copy of acknowledgment.

  (v)   On furnishing details full payment of tax dues , the designated authority will issue acknowledgment of discharge within 15 days of furnishing such details.

8. Failure to make true declaration- 

 If the Commissioner is satisfied, for reasons to be recorded in writing, that the declaration made by the dealer was substantially false, he may serve notice ( to be issued maximum within 1 year from date of declaration furnished) to the declarant in respect of such declaration requiring him to show cause as to why he should not be required to pay the tax dues unpaid or short-paid as per the provisions of the Scheme. The Commissioner shall within three months of service of notice make assessment of tax and penalty under section 32 and 33 of the Act, as if that dealer had never made declaration under this Scheme. However, the dealer shall be entitled to the credit of tax paid by him under this Scheme; such dealer may be proceeded under sub-section (2) of section 89 of the Act for furnishing of false declaration. 

9.Other points-  

Some important points not mentioned above are:

  (i)  All statutory appeals/ revisions pending before quasi-judicial forums upto the stage of Tribunal shall be deemed to have been withdrawn once the Scheme is opted for. Further, all matters pending in the High Court and Supreme Court shall be withdrawn by the declarant and he will need to submit the application filed for withdrawl with the declaration. for the case to be withdrawn before the court.

  (ii)  a declaration made under the scheme shall become conclusive upon issuance of acknowledgement of discharge in Form DSC-3 and no matter shall be reopened/ reassessed/ reviewed thereafter in any proceedings under this Scheme or under the Act before any authority or court relating to the period covered by such declaration to the extent of tax dues declared by the declarant

  (iii) The information gathered vide a declaration under the scheme shall be kept confidential and shall not be used except under the Scheme and the same shall not be shared with any other person/ government department/ agency.

  (iv)  Any amount paid in pursuance of a declaration made under the scheme shall not be refundable under any circumstances.

In next part we'll discuss provisions in FAQ format. If any professional has any question/doubt please mention in comment so that, that can also be included in FAQ for benefit of all professionals. 

Disclaimer: The opinion(s) expressed by author are of his own, and/OR information provided by author, the users need to verify it from their own sources. No responsibility of any sort taken by author for any opinion expressed or the information posted on this blog.

ST-3 for NIL liability

Is it mandatory for a service Provider, having NIL service tax liability, to file service tax return- a discussion

In this discussion Act means "Chapter V and VA of the Finance Act, 1994 i.e. Service Tax Act,1994", and Rules means "Service Tax Rules,1994".

In February,2013 a judgment of CESTAT, Kolkata Bench has come in case of Suchak marketing (P.) Ltd. V. Commissioner of Service Tax, Kolkata, according to which there is no requirement to file service tax return (ST-3) if no service is rendered by service provide, as he is not liable to pay any service tax. Relevant extract from order here below:

Heard the Id. A.R. for the Department and perused the records. Undisputedly, the appellants were registered with the service tax Department for providing taxable services. It is also not in dispute that during the period April, 2005 to March, 2008, they have not provided any service and also they have not filed any returns with the Department. They have filed six ST-3 Returns belatedly on 18-11-2008. I find that in view of the Board's Circular No.97/8/07-ST, dated 23-08-2007, in the event, no service is rendered by the service provider, there is no requirement to file ST-3 Returns. The ld. A.R. could not produce anything contrary to the said Circular. Besides, I find that as per Rule 7C of the Service Tax Rules, in the event, nil returns are filed, the Assessing Officer had the discretion to waive the late fees for filing the ST-3 Returns. In my view, it is a fit case to invoke the proviso to Rule 7C and waive the late fees relating to the nil returns filed by the appellant during the period April, 2005 to March, 2008. A similar view has been held by this Tribunal in the case of Amrapali Barter (P.) Ltd. v. CST [Order No.A-879-880/Kol/2012, dated 14-12-2012]. In these circumstances, the order of the ld. Commissioner (Appeals) is set aside and the appeal filed by the appellants is hereby allowed. Appeal is allowed.

Let us now see provisions under the statue regarding Service Tax Return (ST-3).

As per Sec-70 (1) of the Act- Every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency and with such late fee not exceeding twenty thousand rupees, for delayed furnishing of return, as may be prescribed.

Definition of "Person liable for paying service tax" has not been given under the Act but given in Rules according to which "Person liable for paying service tax is"-

   (i) Service recipient - in case of services for which 100% service tax is payable by service recipient;

   (ii) Service provider- where 100% service tax is payable by service provider; and

   (iii) Service provider and recipient both- where service tax is partly payable by recipient and partly by provider.

As per Rule 7(1) of the Rules-  Every assessee shall submit a half-yearly return in Form 'ST-3' or 'ST-3A', as the case may be, along with a copy of the Form TR-6, in triplicate for the months covered in the half-yearly return.

Definition of assessee is given in Sec- 65B (12)- "assessee" means a person liable to pay tax and includes his agent.

So person who required to file ST-3 is "PERSON LIABLE FOR PAYING SERVICE TAX". and tax is defined in Sec-65B (50) as "tax" means service tax leviable under the provisions of this Chapter. 

It is well settled that NIL rate of tax is also a rate of tax and NIL liability is a tax liability and accordingly all provisions of law must be applied. So person liable for paying service tax includes a person who is required to pay tax but liability is NIL.

The relied available to assessee in such our case is Circular No.97/8/07-ST, dated 23-08-2007 which is also base of order of CESTAT, Kolkata.

Now question arises that Can circulars issued by department conflicts provisions of law and provide relief to the assessee.

Generally in all statues the administering authority has been given power to issue Notifications, Orders, Circulars etc. for clarifications to remove ambiguity in compliance procedures. Lets us now see the binding effect of circulars for department.

Binding effect of circulars for department- 

On the basis of many case laws it is a well settled law that circulars are binding on the department. But question is up to what extend. 

Here are some case laws according to which department is bound by circulars issued by that even if it is inconsistent with a statutory provision.

Ranadey Micronutrients v. Collector of Central Excise 1996 Indlaw SC 204- It does not lie in the mouth of the Revenue to repudiate a circular issued by the Board on the basis that it is inconsistent with a statutory provision. Consistency and discipline are of far greater importance than the winning or losing of court proceedings.

Mahavir Aluminium Ltd. v. Collector of Central Excise, Jaipur 1999- In view of this circular issued by the Board, we think that the Department ought to have allowed the claim of the appellant and they are bound by such circulars issued under Section 37B of the Central Excise Act.

Ellerman Lines Ltd vs C.I.T. West Bengal, Calcutta on 22 October, 1971- "It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under section5(8) of the, Act. This circular pointed, out to all the officers that it was likely that some of the companies might have advanced loans to their share-holders as a result of genuine transactions of loans, and the idea was, not to affect such transactions and not to bring them within the mischief of the new provison." The directions given in that circular clearly deviated from the Provisions of the Act, yet this Court held that the circular was binding on the Income-tax Officer.

K.P. Varghese vs The Income Tax ... on 4 September, 1981- the Division Bench in this case held the circulars to be binding on the Revenue, even if they deviate from the statute, holding that fair market value must only be used in cases where consideration has been understated.

There are also some cases according to which circulars are binding only if not contrary to statute.

State Of Tamil Nadu & Anr. vs India Cements Ltd. & Anr. on 21 April, 2011- So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the court to declare what the particular provision of statute says and it is not for the executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.

Bengal Iron Corporation v. C.T.O. 1993- as explained hereinbefore the power under section 42 cannot be utilised for altering the provisions of the Act but only for giving effect to the provisions of the Act.......In such a case, the government can not say, in exercise of its power under section 42 (2) that the levy created by the Act shall not be effective or operative. In other words, the said power cannot be utilised for dispensing with the levy created by the Act, over a class of goods or a class of persons, as the case may be.....


Concluding remarks

In view of the author a service provider who has not provided any service during any tax period and so his liability is NIL can take the benefit of the Circular No.97/8/07-ST, dated 23-08-2007 and the above mentioned decision CESTAT, Kolkata Bench.

Comments from readers/experts can enlighten the discussion and are welcomed.

In discussion above author has tried to summarize provisions related to service tax return filing obligation and binding effect of circulars of department. All the matter/details stated herein are for discussion purposes only and can not be used for legal purposes. While the author has taken due care while framing the discussion still there can be some unintentional error/ommissions. Readers are requested to please brought these in author's knowledge so that those can be corrected/rectified.

DVAT Audit Report Part-3

DVAT Audit Report

Part-3

ABOUT FORM AR-1

Form AR-1  has been notified by Notification No.No.F.7(420)/Policy/VAT/2011/1203-1213 dated 11.02.2013. As per Notification every dealer ( except dealers exclusively dealing in commodities listed in First Schedule to the Act and 100% export turnover dealers) whose turnover in year 2011-12 or any subsequent year is 10 crores or more, is required to get his accounts audited for 2012-13 and furnish report in Form AR-1 to the department till 15.11.2013. 

Now we will discuss about Form AR-1 in detail.  Form AR-1 has following structure:

1. INSTRUCTIONS
2. EXECUTIVE SUMMARY
3. PART-1 TO PART-12
4. ANNEXURES ( no format specified)

1.INSTRUCTIONS

Under this section following major points has been clarified:
1. Only this form to be used for audit report under section 49 of the act.
2. This Form contains 12 parts and all are mandatory for all dealers.
3. No Format of Annexures has been specified and auditor need to give exhaustive details.
4. Auditor shall ensure that all prvisions of DVAT Act, DVAT Rules Notifications, circulars, determination order, advance ruling etc. has been complied with.
5. If books are audited under any other act then certified copy must be taken for co-relation with Dvat records
6. If dealer has multi-state activity the Trial Balance, Trading Account and Profit & Loss account must be taken for Delhi business activity.
7. Where prescribed documents are not provided to the auditor, auditor should determine tax liability as per documents available ( like best judgement assessment).
8. Auditor should co-relate documents of vat, cst, custom, excise or any other law.
9. Auditor shall not any difference between intentional and unintentional errors, omission etc.
10. No field should be left blank and "0"or "NA"should be entered as applicable.
11. All parts should be certified by auditor and auditor should put his seal and sign on each page.
12. Enclosure-
       a. Statutory Audit report including related party disclosure required under AS-18.
       b. Tax audit report under income tax act including related party disclosure as required under AS-18
       c. Audited Balance Sheet, Profit & Loss A/c/ Income and Expenditure A/c
       d. In case dealer having multi-state business activity-Trial Balance , Trading A/c and Profit & Loss A/c for business activities in Delhi

2. EXECUTIVE SUMMARY

This part is mainly summary of defaults made by dealer in DVAT and Central returns. Defaults to be reported in 2 types i.e. number of defaults and amount of default. Following are main details to be furnished in this part-

1. Details of dealer- Name & address, TIN, Ward  and period of audit;
2. Defaults to be furnished in numbers- Nos. of returns of DVAT & CST (separately),
3. Defaults to be furnished in amounts- understatement of local turnover, local taxable trunover, central turnover, central taxable turnover, computation of DVAT and CST, complying TDS provisions, mis-utilisation of Central declaration Forms
4. Rating (excellent/Good/Average/Poor) to be given for maintenance of books of accounts & compliances of DVAT/CST laws

In next parts of this blog we'll analyse Part-1 to Part-12  of Form AR-1.

DVAT Audit Report Part-2

Audit Report Under Sec-49 of DVAT Act, 2004

Part-2

Clarity for some points in FAQ Form

1.Applicability of Sec-49, Form AR-1

Q.1.1- For which year is Form AR-1 is applicable, 2011-12, 2012-13 or 2013-14 etc. ?

Ans.- Form AR-1 is applicable applicable for year 2012-13 onwards. For 2011-12 there is no requirement for submission of any report to the department neither report mentioned under Sec-44AB of Income Tax Act nor Form AR-1.

Q.1.2- Which dealers are required to furnish Form AR-1 ?

Ans -   Dealers having turnover of 10 crore or more in year 2011-12 or any following year required to get accounts audited from an accountant and furnish report in Form AR-1 to the department. But dealers exclusively dealing in commodities mentioned in First Schedule and dealers with 100% export turnover are not required to get audit and furnish Form AR-1.

Q.1.3-  What is due date for completion of audit under section 49 ?

Ans -  There is no due date for Audit completion specified in ACT, Rules or Notification. Only due date for furnishing of Form AR-1 is specified and that is 15.11.2013.

Q.1.4- What is the due date for furnishing of Form AR-1 to the department ?

Ans -   As per Notification No.F.7(420)/Policy/VAT/2011/1203-1213 dated 11.02.2013 , dealers need to submit audit report for year 2012-13 in Form AR-1 till 15.03.2013.

2. Calculation of Turnover for applicability of Sec-49, Form AR-1

Q.2.1-  How would turnover ( for the purposes of requirement for audit) of the dealer be calculated ?

Ans -   Turnover (for the purposes of requirement for audit) of the dealer would be calculated as follows :

             Local sale ( sales within delhi)+ Inter-state sale ( including branch transfer/to agent out side delhi)+export sale.

            Taxes (VAT/CST) would not be included, if included then would be deducted. Discount, Freight and cost of installation etc. if shown separately in Invoice would be deducted.

Q.2.2- How would turnover of a dealer, who has offices in different states, be calculated ? For example if any dealer has offices in Delhi and UP and turnover is 9 crore and 5 crore respectively. Then whould dealer be required to furnish AR-1 ?

Ans -  There is not clarity in this point from department side till now. But as per our opinion sale of Delhi offices only would be considered. As in case of return also sale of Delhi offices only need to be shown. So in case of dealer mentioned in example dealer need not to furnish Form AR-1 as turnover of Delhi is 9 crores ( less than 10 crores).

Q.2.3-  How would turnover in respect of deemed sales be calculated, for example in case of works contract ?

Ans -  In case of deemed sales like works contract total contract value must be included in turnover. Any deduction allowable (like for service portion in works contract) would be deducted for calculation of Taxable Turnover.

DVAT Audit Report Part-1

Audit Report under Sect-49 of DVAT Act,2004     

   PART-1

Purpose of this blog

Objective of this blog is to discuss and have better understanding about the applicability, provisions, drafting etc. of Audit Report under section 49 of DVAT Act,2004 ( hereinafter called Act) read with Rule 42A of DVAT Rules,2005 (hereinafter called Rules). Audit under section 49 hereinafter will be called DVAT Audit .

Preamble

Under DVAT laws earlier (upto F/Y 2010-11) no separate audit was mandatory for dealers and dealers were required to furnish copy of tax audit report under section 44AB of Income Tax Act,1961. Last date for furnishing such report was 28th January of the following year. Now as per current position dealers having turnover of 10 crore or above need to file audit report under Form AR-1 for F/Y 2012-13 till 15.11.2013.

Provisions regarding DVAT Audit

There are some stages by which existing provisions come into existence. We are explaining provisions applicable period wise:  ( Point 1 to 4 are for information of readers only. Readers may skip these points and can go to point 5 directly if not want to know complete provisions history)

1.Period before 26.01.2012: Dealers having turnover more than 40 lakhs needs to furnish report as mentioned under Sec-44AB of Income Tax Act,1961 upto 28th January of following year. These provisions were applicable for year upto 2010-11. Penalty for non furnishing of Audit report as mentioned was Rs.10,000/-.

2. Period from 26.01.2012 to 17.06.2012: Dealers having turnover more than limits prescribed under Sec-44AB of Income Tax Act needs to furnish report as mentioned under Sec-44AB of Income Tax Act,1961 upto 28th January of following year. These provisions were applicable for year upto 2010-11. Penalty for non furnishing of Audit report as mentioned was Rs.10,000/-.

3. Period from 18.06.2012 to 10.02.2013: Dealers having turnover of  more than 60 lakhs or other amount as may be prescribed  needs to furnish report in manner, form and period as may be notified by the commissioner.Penalty for non furnishing of Audit report as mentioned was Rs.10,000/-.

4. Period from 11.02.2013 to 29.03.2013: By notification No.F.7(420)/Policy/VAT/2011/1203-1213 dtd. 11.02.2013 Form AR-1 has been notified for dealers having turnover of 10 crore or above for year 2012-13. So for 2011-12 no form has been specified and no need to submit any report. For others (dealers having turnover more than 60 lakhs but below 10 crore) notification was awaited. Also exemption is given to some dealers having 100% exempted sale ( will be discussed in details in following paragraphs).

Dealers having turnover of  more than 60 lakhs or other amount as may be prescribed  needs to furnish report in manner, form and period as may be notified by the commissioner.Penalty for non furnishing of Audit report as mentioned was Rs.10,000/-.

5. From 30.03.2013 : By notification No.F.7(420)/Policy/VAT/2011/1203-1213 dtd. 11.02.2013 Form AR-1 has been notified for dealers having turnover of 10 crore or above for year 2012-13. So for 2011-12 no form has been specified and no need to submit any report. For others (dealers having turnover more than 60 lakhs but below 10 crore) notification was awaited.Also exemption is given to some dealers having 100% exempted sale ( will be discussed in details in following paragraphs).

Dealers having turnover of  more than 1 crore  needs to furnish report in manner, form and period as may be notified by the commissioner.Penalty for non furnishing of Audit report is revised wef 01.04.2013 and new penalty is  1% of turnover or Rs.1,00,000/- whichever is less.

So as of now final position is that dealers having turnover of 1 crore or above shall get his accounts audited and submit report in such manner, form and period as may be notified. For dealers having turnover of 10 crore or above Form have been notified ( Form AR-1) and need to be submitted till 15.11.2013. For dealers having turnover more than 1 crore and less than 10 crore notification (for format, manner and period) is still awaited.

Who can be an auditor

A Chartered Accountant, A cost accountant, a person entitled to be appointed as auditor under Sec-226 (2)  of the Companies Act,1956 or a person  referred to in Sec-619 of the Companies Act,1956.