Sales Tax Review

March 2008

TRADE CIRCULAR.

No. DC(SO)/Trade Cir/B-

Gentlemen/Sir/Madam,

The VAT is introduced w.e.f. 1.4.2005.  A major focus under VAT  is  the self compliance by the tax payers.  It is due to this reason that the ritual of assessing every dealer in every year is done away.   The Business Audit is undertaken only in respect of a smaller number of tax payers. The assessment is only by way of exception and is no more a rule under the M-VAT Act.   Thus, the success of VAT depends largely upon the correct, complete and timely filing of tax returns by the dealers.

2. Since, the VAT system was new, in initial years, a liberal approach was adopted, so that the dealers could get familiarized with the new tax system.   Therefore, not many punitive actions were taken against the non filers, short filers/ late filers and the dealers who have filed in-correct or inaccurate returns.

3. However, it has come to our notice that a large number of tax payers are not reciprocating on self compliance as is expected by them under MVAT.  The general compliance level has gone down significantly.  Many tax payers have not filed any returns.  Many of the returns which are filed are late and incorrect.  In this respect, the necessary instructions are already given in the Trade Circular No. 3T of 2008.

4. The department has now initiated a  drive against the dealers who have not filed the returns.  

   It would be worth noting the penal provisions for non filing/late filing of returns.

1. Interest @ 1.25 % per month for the delay in paying the taxes    with    the returns [MVAT Sec.30 (2) read with MVAT Rule 88(1)].
    

2. Penalty at Rs. 1000/ in case the return is filed before the initiation of the penalty proceedings and Rs. 2000/ in case the return is filed after the initiation of the penalty proceedings. The penalty can be levied per return. [MVAT Sec. 29(8)]
    

3. Unilateral assessment order (as the name suggests) without issue of any notice. [ MVAT Sec. 23(1)]
    

4. Prosecution in case a dealer fails, without sufficient cause, to file the returns or to file a complete and self consistent return and on conviction simple imprisonment of up to 6 months and/or fine [MVAT Sec.74 (3)(f)].

All the above-referred penal consequences are not mutually exclusive. In other words, a dealer could be penalized under all the above-referred provisions.

5. A large number of prosecution show cause notices have been issued to non filers so far and actual prosecutions have also been lodged in a few cases.

After the issue of prosecution show cause notices, many dealers have filed their returns.  Now, a large number of dealers have made a request that since they have filed the returns, prosecution action initiated against them should be dropped.  It is also represented, that they may be given a little more time to make their default good.

6. In view of the above request from the tax payers,  it has now been decided as follows:-

Prosecution proceedings will be dropped against those dealers against whom the show cause notice had been filed but in response he/she has filed the return before the launch of actual prosecution proceedings with the police.  This relaxation will be available only till 31^st March, 2008.

7. Needless to state that the late filers/short filers/non filers will continue to  be liable for levy of interest and penalty, as per the provisions of law.
    

8. This circular cannot be made use of for legal interpretation of provisions of law, as it is clarificatory in nature.  If any member of the trade has any doubt, he may refer the matter to this office for further clarification.
    

9. You are requested to bring the contents of this circular to the notice of the members of your association.

Yours faithfully, 
(Sanjay Bhatia)

Commissioner of Sales Tax, 
Maharashtra State, Mumbai.