Friday, 6 May 2016

Another big blow from the Sales tax!

Apparently now you can get your TIN/VAT/PT (Professional Tax) number mere by applying it online. There will be no process of verification that will be followed and randomly whosoever wanting to start his company will be allotted the required number. This process of allocating the TIN and VAT number by mere applying online, will give age old practise of verification, a miss. As per the earlier procedures of the department, once a person applies for a VAT or TIN number, the registration department would verify all the documents presented and accordingly a visit was arranged to verify place of business, with also a check on the relevant documents presented. This was done as a part of due diligence wherein no person with malafide intentions got a 'go ahead' from the Sales Tax Department to conduct business and without this no other companies will entertain you. If sources are to be believed, in all only 1% to 2% of people till today have misused the TIN numbers and generated black monies which have created ripples in the industry. But the website of Sales Tax puts this 1% -2% in thousands of people who are now absconding from the face of the earth! 

For those unknown, based on VAT and TIN number there is generation of black money in the system. The cash strapped Devendra Fadnavis government has allocated the duty, we presume, to the Sales Tax Department. The main agenda seems to keep SME's at bay and increase the black money circulation in the market. Imports will be curbed surely. But with this attitude, even the Make in india concept will take a beating. This will boost the section 48 (5) of the Sales Tax Act wherein SME's will vanish from the market and in turn the hawala dealers will again be left free to abscond. All of India, the whose who of Retailers have been slapped with a notice of 48 (5). The SME's or the new entrants have already paid the fine and have closed down the business. Big houses have knocked on to the doors of the Supreme Court, but if again sources are to be believed, the court's decision will be in favour of the Sales Tax Department. What compensation Sales Tax Department is drafting, is that they will be soon erasing the interest and penalty levied, thus saving a minimum of 200% of fine on the retailers and importers. SO what is 48(5) and how does it help in generate black money in a system? How does Income Tax department raid you right after you pay your sales tax, and in turn why does the police come in search of you when you have settled the income tax. For this you need to understand Section 48 (5) of the Sales Tax. How come TIN number and VAT number allocation without proper verification will generate black money. The answer is below.

Out of no where, a person rents an office who in turn is appointed by the main master brain. This person has no financial background. In fact he can be your servant or household maid. Then this master brain opens one small company in this servant's name and gets him a TIN number or a VAT number. Containers are imported from China or from any country in this servant's company name. Let's presume this commodity that is imported, is shoes. Obviously the imported shoes have to be sold to wholesalers. Then the master brain identifies SME's who are into footwear business. Obviously they need 'imported' and the latest' stocks to supply retailers and in turn which will be sold to the customers. Now this servant's company establishes business with a particular wholesaler. Wholesaler is very prompt and pays the VAT amount (the payments are made via cheque as even for the wholesaler the importer is a first timer, so no cash involved here) and in-turn the wholesaler sales the goods to the retailer who collects the VAT from the direct customer. Now the wholesaler files his returns and claims a set-off of VAT. Now this is the trick. The wholesaler is raided by the Sales Tax team and for a good minimum 10 to 15 days at least 10 officers are sitting at the wholesalers office, homes, factories and asking for documents of minimum 2 to 3 years, and freezing is businesses. Mind you there is no settlement and the officers are very strict. Why the raid if the wholesaler has paid his VAT to the importer and in turn claimed a set off from the retailer? Now as per the Sales Tax Department, there was never ever any VAT paid to the department form the importers side. So 48 (5) says if the importer has not paid, the wholesaler now has to pay again to the Department or else even if the wholesaler doesn't pay, the amount along with interest and penalty will be collected from some 200 retailers whom one wholesaler represents. The wholesaler does not want this, as retailers are built after immense faith, struggle and goodwill. He agrees to bear the brunt of this importer. This amount is so huge, that practically it is enough for him to shut business. Now the importer or what these sales tax department calls them is Havala dealers, have already packed their bags and fled. Their names are listed in 1000's on department's website. The importer vanishes from the face of the earth (after all he was the servant remember of the master brain). Now comes the income tax. Apparently the Sales Tax Department after collection of the tax, fine, penalty and interest (if they don't pay Sales Tax has a right to arrest all the directors of the company along with freezing of all bank accounts) INTIMATES Income Tax Department so that in a way, whatever duty was paid, is obviously income to the wholesalers. So now the IT Department raids. But here the matter "settles". Then the cops at the Sales Tax Department can't obviously find the importer or hawala dealer so again he issues a warrant in the name of Wholesaler claiming that the wholesaler has intimation about the whereabouts of the hawala dealer. Whatever the money importer has made in form of VAT for several years, is CASHED in and distributed amongst all including the master brain, thus bringing in BLACK MONEY.  Does it ring a bell why all of this happened? Because the ST Department never verified whom it was allocating the VAT and TIN number in the first place. The wholesaler gets wiped out paying the ST Department, the IT department and managing the police. Similar case is for Coals Miners, Plywood vendors. Here the case revolves around "providing bills" against cash. 

If we believe, there has been a referendum to allocate TIN and VAT numbers without any verification. Hope you have understood the underlining meaning of such instructions. Simple. Generation of Black Money in the economy!!

PS: The highest revenue collection department i.e. the Sales Tax Department is working on 50% of its manpower capacity since 2005!

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