indirecttax

OVERVIEW OF KARNATAKA- VAT

By, Madhukar Hiregange FCA, DISA(ICAI) &
Rajesh Kumar T.R. ACA, LLB, DISA(ICAI)
History and Background

The concept of VAT ( Value Added Taxation) was first implemented in France in 1954. More than 130 nations have embraced VAT beneficially. In India itself the adopting of VAT by Haryana has given it an edge and at the same time its revenue has also gone up. VAT is universally accepted and its principals ensure smooth tax collections as at each stage tax on the value addition only is to be paid.
In India we had the concepts studied by the Jha Committee in 1978, now after a period of 26 years we see its implementation a great loss to the country as a whole and a prosperous period for the parallel economy. In this present boom period with Industry and Trade doing well the rigors of procedures and rough edges maybe felt in smaller measure.

K- VAT was introduced initially 2003 but failed due to the following reasons.

â No unanimity between states.
â Inadequate political will. ( Haryana chose to opt for the same and has a healthy growth in total taxes)
â The bureaucracy ( tax administrator) had complained of non-readiness.
â The traders in the parallel economy had opposed the same as their way of life would be jeopardized.
â The law abiding citizens were unconcerned and did not press for the same to be implemented.

Now Karnataka has passed the Karnataka Value Added Tax Act 2003 in January 2005 and followed the same up with amendment in February 2005 and have been made applicable from 1st of April 2005. The Karnataka Value Added Tax Rules, 2005 are in place.
The Act and the Rules have been largely based on the ‘White Paper’ issued by the empowered committee of consisting of the State Finance Ministers with the objective of hearing uniformity to the extent possible. The paper also provides some leeway for the states since there are unique and different considerations in a spread out country like ours.
The implementation of VAT was ushered in due to political oneupmanship and the country now is facing the possibility of some of the states not joining in to this combined effort even though they had initially signed on. The interest of the states who have kept out as well as the country as a whole is being sacrificed for the games played by the political parties. However it is expected that the benefits of VAT will dawn on the errant states in time as business may choose to shift out which no state can afford.

What is VAT?

Value Added Taxation as the name suggests is a method of taxation wherein the taxes paid in the earlier stages are allowed to be set off against the taxes to be paid. That is to say that the taxes are only paid on the value addition at each stage. In its pure form the value addition can be in the form of profits or service charges or a portion of the overheads. This ensures that the cascading effect of duty is not suffered by goods at each point of sale or conversion. An illustration of the cascading effect is provided hereunder for clarity:
The rate of KST for the manufacturer would be 4% under From 37. At the first point of Sale in the State the tax would be 12%. At each Sale point the Value added is assumed at Rs. 100/-. The product is an Automobile spare parts using Iron & Steel Alloy



Original Cost
Material added
O/ H+
Profit
Total
.S.P
K.S.T
Total
a
Tax on Ore
-
50
50
100
4
104
b
Tax on Sponge Iron
104
30
70
204
8.03
212.03
c
Tax on Ingots
212.03
20
80
312.03
12.48
324.51
d
Tax on Sheets/Rods
324.51
20
80
424.51
16.96
541.47
e
Tax on Auto Parts
541.47
30
70
641.47
25.64
667.11
f
Sale by Trader
667.11
-
100
767.11
92.04
859.15

At each stage of manufacturer the earlier stage tax is a cost, which is taxed again and again.
In this example the tax suffered from a) to e) is 67.11 which is hidden and amounts to more than 10%.
In this illustration the cascading effect of material unsolved at each of the other stages has not been considered . If included then the hidden taxes would be substantially more.
If this entire process was under the K-VAT scheme then the basic cost of the item would have to be below Rs. 700 and final cost assuming 12.5% would be 775 as against Rs, 859.15.
We provide two case studies to understand the concept further as under:
Case Study –1: Ramakrishna purchases Bulbs from within the state for Rs.50,000/- + KVAT and sells the same for Rs: 60,000/- + KVAT. The tax rate for the product is 12.5%. It is assumed that his overheads allocable for this transaction are Rs. 5000/-. KST for the product is also 12.5 %.
K-VAT payable = 12.5% of 60,000/- = Rs. 7,500/- = Output tax.
K-VAT credit = 12.5% of 50,000/- = 6,000/- = Input tax.
Net K-VAT (Tax) payable = Output tax – Input tax = 7500-6000= 1,500/-
Net Tax as % age of Sale = 1500/60000 = 2.5%.

Particulars
Under KST
Under VAT
Purchase Cost for Ram
56,000
50,000
VAT Credit
-
6,000
Cost to Customer
67,500
60,000
Profit for Ram
5,000
11,000

Therefore in the trade it would be ensured that the seller reduces his price by the VAT credit amount. In this case under the VAT scheme Ramakrishna would have to reduce his selling price by about Rs.6,000/-.

Case Study 2: Ganesh Manufacturing Works Pvt Ltd purchase raw materials of Rs. 1,20,000/- at 4%, consumables etc of Rs. 80,000/- at 12.5%. After manufacturer the finished goods, which are industrial inputs for the Automobile Industry are sold at Rs. 2,50,000/- presently. Taxable @ 4%. It is assumed that manufacturing cost + total O/H are Rs. 30,000/-. KST rate is also assumed to be the same.

K-VAT Payable = 4% of 2,50000 = Rs.10,000 = Output tax
K-Vat Credit = 4% of 120,000 + 12.5 % of 80000 = Rs.14,800/- = Input tax.
Net Tax Payable = Output tax – Input tax = (- 4800) Accumulation of credit.
As in the case of Case Study –1, the prices would have to be reduced by GMWPL. Otherwise their profit under the VAT regime would increase to Rs.20,000 + ACC credit.
= ( 2,60,000) – ( 1,20,000 *1.04 ) + ( 80,000 *1.125 ) + 30,000.
The two case studies would be substantially different where the number of stages are more as the cascading effect of duty is avoided.
Note: In the above case studies the CST purchases have not been considered, nor the possible changes in the rates themselves, which may lead to a curtailment of credit. In the intervening period the suppliers who have hitherto not been able to get in to prospective clients may also find planning for VAT a good lever.
In this case study only one level is assumed. Where more levels exist the impact maybe even more.
With the ushering in a K-VAT the customers have in the initial stages asked to suppliers/ manufacturers to pass on the benefit to them. In many cases the manufacturers have been asked to set up depots at various states to enable the VAT input credit to be availed. Once the benefits of the same are understood the further second stage of price reductions would be expected to take place with the savings in cascading duties also required to be passed onto the customer.

Impact of VAT on Various Sectors:

Consumers:

1. Generally the purchase prices would reduce as tax content of most products would come down. However the product, which hitherto has evaded the entire tax may find the increase. Further those items where the tax rate earlier was zero may be more expensive.
2. The tax paid would be transparent in the invoice given to the consumer. No hidden earlier stage taxes would have been paid.
3. The difficult choice of paying more if bill demanded and less if without would over a period of disappear as this is a self policing system.
4. The free flow ( over a period of time) between states would provide more choice to the consumer.

Traders:


1. The impact of tax on the wholesaler or retailer would be limited to the value addition. The tax paid at earlier stages would be available as set off for payment of VAT on sale. Therefore traders would prefer to buy with an invoice.
2. The tax payable as a percentage of the sale value would be small where the compliance would have more cost effective than evasion.
3. Cost of products would reduce due to the cascading effect of tax not being there.
4. Traders can now concentrate on growth into large entities instead of remaining small and fragmented.

Manufacturers:

1. There would be a saving in taxes absorbed at various stages of manufactures thereby reducing the cost of goods sold. This would make them more competitive.
2. The exports would be cheaper as taxes paid at earlier stages could be availed as credit or refunded.
3. The difference between large manufacturers and small would reduce.
4. The indignity of harassment’s and bribe for honest manufacturers would substantially reduce over a period of time.
5. The transaction cost of compliance would reduce again over a time once the rough edges of the over protective law goes away.

Government -Centre:

1. The Centre would lose out on the CST, which would gradually be pleased out.
2. The introduction of VAT would make the VAT refunds WTO complaint.
3. The country would as a whole reduce corruption and move up the ethical chain.
4. The compensation of loss to the states on account of implementation of VAT would be an outgo for the first three years. It is expected that in some of the states there may not be any shortfall at all.

Government –State

1. The set off scheme considering the tax payer numbers as fixed would result in a loss.
2. The trading sector in the parallel economy would also get into the mainstream and pay taxes. This would lead to bouyant revenues over a period of 2 years or so.
3. The tax administration would be easier and cost of collection would be reduced.
4. The yearly budget ritual could be reduced only to expenditure budget, which could be concentrated on as that is really bleeding this country. It appear that the citizens are working for the government servants as most of the revenues go to that account.

It is quite surprising that when all the sectors set out above would find the implementation of VAT beneficial then why was the same delayed by many years? The reasons are similar to the reasons as to why 2003 did not see VAT implementation. A very strong opposition by the bureaucracy was also observed though lip service was provided on the support of VAT.

Understanding Karnataka VAT at a Glance

K-VAT would cover the organised and unorganized sectors. The dealers who are small also may require to get under the VAT scheme to survive as the buyer would not be interested in dealing with them otherwise. The confirmation of coverage under K-VAT and the basic principles of VAT can be understood stage wise. Once the liability is confirmed and the concepts are understood then the procedural compliance would be ensure that the law is complied with as well as avoid demands and disputes. The brief aspects of principles of VAT, availability of credit are provided hereunder:-

Coverage: The trader or manufacture who sells or purchases goods within the state would be covered. These would include:
1. Trader/ Manufacturer purchasing goods interstate.
2. Trader/ Manufacturer purchasing goods within the state.
3. Trader/Manufacturer importing goods.
4. Works contractor executing work contract within or outside the state.
5. Person who hire out equipment and receive hire charges.

Levy: Section 3 of K-VAT Act sets out that the levy is attracted on the dealer on his sale of goods within the state, on the use of goods in the execution of a works contract and on amounts received for the right to use.( Hire charges).
K-VAT is also payable on the purchase of goods from the unregistered dealer at the rates as specified.
K-VAT is only attracted where the transfer of property takes place. That is say where the ownership changes from one to another for a consideration. There are some deemed sales in case of incorporation in works contracts and in case of hiring out of equipments, which would also fall within the mischief of K-VAT.


Place of Sale: In this scheme of things the place (situs) of the sale is important. Section 6 sets out that irrespective of the place of the contract the place where the goods are lying would be the place from which the same are sold. In case of works contract the state within, which the incorporation of goods in the works is done would be relevant.

Time of sale: The time of sale would be the time of the raising of an invoice for the transfer of property in goods. In case of goods sent on approval where the invoice is issued within a period of 14 days the time of sale shall be considered to be the time of raising of the invoice.

Persons Liable: The seller of the goods or the works contractor or the hirer of goods who is liable to be registered under K-VAT is liable to pay the K-VAT.
Where the goods are sold through the agents within the state then the agent is liable to pay the K-VAT. However the principal would be eligible for deduction for the same.
Where the goods are sold though agents of non resident principals then the resident agent would be liable for paying the K-VAT. He would also be eligible for the inputs credits.

Collection of Tax: Section 9 sets out that the collection of K-VAT is the responsibility of the registered dealer who is to collect the same. He is to account for the same and remit the same to the state.
In case of works contracts in certain cases where the payments are to be made by Government or governmental agencies they have been fastened with the duty to deduct the tax payable by the dealer while making the payment to the dealers. This provisions has been continued from the KST regime and may be abandoned in the future as it would go against the concepts of VAT. It is also expected that many works contracting dealers would go in for the regular VAT scheme.

Tax payable: Section 10 sets out the amount payable is the net tax, which is arrived at by deducting the input tax credit from the output tax in the tax period, which has been fixed as 1 month. ( Net Tax payable = Output Tax – Input Tax)
Output Tax- This is the tax payable by the dealer on the levy being attracted for the goods sold. In case of an agent who is selling the goods the output tax is payable by him whether he represents a non resident dealer or a resident dealer. This is on the logic that the K-VAT should be charged at the point of sale. The principal who would include the value of the agents sales would be eligible for deduction on receipt of declaration from the agent.
Input Tax – This is the tax paid by the dealer on his purchases or the tax paid by him on unregistered dealer purchases. The tax paid on goods should be in the course of business and therefore the tax paid on personal purchases would not be admissible. The credit is also available for capital goods, which are used for the business. The present scheme does not provide credit on all the inputs but has imposed certain bars/ restrictions on certain type of transactions.

A. 100% credit of the input tax is available in the following circumstances:
1. Tax paid on inputs of dealer who sells the goods whether within the sate or outside.
2. Tax paid by manufacturer who sells the goods whether within the state or outside.
3. Tax paid by agents of non resident principal.
4. Tax paid for manufacture of first schedule goods ( exempted) if the same were exported.
5. The credit on capital goods, which are eligible.
There are of few restrictions on availing of the input tax credits as under:
B. No Credit-
1. The purchase of goods used in the manufacture of First Schedule Goods ( exempted) on the reasoning that when no tax is paid on the output no credit would be available.
2. The purchases of goods by an unregistered dealer since he pays no output tax.
3. The tax paid on capital goods set out in schedule V.
4. The tax paid on capital goods used in manufacture of exempted goods exclusively.
5. The CST paid on inputs or capital goods since the tax is not paid to the state government.
6. The tax paid by the dealer/ works contractor who opts for composition.
7. The tax paid under composition by composition dealer in the hands of the purchaser.
8. The input tax where dealer stock transfers the same.
9. The tax paid by agent of resident principal at the time of purchase on behalf of principal since the credit would only be eligible to the principal.
10. URD Purchases of fuel.
11. Inputs under the KST Act since the same is not covered under K-VAT
12. Inputs put to uses other than resale or manufacture of taxable goods.

C. Part Credit ( Section 14)

The purchase of inputs used in manufacture of goods stock transferred. This is to ensure that the stock transfer route is not used to avoid the payment of CST.
The tax paid on common inputs used in manufacture of exempted and taxable products. Credit available only proportionately.
Fuel used in the production of goods for export, taxable goods or generating captive power.

Presently the restriction sets out that the credit on the inputs is available based on the credits in excess of the rate set out in the III schedule(which is 4% ) or 4%. That is to say if the input credit rate is 12.5 % then the credit would be eligible to the extent of 8.5%. (12.5 –4%= 8.5 %.) If the rate is 4% then no credit would be eligible. (4-4=0)

Pre registration Purchases: The dealer who starts a business during the year may procure some goods on which the K-VAT would have been paid prior to registration. He would be eligible for the pre registration purchase for purchases made in the period of past 3 months if the same are in stock.

Transitional Credit: The dealers who continue their business from the KST regime into the VAT regime would be eligible for the credit based on the stock in hand. Stock as understood in common parlance includes the work in progress and finished goods. The credit would be available subject to the conditions as under:
1. The credit is only on stock in hand as on 31st March 2005.
2. The purchase after 1.4.2004 only are admissible and previous purchases would not be eligible.
3. The purchases must have suffered tax in the state of Karnataka. Therefore the URD purchase, CST purchases or imports would not be eligible.
4. The credit on goods used to manufacture goods under first schedule ( exempted) is not allowed.
5. The works contractor opting for composition would not eligible for credits on stocks in hand.
6. The credit is only available on an application duly verified by the dealer being made by 30th of April 2005.
7. The detailed procedure for making the claim is set out in chapter on credits.

Classification & Rates of Tax: Once the taxable event occurs then the examination of the rates applicable are to be made. The classification of the present goods are in the following categories:
Schedule No.
Rate of K-VAT
First
Nil
Second Schedule
1%
Third Schedule
4%
Forth Schedule
20 %
Other Goods not specified above
12.5 % (RNR)

In addition the specific exemption notifications may require to be perused where the state may grant exemption.
In the present scheme we have 550 items ( expected to be increased to 2000 ) along with a schedule of industrial inputs, a schedule of Information Technology products and a schedule of declared goods. The classification of the goods by their description would be preferable and in case of any doubt then the revenue neutral rate (RNR) of 12.5 % should be adopted.

Composition of Tax: A special scheme has been provided for small dealers whose turnover does not exceed Rs 15 Lakhs, works contractors ( without limit), restaurants/ hotels ( without limit) , Outdoor caterers ( without limit) or mechanized crushing units producing granite metals. In this scheme the person who opts for composition can do so if the following conditions are fulfilled:
1. There is no stock of interstate/ imported goods in hand.
2. No further interstate purchases would be made.
3. No further imports would be made.
4. The contracts in the year would be only in Karnataka.
5. They would not avail the input or capital goods credit.
6. They would absorb the composition tax.
7. The customer would not be able to avail the credit of the composition tax even if charged.
The rates applicable are as under:
Description
Rate of Tax
Hotel/ Restaurant
4%
Works contract
4%
Crushers
Cap based.
Other composition dealers
1%

Small Dealers Accounting Schemes: Section 16 sets out that where a dealer is unable to identify the sale and type he may apply to the Commissioner for adopting a special method which maybe based on the sales abstracts or the purchase abstracts.

Registration: The dealers who indulge in interstate trade or imports/ exports or whose turnover in the year crosses Rs.2 Lakhs or a works contractor executing works contract in the state or a casual trader/ agent of non resident after the first sale are liable to be registered. The registration would be granted after taking security as maybe set out.

Sale on Tax Invoice/ Bill of Sale: The fulcrum of the K-VAT scheme is the invoice under which the sale takes place. The law seek to control the same by prescribing some disclosures and methodologies. Briefly stated the dealer/ seller of taxable goods would be required to issue only a TAX INVOICE. In case of the other sales such as of exempted goods, exports or inter state sales the BILL OF SALE is to be used. Both these vital documents require to have certain information and be consecutively numbered.

Records and Accounts: The records of the purchases, receipts, sales, production, disposal and stock with values rate wise is required to be maintained by the dealer. The Commissioner may for certain classes of dealers exempt them from some of the rigors. The accounts are to be retained for a minimum period of 5 years and if litigation exists till the end of the litigation. The option of maintaining the same in electronic form is available. The same should be in readable form if stored in the same manner.


Returns: The returns are to be filed in the assessment period, which is 1 month by the 20th of the subsequent month after payment of the tax as set out. In case of error the revised returns maybe filed within a period of 6 months.

Self - Assessment: The K-VAT law envisages that the scheme should be one of self assessment. However in the initial stages the same will be deemed to be self assessed unless there is notice to provide more details. However since the period of limitation of 5 years from the assessment period or 3 years from the time of sufficient information has been prescribed the same would not be final until the period lapses.
Where the officer is of the view that the return is incorrect or that understatement has occurred then the same maybe re assessed after providing an opportunity of being heard to the dealer.
The assessment / re assessment maybe further rectified in certain cases.

Best Judgement Assessment / Protective Assessments: Where the dealer does not file a return then the Vat Officer may assess the same as per his best judgement. The same maybe withdrawn if the dealer files the returns within the period provided for the same.
Where the Officer is of the view that the dealer may fail to pay the tax then he may issue a protective assessment.

Interest: The dealer who fails to pay the tax or delays in payment of tax would be liable to pay 1.25% per month tax on the amount unpaid. For part period the number of days maybe reckoned.

Penalty: There are a number of penalties, which have been specified and they are not as harsh as the erstwhile KST Act. It has also been clarified in public meetings that no penalties would be fastened in the first year for procedural violations. However for evading the taxes they would be applicable.

Refunds: The amount if any refundable would carry interest @ 6% per annum if the same is not refunded within a period of 35 days of the order.

Production of Documents, Entry, Search and seizure: The officer duly authorised by the Commissioner may direct the dealer to produce the records/ documents for examination or enter and search the premises of any dealer if he has reason to believe that there is concealment. He may also seize such documents.

Inspection of Goods Movement: The transporter should carry the tax invoice, bill of sale, delivery note or other prescribed documents evidencing the materials being transported. He is to report at the first check post in the state and provide copies of the documents. In case of entry into the state provide the same at the first check post on entry.

Appeals: Any aggrieved person objecting to any order passed may appeal against the same within 30 days of communication of the order. Against this order another appeal lies to the Appellate Tribunal. Against this there is an appeal to the High Court.

Audit: The accounts would be required to be audited by a sale tax practioner (STP) or a practicing chartered accountant if the turnover exceeds Rs. 25 lakhs.

Power of Government: The power to make Rules has been retained to ensure that the purpose of tax administration is achieved.

The purpose of this article is to provide a flavour of K-VAT and this article does not purport to be an in depth analysis of VAT.










COMMON ERRORS EXPECTED IN K-VAT.
Madhukar Hiregange FCA.

The errors have been bifurcated into the errors in understanding, errors in systems and others as under:-

Conceptual:
These are errors which are quite common which once committed continue to be practiced and become the norm for years till someone questions the same. The reasons for the same could be the ignorance of the officers responsible for K-VAT in the company and the fact that most other dealers / manufacturers internal departments want to maintain a distance from the department. The errors could be as under:

1. Not raising an invoice for sales.
2. Non payment of net tax within 20 th of subsequent month.
3. Non payment of K-VAT on unregistered dealer purchase.
4. Tax payments for URD purchases, credit not availed.
5. Tax payments for URD purchases, credit availed immediately rather than at the time of sale ( dealer) or at the time of use in manufacture( manufacturer).
6. Exemptions claimed though items not specifically covered.
7. Exemptions claimed though the conditions are not fulfilled.
8. Stock transfer of goods without payment of CST where the buyer or consignee is known.
9. Principal paying the tax for sale by agent within the state.
10. Inputs credits missed out due to lack of knowledge on admissibility/ or clarified by departmental officers.
11. Inputs credits reversed for interstate sale/ exports by dealer / manufacturer.
12. Non deduction of 4% for stock transfer out of the state for manufacturer under the special rebating scheme.
13. Not working out the benefit of stock transfer as against CST sales from the customers and manufacturers point of view.
14. The delegation of powers and authority to debit/ reverse duty based on amounts involved is available for all financial matters except K-VAT. In fact it is required in this area more due to the general lack of transparency in the system today.
15. Inputs credits reversed on oral instructions of departmental officers/ audit parties without validating the same with consultants.
16. Inputs credits not proportionately reduced for rejection of inputs.
17. Credits availed for inputs used to manufacture exempted items.( first schedule or specific exemption)
18. Inputs credit not availed for the inputs used commonly in taxable and no taxable items.
19. Input credit availed on Xerox copy of tax invoice.
20. Availing and utilizing the credit on defective input documents such as: no TIN No., K-VAT not clearly indicated, no consecutive serial number.
21. 100%credit taken instead of 1/12 th after making application and receiving the confirmation.
22. Not filing the statement for transitional credit within 30 days.
23. Error in classifying goods as input instead of capital goods if value over Rs10 lakhs.
24. Input credits on differential duty charged by the supplier by way of an invoice not being taken as inputs not received at that time.
25. Proportionate duty not reversed when both common inputs are used in manufacture of products, which are taxable and exempt, when no separate accounts are maintained to distinguish usage.
26. Utlilisation for the payment of input credits availed in respect of the goods received after the month end upto 20th. ( before the due date of payment.)
27. Removal of scrap without a tax invoice and without discharging the tax.
28. Not debiting tax when the materials on which credits are availed are removed to the service wing of the factory or to the service unit.
29. Opting for composition within keeping the customers needs in mind.
30. Goods being classified under a wrong chapter heading.
31. True apportionment of partial rebate in October and April for common inputs not done.
32. Calculation of value for discharging tax without considering the discount granted to customers.
33. Discharging tax at transaction value even in cases where the goods are removed under stock transfer.
34. Frequent delays in taking the input credit necessitating the payment of tax.
35. Inputs removed on payment of tax when actually the input credit has not been taken on the receipt of the same materials.
36. Not discharging duty on the cost of packing and forwarding on sales.

Systems :
The K-VAT law can be complied in full, if the procedures are followed and internal control principles are followed. The present law may have some amount of unreasonableness built in which would be ironed out. The errors arising due to the improper system being followed or weakness in internal control not being detected or corrected are indicated. The compliance procedures as well as the record keeping aspects have also been covered as under:-
1. Not having a proper system of ensuring completeness of input credits. Consequently no available credits missed out.
2. The system of double check on credits whether short / excess availed especially in case of higher amounts of credits due to clerical errors.
3. The system of an analysis of the purchase cost when the goods are purchased from out of state persons (CST Sales).
4. Inquiry of instances of inordinate time gap between the receipt of materials as per security records and the raising of Goods Receipt Notes.
5. The system of removing samples (both returnable and non-returnable) without payment of tax.
6. The registration no/ TIN no. not mentioned on the invoices.
7. The system of removal of goods and transfer of possesion through a delivery challan and subsequently no invoice issued within 14 days.
8. The system of raising of invoice much prior to the removal of goods especially during end periods.
9. The system of cancellation of invoice where the VAT debit has already been done without a procedure for reversal.
10. The system of non updation of sales registers for cancelled invoices.
11. The absence of a system of recording entry in the job work control register when the goods are sent for job work or when they are returned back along with recording the scrap returned.
12. The procedure required to avail credit ( entry in stores ledger for the receipt, the consumption and inventory of the inputs ) not being followed.
13. The system of reconciliation where the materials sent( kgs) are distinct from the materials being received back( nos) from the job worker with calculation of scrap / shortage etc.
14. The system of sending and receiving the materials without delivery challans/ documents.

Compliance Procedures- Omissions
1. The non-declaration by the assessee to the department about the records maintained by the assessee.
2. The system to ensure returns are filed in time. The delay in filing of return on a few occasions or beyond a period would lead to the sensitivity index of dealer increasing.
3. Failure to intimate the Department within 30 days of change in the constitution of the firm or company.
4. The system of replying to department letters seeking clarifications in a reasonable period of time not followed.
5. The system of acting on departmental views/ oral instructions, which are not provided in writing.

Records maintenance and others
1. The system of updating of the registers and records on a regular basis not done.
2. The system of reconciliation of sales as per excise returns to VAT returns not done.
3. The system of reconciliation of credit figures as per accounts and the figures as per VAT return not done.
4. The system of updation of the stores ledger and the bin cards for input receipts, disposal and issue.
5. In case of gross method of accounting purchases where tax portion is not shown separately, the method and accuracy of making monthly entries for the credit.
6. The system of value based authorisations in place for various transactions relating to excise not being in place.
7. The system of no authorisation for production documents / material requisition.
8. The system of transferring the unutilised balance in the Cenvat Credit account to Expenses a/c.
This listing does not propose to be a full list. As time goes the other errors of more complexity would surface. These errors can be guarded against.