Section 55 of M.P. VAT Act deals with detection and prevention of tax evasion. According to provisions of Section 55 if the Commissioner has reason to believe that any dealer has evaded payment of tax or is indulging in evasion of tax under this Act or under Act repealed by M.P. VAT Act, 2002, the Commissioner may require the dealer to produce before him books of account etc. for scrutiny or inspect the place of business of such dealer. On scrutiny of record if it is found that the dealer has evaded payment of tax, the Commissioner may for reasons to be recorded in writing seize such documents for further scrutiny.
In addition to the aforesaid seizure the officer of the raiding party has reason to believe that the dealer has stored or kept goods liable to tax, without accounting for them in books of account maintain by him with a view to their surreptitious sale in order to evade payment of tax, the officer may seize all such goods. After considering the reply filed by the dealer if it is found that the entries of the seized goods were not made in books of accounts without any proper justification, the officer may impose penalty equal to 3 to 3.5 times of the amount of tax on such goods. If the dealer opt to pay in lieu of penalty a lump sum amount which shall be twice the amount of tax then the dealer shall not have any right to challenge the order of penalty in any forum. On scrutiny of the material seized from the business premises of the dealer it found that dealer had evaded payment of tax then the Commissioner may, in addition to the tax payable on the basis of such material, may imposed penalty u/s 52 of M.P. VAT Act which is equal to 3 to 3.5 times of the tax evaded. The dealer may exercises the option to pay composition money, in lieu of penalty u/s 52 , a lump sum amount, which shall be twice the amount of tax by surrendering his right to challenge such order.
With a view of early disposal of assessment cases involving evasion of tax a new section 55-A has been inserted with effect from 24-12-2007 in the vat Act. The scheme of Section 55-A provides provision of block assessment in addition to the regular assessment and composition of tax, interest & penalties etc. The salient features of Section 55-A are as under:-
(i) The dealer may exercise the option of lump sum payment of composition amount in lieu of tax, interest and penalty.
(ii) For exercising the aforesaid option the dealer had to deposit lump sum amount equal to twice the amount of evasion of tax agreed to by him relating to the block period. The option shall be given in Form 65-A. Once the option is exercised by the dealer, the dealer shall not have any right to challenge the evasion of tax agreed to by him in any forum.
(iii) A composite assessment order, for the entire block period covered under tax evasion, will be passed by the Assessing Officer in addition to regular assessment. Though according to the explanation to section 55-A, the block period means the period comprising of six years presiding the year in which the inspection was conducted. But since the section 55-A has been inserted in VAT Act, which has come into force w.e.f. 01.04.06 hence the period of block period cannot be in any case prior to 1-4-2006. More over the provisions of Section 55-A are applicable to the tax evasion which found under the provisions of M.P. Vat Act 2002.
(iv) The assessment for block period shall be in addition to the regular assessment. In other words the tax evasion related to block period shall not be included in the regular assessments and the tax deposited along with the returns filed by the dealer shall not be included in assessment under block period. Visa versa the tax and turnover assessed under regular assessment shall not be included in the block period.
(v) If the dealer, who is taking the benefit of this provision, satisfy the authority that the turnover determined u/s 55-A is related to the period which has not been ended or the date of filing of return has not been expired, then the said tax/turnover shall be excluded from the turnover to be assessed for block period and such turnover will form part of the regular assessment.
(vi) Though the provision of taking the facility/benefit of composition is optional but the provision of block assessment is mandatory. Provision of block assessment would be mandatory on all the search and seizure conducted after 24-12-2007. Where on scrutiny of books of accounts and seized documents tax evasion is found, the provisions of block assessment will be restricted to the period pertaining to tax evasion.
(vii) If during the search and seizure, such certain incriminatory documents seized from the business premises of the dealer, which relates to the period prior to the enactment of VAT Act then the provision of block period shall not apply on such transactions. For example if such document are related to the F.Y. 2004-05 and the assessment case for this period has already been completed then the tax and penalty shall be imposed by reopening the original assessment case u/s 28(1) of MP Commercial Tax Act.
(viii) Section 55-A speaks about deposit of composition money in lieu of tax, interest and penalty. Though the word interest is used in section 55-A but I do not found any circumstances where the interest could be levied on the liability of tax on seized document because there is the liability of tax u/s 9 of MP VAT Act and penalty u/s 52 of MP VAT Act. After imposing tax and penalty under the aforesaid sections the scope of imposition of interest do not arises.
(ix) On causal reading of section 55-A of MP VAT Act, it seems that if we opt for composition of tax, interest and penalty then we will have to pay only , two times of the tax payable on the basis of seized documents instead of liability of tax and penalty equal to four and half times of tax payable on such document. (One time tax and Three and half times penalty u/s 52 of MP Vat Act). But in fact, if the dealer do not opt for composition u/s 52-A then there would be total liability of tax and penalty up to three times of the evaded tax because there is a separate provision of composition of penalty under sub-section (4) of section 52. According to sub-section (4), if dealer opt for composition under this sub-section then the 3.5 times of penalty imposed under sub-section (2) of section 52 would reduced to two times of the tax evaded.
The provisions of section 55-A of VAT Act, prima-facie seems to be beneficial in the cases where evaded of tax found during search and seizure conducted on the business premises of the dealer, but there are certain doubts which should be clarified by the department so that the dealer could take the proper advantages or benefits given in this section. There are many doubts in the implementation of section 55-A, some of them are as under:-
1. There is a common confusion that, at the time of search and seizure only, the dealer has to pin point the loose papers on which he wants to take the benefit of composition. According to rule 81-A such option shall be given in form 65-A, at the time of requisition or inspection u/s 55 of Vat Act. if this view is accepted then How a dealer could pin point the loose papers for the purposes of Composition, in such a short time and in such a critical situation during the search and seizure. Until and unless the dealer patiently go thru the loose paper, he would not be in a position to assess the correct figure of tax to be composed by him
2. On the other hand, it is the opinion that when the dealer opt for composition u/s 55-A of MP VAT Act, then at the time of assessment, the amount of tax agreed upon, shall be deducted from the total amount of tax evaded by him. if this view is accepted then how the dealer challenge the tax imposed by the assessing officer, in absence of ascertainment of loose papers, because according to the provision of section 55-A the dealer is not entitled to challenge to the tax payable on the turnover agreed upon by him for the purpose of section 55-A. This situation must be cleared to avoid litigations that may be created later on.
3. There is a provision of block assessment u/s 55-A of MP VAT Act. The block assessment would be for the amount of tax payable on the evaded turnover found at the time of search and seizure. In other words the scheme of block assessment provides that it shall not affect the regular assessment. What would be the position if it is found at the time of search and seizure that the dealer has already disclosed the turnover but he had deposited tax on wrong/lesser percentage as compared to the actual rate of tax. In this case if the dealer opt for composition then what would be the position? Whether the turnover would be assessed in regular assessment or in block assessment.
4. In what manner the agreed tax evasion will be determined.
5. There are conflicting provisions u/s 52 , 55 & 55-A. For example the position of unaccounted fore stock, there is separate provision u/s 55 of the Vat Act for imposition of penalty and this is also covered u/s 55-A of the Act, because it is part of concealed turnover. The concerned officer will initiate action under the relevant provisions, then how it will be resolved? Needs clarification to avoid harassment to the dealers.
i) When the tax evaded has been detected on scrutiny of documents, then on payment of composition money the document should not be seized & no further action will be called for.
ii) The composition amount should be determined after the detailed scrutiny of the relevant documents found on the place of business during the course of inspection.
iii) There should not be any assessment of such loose papers on the basis of which the dealer had already take the option of composition.
iv) The Govt. should make the suitable amendment in the provision of Section 55-A for making it practical.
v) In the mean while the department should release the FAQ's clarifying all the possible queries for proper implementation of this important provision.