Report No.2 of 2018 TABLE of CONTENTS
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Report of the Comptroller and Auditor General of India on Revenue Sector for the year ended 31 March 2017 Government of Tamil Nadu Report No.2 of the year 2018 Report of the Comptroller and Auditor General of India on Revenue Sector for the year ended 31 March 2017 Government of Tamil Nadu Report No.2 of 2018 TABLE OF CONTENTS Paragraph Page Preface v Overview vii - x CHAPTER I GENERAL 1.1 Trend of revenue receipts 1 1.2 Analysis of arrears of revenue 4 1.3 Arrears in assessments 5 1.4 Evasion of tax detected by the Department 5 1.5 Pendency of Refund Cases 5 1.6 Response of the Departments/Government towards 6 audit 1.6.1 Department-wise details of the Inspection Reports 7 and audit observations 1.6.2 Non-production of records to audit for scrutiny 7 1.6.3 Response of the Departments to draft Audit 8 Paragraphs 1.6.4 Follow-up of Audit Reports 8 1.7 Analysis of the mechanism for dealing with the 9 issues raised by Audit 1.7.1 Position of Inspection Reports 9 1.8 Audit planning 9 1.9 Results of audit 10 1.10 Coverage of this Report 10 i Paragraph Page CHAPTER II VALUE ADDED TAX/ CENTRAL SALES TAX 2.1 Tax administration 11 2.2 Internal audit 11 2.3 Results of audit 13 2.4 Audit of ‘Assessment, levy and collection of VAT 14 and CST on Petroleum Products’ 2.5 Audit of the Functioning of Business Intelligence 28 Unit 2.6 Audit of ‘Collection of Arrears of Tax in 44 Commercial Taxes Department’ 2.7 Other Audit Observations 53 Value Added Tax 2.7.1 Application of incorrect rate of tax 53 2.7.2 Incorrect allowance of compounded rate of tax 53 2.7.3 Non-levy of purchase tax 54 2.7.4 Incorrect claim of input tax credit 55 2.7.5 Non / short reversal of input tax credit 56 2.7.6 Non / short levy of interest 58 Central Sales Tax 2.7.7 Incorrect computation of taxable turnover 59 CHAPTER III STAMP DUTY AND REGISTRATION FEE 3.1 Tax administration 61 3.2 Internal audit 61 3.3 Results of audit 63 3.4 Performance Audit on Assessment and Levy of 64 Stamp duty and Registration fee ii Paragraph Page CHAPTER IV TAXES ON VEHICLES 4.1 Tax administration 85 4.2 Results of audit 85 4.3 Audit Observations 86 4.3.1 Short realisation of tax due to misclassification of 86 Private Service Vehicles as Educational Institution Vehicles 4.3.2 Non-collection of tax in respect of Construction 86 Equipment Vehicles 4.3.3 Non-collection of life time tax from owners of old 87 tourist motor cab 4.3.4 Non-realisation of taxes from the owners of maxi 88 cabs and goods vehicles 4.3.5 Loss of revenue due to Misclassification of 88 “Contract Carriages” as “Private Service Vehicles” CHAPTER V OTHER TAX AND NON-TAX RECEIPTS 5.1 Results of audit 91 STATE EXCISE 5.2 Short collection of annual privilege fee 92 5.3 Non-payment of brand renewal fee and label 92 approval fee ELECTRICITY TAX 5.4 Incorrect grant of refund 93 MINES AND MINERALS 5.5 Audit on Collection of Arrears in the Department of 94 Geology and Mining iii ANNEXURES 1 Statement showing the details of selection and 101 pendency of scrutiny assessment 2 Statement showing the details of audits planned and 102 conducted during the year 3 Statement showing the details of collection of data 103 by BIU 4 Statement showing the details of short levy of stamp 104 duty and registration fee due to misclassification of instruments Glossary of Abbreviations 109 iv PREFACE This Report of the Comptroller and Auditor General of India for the year ended 31 March 2017 has been prepared for submission to the Governor of the State of Tamil Nadu under Article 151 of the Constitution of India. The Report contains significant findings of audit of Receipts and Expenditure of major Revenue earning Departments under Revenue Sector conducted under the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971. The instances mentioned in this Report are those, which came to notice in the course of test audit during the period 2016-17 as well as those which came to notice in earlier years, but could not be reported in the previous Audit Reports; instances relating to the period subsequent to 2016-17 have also been included, wherever necessary. The audit has been conducted in conformity with the Auditing Standards issued by the Comptroller and Auditor General of India. v OVERVIEW The report contains 20 paragraphs, including one Performance Audit, relating to non / short levy of taxes, interest, penalty, etc. involving ` 4,769.56 crore. Some of the major findings are mentioned below: I General The total revenue receipts of the State during 2016-17 were ` 1,40,231.13 crore, comprising tax revenue of ` 85,941.40 crore and non-tax revenue of ` 9,913.76 crore. ` 24,537.77 crore was received from the Government of India as State’s share of divisible Union taxes and ` 19,838.20 crore as grants-in-aid. The revenue raised by the State Government in 2016-17 was 68 per cent of the total revenue receipts as compared to 69 per cent in 2015-16. Sales tax (` 63,233.58 crore) formed a major portion (74 per cent) of the tax revenue of the State. Interest receipts, dividends and profits (` 4,503.90 crore) accounted for 45 per cent of the non-tax revenue. (Paragraph 1.1) Test check of records relating to commercial taxes, state excise, motor vehicles tax, stamp duty and registration fee, electricity tax, mines and minerals and land revenue during the year 2016-17 revealed under-assessments, short levy, loss of revenue and other observations amounting to ` 6,470.97 crore in 4,560 cases. (Paragraph 1.9) II Value Added Tax / Central Sales Tax Audit of Assessment, levy and collection of VAT and CST on Petroleum Products revealed the following: Absence of provision to levy tax at second point of sale in respect of petrol and diesel resulted in dealers’ commission not being subjected to levy of tax. Inclusion of such a provision would have given an additional revenue of ` 645.35 crore. (Paragraph 2.4.4) The assessing authorities did not ensure adherence to the conditions governing grant of exemption and applicability of reduced rate of tax. Exemption / reduced rate of tax allowed on sale of petroleum products in the absence of prescribed certificates / documentary evidences resulted in non / short levy of tax of ` 1,247.57 crore. (Paragraphs 2.4.7, 2.4.8.1, 2.4.9.1 & 2.4.11) vii Audit Report (Revenue Sector) for the year ended 31 March 2017 The system of e-transit pass had not been effectively utilised by the Department to monitor the interstate movement of petroleum products. (Paragraph 2.4.12.2) Audit of the Functioning of Business Intelligence Unit revealed the following: Business Intelligence Unit (BIU) did not engage itself in timely and continuous collection of data. Further, the procured data was also not properly analysed and conveyed in a manner in which it was easily usable by the assessing authorities. This resulted in poor utilisation of data by the assessing authorities in unearthing evasion of tax. (Paragraphs 2.5.2 & 2.5.3) There was no proper monitoring mechanism to ensure timely and effective utilisation of BIU data by the enforcement and territorial wings of the Department. (Paragraph 2.5.7.1) Data independently sourced by us from other departments / agencies and our examination of the extent of utilisation of BIU data in the assessment circles revealed suppression / under assessment of turnover involving levy of tax and penalty of ` 2,456.98 crore. (Paragraphs 2.5.3.1 to 2.5.3.12) Audit of Collection of Arrears of Tax in Commercial Taxes Department revealed the following: There existed no system in the Department to monitor disposal of cases pending with various appellate / judicial fora. Thus, the failure to undertake proper pursuance of cases pending in appeal resulted in blocking of arrears of ` 1,119.29 crore. (Paragraph 2.6.3) The process of recovery of arrears under the Revenue Recovery Act suffered from deficiencies of non-initiation of revenue recovery proceedings, non / delay in initiation of action for attachment of property and failure to conduct auction after attachment of property. This resulted in arrears of ` 720.59 crore remaining uncollected. (Paragraph 2.6.5) Other Audit Observations Incorrect claim of input tax credit of ` 2.05 crore was noticed in seven cases. (Paragraph 2.7.4) viii Overview Non / short reversal of input tax credit of ` 2.69 crore was noticed in nine cases involving sale of exempted goods and stock transfer of goods to other States. (Paragraph 2.7.5) III Stamp Duty and Registration Fee Performance Audit on Assessment and Levy of Stamp duty and Registration fee revealed the following: The failure of the Department to evolve a system to monitor payment of stamp duty by brokerages resulted in short collection of stamp duty of ` 359.69 crore. (Paragraph 3.4.8) Omission to collect stamp duty in respect of bonds issued through depositories resulted in non-collection of stamp duty of ` 450.52 crore. (Paragraph 3.4.9) There was non-adherence to the guidelines of Central Valuation Committee in subsequent fixation of market guideline value.