|VAT-Penalties, Scrutiny, Appeals and Policy
The high penalties under VAT touch a sore point amongst nearly all dealers, tax advocates and accountants. Penalties range in amount depending on the nature of the penalty. For certain wrong-doings like omissions, false statements, fake documentation, claiming wrong input tax credit, etc. there can be a penalty of up to Rs. 1 lakh or an amount equivalent to tax deficiency (or a percentage of it). For others, like errors in record keeping or stock-registers, the penalty is equal to Rs. 50,000-/ or 20% of the tax deficiency. For incorrect invoices the levy is Rs. 5000/- or 20% of deficiency. In almost all these cases, whichever penalty is greater usually applies. The imposition of penalties has become an automatic process now.
The self-assessment nature of VAT was instituted in order to compensate for the large number of dealers who would be brought under the tax net. The department now is supposed to just focus on a small percentage of dealers for audit. Large taxpayers, who provide a bulk of tax revenue, are given priority in selecting audit.
Information on Appeals was obtained through RTI application filed on 13/7/2009. The following tables are from the reply sent by Legal Cell of the Department on 31/7/09 by Mr. D. P. Arora, VATO (L&J)/ PIO (full letter in annex).