Our Bureau

New Delhi, May 4

REGISTERED dealers can now breathe easy on the issue of scrutiny of value added tax (VAT) returns.

The State-level VAT departments are likely to take up only about 10 per cent of the returns for scrutiny, according to Mr Ramesh Chandra, Member Secretary of the Empowered Committee of State Finance Ministers on VAT.

"I don't understand why a section of society fears audit. There won't be 100 per cent audit (scrutiny). Actual scrutiny will only be around 10 per cent. In some cases, it would only be 5 per cent. The main principle of VAT is trust and we trust manufacturers," Mr Chandra said here at a meeting organised by the Institute of Chartered Accountants of India (ICAI).

The ICAI President, Mr Kamlesh Vikamsey, presented a Model Audit Report for State-level VAT to the Member Secretary of the Empowered Committee.

He also urged the committee to encourage the States to make the model audit report mandatory for audit of accounts of VAT assesses.

Mr Chandra expressed hope that the Model Audit Report was simple and user friendly. The White paper on VAT had held that VAT liability would be self-assessed by the dealers and that there would no longer be compulsory assessment at the end of each year as was existing now.

Correctness of self-assessment will be checked through a system of departmental audit. A certain percentage of the dealers will be taken up for audit every year on a scientific basis, the White Paper had said.

Speaking to newspersons on the sidelines of the ICAI function, Mr Chandra indicated that life- saving drugs are "unlikely" to be exempted from VAT.

"All drugs are life-saving," he said when asked by reporters whether any decision has been taken on the VAT rate on life-saving drugs.

He also pointed out that the VAT rate on medicines had already been pegged at 4 per cent.

At the April 26 empowered committee meeting, the VAT Panel Chairman, Dr Asim Dasgupta, had told reporters that no final decision had yet been taken on the VAT rate on life saving drugs.

Mr Chandra also said that a mechanism had to be put in place to deal with situations arising from non-adherence to the principle of uniform floor rates by certain States.

"We need the help of the Central Government on this issue," he added.

Delhi had recently lowered the tax rate on diesel from 20 per cent to 12.5 per cent to prevent further loss of trade to Haryana.

The uniform floor rate on diesel was agreed at 20 per cent.

(This article was published in the Business Line print edition dated May 5, 2005)
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