Chandigarh, November 4
Trust the Punjab traders thirsty for a VAT refund: A company claimed that it transported industrial goods from Ludhiana to Guwahati, going over 2,000 km, on a two-wheeler within two days. Another mentioned it sent cycle parts to Guwahati and Manipur on a moped, while the third said it sent motor parts to Seoni in MP (over 1,200 km) on a motorcycle, which reached the destination in two days.

The Comptroller and Auditor General (CAG), tasked for a special audit of the companies seeking a VAT refund from the Punjab Government, has unearthed how businessmen in Ludhiana have fraudulently claimed VAT refund of Rs 84.6 crore by showing “bogus” sales.

It was after a VAT refund scam by three Ludhiana-based companies, in connivance with officials of the Excise and Taxation Department, which was detected last year that the government decided to go for a special audit of the companies claiming refund.

The cases

The auditors found that of the 33 companies — auto parts manufacturers, cycle parts manufacturers, steel casting, nut and bolt manufacturers — 28 had shown that they used two-wheelers to transport goods to Manipur, Guwahati, Silchar, Gwalior, Latur, Nanded, Kolkata, Mumbai and Jamshedpur. In other 14 cases, 11 companies claimed that passenger cars were used to transport goods to Trichy, Guwahati, Silchar and Gwalior.

The auditors also found that in four cases (of three companies) the same vehicles were used to transport goods to Chennai, Mysore and Solapur within a gap of two to seven days. The CAG had mentioned that transactions shown by these companies were not probable. “… It seems that no such transaction took place out of the state and entry at barrier was made in the ICC data merely to avoid tax liability against sale of goods within the state and instead pay concessional central sales tax. Possibility of collusion between ICC barriers and dealers cannot be ruled out. Thus there is sufficient ground to disclaim the inter-state sales and export shown in these transactions….,” reads the CAG report.

The report also mentions that the sales were made to other than taxable persons in Punjab and were shown as inter-state sales and exports to understate the output tax liability by only paying the concessional rate of CST. “These omissions have resulted in irregular refunds of Rs 84.6 crore,” says the report.

How firms did it

The VAT refund is given on goods manufactured in the state but sold outside it. A dealer pays VAT on purchases made within the state (5.5-30% of value of goods purchased). It is taken in the tax return as input tax credit by a dealer and adjusted from the VAT payable on sales. The balance amount is claimed as refund. The input tax credit on certain bills and exports documents, as shown by these dealers, were found to be fake.

Auditors connect the dots

The auditors found that 28 firms had shown that they used two-wheelers to transport goods to Manipur, Guwahati, Silchar, Gwalior, Latur, Nanded, Kolkata, Mumbai and Jamshedpur