Thiruvananthapuram: The Commercial Sales Tax department, desperate to shore up revenues, has come to the conclusion that the state’s revenue stream is bled of over Rs 1,000 crore annually as a result of three major mistakes committed by tax officials with increasing impunity: misclassification of commodities, application of incorrect rate of tax and false claims for special rebate and input tax.
These mistakes could be the result of negligence or ignorance. However, top CST officials say that most are the result of wilful misconduct or corruption.
“These evasion techniques are virtually foolproof as they are difficult to detect,” a top source said. Misclassification is a popular collusion tool.
Between 2008-09 and 2010-11, the annual returns of Procter and Gamble Hygiene, a dealer in healthcare products, included medicines taxed at four percent on maximum retail price.
But what went unnoticed was that among these medicines were Eau-de-cologne (a perfume), detergents, shampoos and cosmetics, all of which should have been taxed at 12.5 percent.
Application of incorrect rate of tax is another subtle form of evasion. Kerala Value Added Tax Act, 2003, states that bakery products including biscuits sold under a brand name are liable to be taxed at 12.5 percent.
Ambadi Food Products, selling bakery products under the brand name ‘Appoos’, for instance was assessed tax on the entire turnover at 4 percent instead of the correct rate of 12.5 per cent applicable to branded food products.
This happens rampantly in the case of ayurveda products. It has come to notice that ayurveda cosmetic products, which should be taxed at 14 percent, are taxed only at 4 percent.
Incorrect claim of special rebate and input tax is yet another easy means of evasion.
For instance, government by a notification had excluded building material and fixtures used in construction activity from the purview of capital goods and hence these goods shall not be entitled for input tax credit.
The latest CAG report has revealed that Kitex Childrens wear Ltd. Aluva, exporter of readymade garments, had availed of input tax credit of Rs 7.46 lakh in 2010-11 on purchase of building materials costing Rs 82.28 lakh.
