CAG Report: Short payment of Rs. 130 cr sales tax by liquor dealers

Audit body urges State for immediate action to realize actual sales tax due from defaulting dealers

GANGTOK,: Failure of the State sales tax authorities to exercise due diligence in assessing the sales turnover of liquor dealers of Sikkim by cross-verifying with the sales data maintained by the Excise department resulted in short payment of sales tax of Rs. 130.87 crore by the seven dealers during the 2018-21 period, reports the CAG.

In its audit report for the year ended March 2022, the CAG recommended for immediate action by the State government to realise the actual sales tax due from the defaulting liquor dealers along with penalty in a time-bound manner.

The audit body further recommended a mechanism of inter-departmental cross verification to avoid evasion of taxes, and levy and collection of State sales tax from the liquor dealers henceforth may be done simultaneously.

The State government may verify levy of sales tax on liquor dealers since 1^st January 2015, i.e., the date of revision of sales tax from 20 to 25%, recommended the CAG.

For the purpose of sales tax on liquor, the distilleries, breweries and licensed importers of liquor are themselves the registered dealers and constitute the first point of sale responsible for collecting and paying sales tax to the government.

Excise officers posted at each distillery, brewery and importer’s warehouse regularly maintain details of the sales of liquor on actual and real time basis. Such details are submitted to the Excise commissioner, Gangtok every month.

The CAG took up the audit to ascertain the quantum of sales tax to be paid by the liquor dealers for the period from 2018-19 to 2020-21.  The audit worked out the value of sales tax payable by the seven liquor dealers of Sikkim based on the sales data maintained by the Excise department, and compared it with the sale taxes actually paid as per the sales returns filed by these dealers to the Commercial Tax department.

The comparison showed that there was short payment of Sales tax amounting to Rs. 130.86 crore by the seven liquor dealers due to suppression of sales turnover by the dealers in their sales tax return, said the CAG.

“Thus, failure of the Commercial Tax Authorities to use the sales data of liquor maintained by the Excise officers posted at the premises of each Liquor Dealer for cross verifying the returns filed by Dealers resulted in short payment of Sales Tax by Rs. 130.86 crore by the seven dealers during the period 2018-21,” said the CAG.

In its reply (April 2022), the department stated that:

(i) The comparison of turnover of Sales Tax with turnover of excise duty was not fair as incidence of levy of Sales Tax and levy of Excise duty were different;

(ii) Turnovers of sales declared in the self-assessed quarterly returns were exclusive of admissible deductions on account of sales returns, discounts, etc.; and

(iii) The quantity of liquor shown as sold in the State in terms of the Excise department data was disproportionately high for the population of Sikkim and hence the corresponding amount of sales turnover for liquor in the State was presumptuous.

However, the CAG said the reply by the Commercial Tax department was not based on facts in view of the following:

(i) The incidence of levy of Sales Tax as well as Excise Duty are same by virtue of liquor being taxed at the first point of sale;

(ii) The calculation of audit is based on the data maintained by the Excise department and Excise Duty was levied on that particular data;

(iii) There is no provision of discounts in the Sales Tax Act on the sale of liquor in the Sales Tax Act and Rules. Moreover, there was not a single instance of mention of sales returns or discounts on sales in the sales data/ sales returns provided to Audit, in case of the seven dealers during the period 2018-21; and

(iv) The CTD’s comparison of sale of liquor with that of population of Sikkim is not logical in view of liquor being taxed at first point of sale. Further, huge inflow of tourist into the State and cross border trafficking of liquor into States neighbouring Sikkim was ignored by the department.

CAG Recommendations

·        Immediate action may be initiated by the Department/ Government to realise the actual Sales Tax due from the defaulting Liquor Dealers along with penalty in a time bound manner

·        A mechanism of inter-departmental cross verification needs to be evolved so as to leave no scope for evasion of taxes

·        Levy and collection of State Sales Tax from the liquor dealers henceforth may be done simultaneously

·        State Government may verify levy of Sales Tax on Liquor Dealers since 01 January 2015, i.e., the date of revision of Sales Tax from 20 to 25 per cent.