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A man is known by company - A professional is known by his clients

CA Umesh Sharma , Last updated: 18 October 2011  

There are always to side of coin. One side we are accusing the authorities for ramp corruption. But what’s the side of business world.


When we professionals go through results of the searches or surveys done by authorities at the places of client, we come to a mute question why the person i.e, businessmen has done this.


There are different answers to above question from different businessmen’s.

Let’s go through it a try to understand the mind of the businessmen who have done a wrong.


Motives to avoid indirect taxes:

1) Quick money.

2) To evade other taxes such as customs duty, excise, income tax.

3) The peculiar situation in markets where transaction are mainly done in cash and where goods are sold directly to consumers, (for e.g. stainless steel/ diamond market)there is tendency to evade the taxes.

4) Smuggled goods cannot be sold without evading sales tax.

5) Tax on raw material is evaded in order to evade tax on finished goods.

6) Cut throat competition in the markets forces dealer to lower the price, in order to sell the goods. So to reduce sale prices, the dealer evades the sales tax.

7) High tax rates increase tendency to evade taxes.


Sale tax is an indirect tax and it is recovered from customers, Hence sometimes to evade sales tax may be secondary purpose of the dealer.


There are broadly two categories of tax evaders first is of not recording the sales and purchase transactions at all in regular books of accounts and do not disclose the tax liabilities in the periodical return filed with sale tax department. The second is to evade the taxes through recorded transactions.


a) Ways/Methods adopted to evade tax by not recording the transactions in regular books of accounts:-

1) To keep parallel, different sets of accounts.

2) To show imaginary stock in balance sheet at the end of the year.

3) Production ratio is not shown realistically.

4) Unaccounted sales and purchases.

5) Not to issue tax invoices / bills but to issue approval memos or sales on loose sheets. Later on, after realization of sales proceeds, these documents are destroyed or goods are shown as returned from the vendee.

6) Use parallel bill books and challans sets, different from regular books of accounts.

7) Some amount of sale value is accepted in cash and not recorded in books of accounts by under invoicing.

8) To record the sales in rough books. Showing the “delivery for sales on approval” or “Jangad” basis and finally it is shown that order is cancelled and entry in rough books is closed.

9) Frequently changing the place of business.

10) To show the sales and purchases as loan in books of accounts.

11) To import goods from the other countries or other states in dummy/benami names and sale the goods without proper invoices.

12) To print bogus registration numbers on the bills to show as registered dealer.

13) To sell the goods to undisclosed dealers, but raise the sale invoices & the bills in the name of different dealer.

14) To issue bogus or hawala bills without effecting actual sales or purchases and without depositing necessary tax into the Government treasury.

15) To issue different sales invoices and bills to different parties of the same amount and date but recording only one transaction in the books of accounts.


b) Ways/Methods adopted to evade the tax through recorded transaction:

1) Not to obtain registration under various Acts implemented by sales tax department, though liable for registration.

2) To purchase goods from unregistered dealer and undisclosed sources and obtain invoices from bogus / hawala dealers.

3) To obtain false/ forged / bogus forms such as ‘C’, ‘H’, ‘F’ and other declarations and claim bogus interstate sales or sales shown at concessional rate of tax.

4) To claim bogus high seas sales. (Sales in the course of import) u/s 5(2) of the C.S.T Act 1956 or sales of goods in transit u/s 6(2) of the C.S.T Act 1956 but actually goods are sold in cash locally by the importer himself or through agents.

5) To make willful mistakes in totaling of sales and purchase in the books of accounts and summary assessment.

6) To claim taxable goods as tax-free goods.

7) To show a larger part of taxable turnover as labour charges, transportation, and installation charges, after sales services charges, thereby showing taxable sales at a reduced value.

8) To show purchases from unregistered dealer as purchases made from out of Maharashtra state, so as to evade local tax.

9) To show local sales as out of Maharashtra state sales (OMS sales) and to obtain bogus ‘C’ form or use forged/ false ‘C’ forms or make illegal corrections in them in order to support such sales by erasing original entries by correction fluid or ink erasing chemical manipulating figures.

10) To show sales as branch transfers to the branch or dispatches to agent outside the state but actually effecting interstate sales or sales to local parties by manipulating the documents.

11) To change the constitution of business before exceeding turnover limits or before crossing taxability limits or before higher tax limits are crossed.

12) To obtain set-off by producing bogus bills/hawala bills.

13) Under invoicing the sales and purchases.

14) To collect TDS but not to deposit it.

15) To show transport of goods by producing false transport receipt. Transport receipt may be false or lorry number may be of scooters or other vehicles.


It is not necessary that all tax evaders follow the same method. Each evader has techniques of his own.


Tax evaders continue to invent different methods and techniques of evading taxes therefore it is difficult to make an all-inclusive list of methods of tax evasion.


By going through the above motives and ways, one prudent person cannot understand the real question i.e., “What the value of money “? For making money a person can go to any stage, means he can have no value of himself in business. He will give more importance to money value rather than own value. Is it necessary to devalue our self and value the money?


Hope this article through some light on the above topic. As a professional the aim in practice should be to avoid the businessmen from adopting such motive and ways to evade taxes. The consequences are harsh for the businessmen and the professional (i.e., Auditor, Legal Consultants, etc).


For professionals to know such type of businessmen/client is easy as these clients will always come late for audit and filing of returns.


It’s truly said that “A men is known by his company. A professional is known by his clients”.

By CA Umesh Sharma

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CA Umesh Sharma
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