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Hawala dealers are registered dealers. These dealers do not carry on business, but they provide false bills signed by them. They issue ‘C’ forms and other required documents for their petty benefits. Such dealers, not only show that the goods mentioned in such bills are resold by them but also they do not bother about the facts that they are being liable to pay the tax by providing bogus bills or ‘C’ forms. It would be appropriate to say that sale of BOGUS bills and ‘C’ forms is their only business.


They never deal in goods but merely issues sales bills, accept payments by cheques or DD’S and pay back the cash to beneficiary after deducting their commission. There is no possibility of recovery of taxes from the hawala dealers.


The only way out is to chase them and to take confession from them by recording their statements on oath regarding facts of the case, acquire information about their bank accounts, delivery challans, documents prepared for showing bogus business as true business.


With the help of these details, the beneficiary of hawala (who has used hawala dealer to evade sales tax) can be made liable to pay the tax, through collection of proper evidence, speedy and tactful investigation.


In these cases, the evidences against the beneficiary need to be collected quickly and independently. Not only quick action but recording of statements on oath or affirmation by issuing summons to Bankers, Transporters, Agent, Godown keepers and hawala dealers is required.


Stern action against the hawala dealer and beneficiary who are not ready to disclose the fact should be taken.


The hawallas are threat to the whole tax scheme. Steps to be taken against such dealer should be so concrete as to dissuade them from hawala activities that too without loosing their co-operation in recovering sale tax from beneficiary dealers.


Under the VAT regime, unless it is proved that tax is paid into the government treasury, no input credit or set-off is available. That’s why it is called self-policing system. So the need is to apply effective crosscheck system to unearth hawala activities. Hawala dealers are traced during crosscheck and follow up action. The beneficiary may have to pay tax in such hawala transactions, irrespective of payment of tax by hawala dealer.  A case to case approach is need for taxation of hawala transactions.

By CA Umesh Sharma

Published by

CA Umesh Sharma
Category VAT   Report

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