GST: Tamil Nadu Issues Guidelines for Test Purchase [Read Circular]

On March 7th, The Government of Tamilnadu, Commercial Taxes Department had issued certain guidelines vide Circular No. 05/2022 PP2/(IW3) /8975/2020,  relating to conduct of test purchase by the field officers under sub-section 12 of the Section 67 of Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act).

Pursuant to the grant of Rs. 20 Lakh Rupees toward permanent advance for conduct of test purchases as provided under Section 67(12) of the Tamil Nadu Goods Service Tax Act, 2017. Each of the Territorial and Intelligence Joint Commissioners have been sanctioned Rs. One lakh to conduct the Test Purchases.

To ensure uniformity, the new guidelines have been issued on 22^nd December, 2022 in supersession of  the Circular issued on March 7^th, 2022. The matters discussed in the circular of importance to both taxpayers and the officers delegated for tax purchases alike. The Circular discusses methodologies to be adopted as well as compliance reports to be submitted.

Provision for Test Purchases

Section 67(12) of the TNGST Act 2017 states that, the Commissioner or an Officer authorized by him may cause purchase of any goods or services or both by any person authorized by him from the business premises of any taxable person, to check the issue of tax invoice or bills of supply by such taxable person and on return of goods so purchased by such officer, such taxable person or any person in charge of the business premises shall refund the amount so paid towards the goods after canceling any tax invoice / bill of supply issued earlier.

Authorising Authority

The Joint Commissioners (Territorial) / (Intelligence) are designated as the Authorizing Authority to conduct Test Purchase, as per the circular.

Purpose of Test Purchase

The purpose of test purchase, as mentioned in the circular is :–

i. To ensure compliance in issuing tax invoice / bill of supply by the registered person.

ii. To create awareness among the trading community and increase the practice of issuing invoices for the supplies affected by them.

iii. To prevent composition taxable persons from collecting tax from the customers.

iv. Thereby, prevent possible evasion of tax.

Prior permission on the amount ought to be spent for test purchases has to be sanctioned by the JCIT.

The denomination of cash issued for the test purchase operations and the Currency Number shall also be noted in the said Register, as per the instructions in the circular.

Further instructions were given regarding conduct of test purchases at geographically spread areas like Udhagamandalam, Kanyakumari, Hosur etc. so that travel time for collection of refund is reduced.

Criteria for Selection of Cases

1. Registered persons who are known to be doing business in large volume, but paying a very meager amount of tax, as cash by showing low turnover.

2. Evasion prone commodities and retail business, for which, mostly estimation slips are issued, like, Cement, Tiles, Granite, Hardware, paints, Electrical Goods, Electronic Goods, Iron & Steel, Timber, Jewellery, House Hold Articles, Furniture, Automobile Spare Parts, Edible Oil, Construction Materials, FMCG, Groceries, Bakery products, Medical Shops etc.,

3. Evasion prone Services offered in Hotels, Restaurants, Sweet Stalls, Educational Institutions, Amusement Parks, personal grooming Services, Rental Services etc.,

4. E-way bill analytics, information through informers, third party information or other sources like complaints, petitions, etc

The Circular also elaborately discusses the procedures to be followed in conduct of test purchases.

Procedure to be followed

The Joint Commissioner (Territorial) / (Intelligence), shall authorize a

1. Group consisting of officers, as proposed above, for conducting the test purchase, at the business premises of any registered person, within their jurisdiction.

• In respect of cases, where the test purchases are to be conducted at multiple places of business, such as Head Office and additional places of business like branches etc., the manner of operation and time must be followed, uniformly, at all such places of business, so as to prevent leakage of information regarding the test purchase operations.

• Test purchases must be conducted for a value more than Rs.200/-, since, as per section 31(3)(b) / Proviso to 31(3)(c) of the TNGST Act, 2017, the registered persons need not issue tax invoice / bill of supply, if the value of the goods or services or both supplied is less than Rs. 200/-.

• The Group of officers conducting the test purchase shall not cause any disturbance to the business activity. They shall behave like normal customers and shall not give any indication to the effect that they are officers of the Department.

• If a proper tax invoice / bill of supply is issued by the taxable person, during the test purchase, then, the amount spent by the officer on test purchase, shall be refunded by the taxable person on return of goods, after canceling the tax invoice / bill of supply issued earlier.

• In this regard, necessary documents such as a copy of original invoice, canceled invoice and a statement of witness, available, if any, shall be obtained by officers conducting the test purchase.

• If proper tax invoice / bill of supply is not issued by the taxable person, during the test purchase, then, the Group Head shall record a statement, after disclosing the identity of Inspecting Group and shall initiate penal action, as per section 122(1)(i) of the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017.

• The proceedings of the test purchase should be recorded in writing by the Proper officer concerned for appropriate follow up action.

• (i) In respect of test purchase conducted by Intelligence wing officers in the above case, the Team head shall submit report on the result of test purchase to the Joint Commissioner (Intelligence) concerned for proceeding further with Inspection in fit cases.

(ii) In respect of test purchases conducted by Territorial wing officers in above case the Team head shall submit a report on the result of test purchase to the Joint Commissioner (Territorial) concerned along with the grounds on which the place of business needs to be inspected. The Joint Commissioner (Territorial) would refer the case, after due examination, to the Joint Commissioner (Intelligence) concerned for conducting inspection in such a case.

1. Likewise, during the test purchase, if a composition taxpayer is collecting tax and contravening the provisions of the Act, the detailed facts shall be recorded, then action shall be initiated to recover the entire tax that has been collected by the taxpayer, by way of adjudication.

1. The Joint Commissioner (Territorial) / (Intelligence) shall share among themselves, the details of test purchase conducted cases (name of the taxable person, GSTIN (if any), Address of the taxable person and Circle jurisdiction, date of test purchase) on daily basis to avoid overlapping of the test purchases and plan the frequency accordingly.

1. The Joint Commissioner (Territorial) shall refer the details of successful test purchases cases to the Joint Commissioner (Intelligence) to proceed further under Section 67, of the TNGST Act 2017, within 3 days of conduct of test purchase.

1. The Joint Commissioner (Intelligence) concerned shall analyze and proceed action under Section 67, in respect of successful test purchase cases on those cases referred by the Joint Commissioner (Territorial) as well as Test Purchases conducted by Intelligence Officials.

1. In respect of those test purchase conducted cases, where the registered  tax person belongs to Central jurisdiction, the result of the such test purchase shall be informed to the concerned Central Authority, immediately by the concerned Joint Commissioner.

The circular also contains instructions regarding reporting and monitoring of the test purchases.

Portal Changes

1. Generation of DRC-07 has to be enabled in the Back Office Portal, for the authorized officials conducting test purchase, in order to raise a demand, in the case of imposition of penalty.

2. The details of the offenses booked and the amount collected as penalty, in respect of test purchase operations, should be linked to the taxpayers’ profile and made available under a separate head “Test Purchase”.

3. The Joint Commissioner (IT), shall provide necessary assistance in the back office system for this item of work and provision of MIS reports.

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