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					    INHOUSE TRAINING TO OFFICERS AND INSPECTORS IN THE INTELLIGENCE
      WING OF COMMERCIAL TAXES DEPARTMENT AT IMG, ERANAKULAM.

 TRAI NI NG M ATERI AL ON M AI NTENANCE OF COM PUTER ACCOUNTS I N
              BUSI NESS PREM I SES-ENFORCEM ENT I SSUES

                                   PREPARED BY
                                    VIJILAL I V,
                      INTELLIGENCE OFFICER (R.A), ERANAKULAM



                                       INTRODUCTION:

        The main aim of this training is to familiarise the Intelligence wing with the provisions in
the KVAT Act 2003 and KVAT Rules 2005 regarding the maintenance of the computer accounts
, various accounting packages that following , evasion techniques that following, how to detect
these evasions. In this changing scenario it is very important that every member of the Squad
must have computer literacy. This training section will help to acquire some basic computer
knowledge that helps the Intelligence wing to detect and extract data from the computers.

                             BASIC COMPUTER AWARENESS:

Accounting Software:

        Accounting software is application software that records and processes accounting
transactions within functional modules. Its of 2 types ie. ERP softwares and normal softwares.
An Enterprise Resource Planning (ERP) system is an integrated computer-based application used
to manage all the activities like manufacturing, sales, purchase, distribution, human resources,
finance, etc.

Popular ERP softwares are SAP (System Application and Products), Tally ERP, etc. Ordinary
softwares are mere accounting softwares. Eg:- Tally, other customised softwares using VB,
Foxpro, etc.

Data Base:
       It is the base from which the accounting software runs and it is the core of the accounting
package. It contains all the entries made by the accounting staff in the accounting software.
Database consists of several Tables having rows and columns. In a simple sense database is the
raw information chest consisting all the transactions entered in the accounting software.

Relational Data Base can be used to connect various databases.

A database management system (DBMS) consists of software that operates databases,
providing storage, access, security, backup and other facilities. Eg:- MySQL, PostgreSQL,
Microsoft Access, SQL Server, FileMaker,Oracle, RDBMS, dBASE, Clipper, FoxPro,etc.
Networking:
       A computer network is a collection of computers and devices interconnected by
communications channels that facilitate communications among users and allow users to share
resources.

Detect the Number of computers in a network?

        Go to My Network Places ikon in the Desk top-Click enter-Show Network- Now the
number of computers in the network with Computer name will display in the screen. It also
shows the folder in all the computers under network that are shared with computer name. Most
probably billing software/accounting software will be placed in this shared folder, so we can
identify the server computer by identifying the target computer.

How to identify computer names and detect server computer:
         Right click on the ‘my computer’ icon then select properties now we can select ‘computer
name’ tab to see the computer name. Most probably the server computer may be named as
“server”. Care must be taken before seizing the server computer. Most important thing is to make
sure that it must be the server computer. Right click on the accounting software’s icon in the
desktop from any computer from which entries are made, then select properties and select find
target, identify the computer name from where it works and detect the exact computer with this
computer name. Sometimes the server computer may not be in the premises then there was a
chance of WAN (wireless networking) like KVATIS so in this case make sure that there is a
WAN by identifying the router, modem, etc. If there is only Ethernet Networking (wired
network) try to find out the server computer in that premises by checking the connection wires.
Care must be taken if the software used is foxpro. If so sometimes the target of the shortcut of
the software might be a local directory batch file. But actually that might not the server. To find
server in this case right click on the shortcut and select edit option to find out the actual server.

 SECTION 44(7) (D) OF KVAT ACT, 2003 READ WITH RULE 58(20) OF KVAT RULES, 2005:

         As per Section 44(7) (d) of KVAT Act,2003 any officer not below the rank of an
assessing authority while searching and inspecting the business place of a dealer has the power to
require any person who is found to be in possession or control of any accounts, register or other
documents maintained in the form of electronic record as defined in clause (t) of sub-section (1)
of Section (2) of the Information Technology Act,2000, to afford such officer the necessary
facility to have an access to such books of accounts or other documents.

        As per Rule 58(15) of KVAT Rules, 2005 where the accounts or records of a dealer are
maintained by means of a computer or any other electronic device, the dealer shall keep a print
out of the monthly summary of the purchases, sales, the stock position as on the last date of the
month, in respect of each class of goods.

         As per Rule 58(20) of the KVAT Rules,2005 every dealer who maintains accounts by
electronic means shall intimate the concerned assessing authority in advance along with the
password and shall also retain them in the electronically readable format for the period specified
in this sub-rule.

       As per Rule 58(20A) (a) The dealers maintaining electronic billing and accounting
systems shall,
(i) be liable to deploy only software that truthfully reflect their tax liability under the Act, 2003.

(ii) intimate their assessing officer of the deployment of electronic billing and accounting
systems and the fact of such deployment shall be indicated in the Kerala Value Added Tax
Information System in the Registration Module. Such dealers shall inform their assessing officer
the names and addresses of their software developers and vendors. This shall be done .when
deploying newly developed software and for its subsequent customization / modification, by
whatever name called.

(iii) maintain up-to-date documentation of the software and system deployed, with full disclosure
of all methods of capturing and its retrieval data in their software and its operational flow,
including all menus, in their principal place of business in the State; the same shall be produced
to the officials of the Commercial Taxes Department on demand.

(iv) ensure that the software deployed should have daily, weekly and monthly auto-backup
facility and dealers shall be liable to submit these back-ups on demand to the Department.

(v) A true copy of all data captured in business establishments in the State shall be maintained in
the business premises where it is captured regardless of where the server is hosted, and access to
the same shall be made available to inspecting officers from the Department.

          (b) Electronic billing machines used by dealers in the State shall not have any option for
re-starting numbering of the bills issued. Such machines if found deployed shall be liable to be
seized for further investigation by the Department.
         (c) Unregistered dealers using electronic methods of billing and keeping accounts shall
also be liable to follow the rules regarding these matters in the Act.
         (d) Software developers and vendors shall be liable to sell and deploy to dealers under the
Act, only software compatible with the provisions of the Act and Rules.
         (e) The Commissioner may from time to time cause verification of the software and
systems deployed by dealers by any agency of his choice to ascertain the extent of compliance.”;

Circular No.23/2008
   o The dealers using electronic billing and accounting system shall give Administer’s User
       ID and Password for the software, database and systems to the assessing authority.
   o All the user ID’s and passwords should be recorded in the database.
   o If on inspection or verification the disclosures by the dealer in respect of the above are
       found to be untrue, his entire books of accounts will be rejected.
   o The dealer shall provide necessary interface to the Commercial Taxes Department for
       administering the database locally at the dealer’s premises.
   o If in the course of any investigation it is discovered that the software deployed has
       induced, aided or abetted tax evasion, the software developer and vendors are liable to be
       proceeded against along with the dealer for the loss of revenue to the Government and
       shall be liable to be penalized under section 67 of the Act.
   o If at any time it is found that data stored by or for a dealer on an external device differs
       from that available in the approved system / database, then the accounts of the dealer are
       liable to be rejected and assessments done as per law.
   o The Commissioner may from time to time cause verification of the software and systems
       deployed by dealers by any agency of his choice to ascertain the extent of compliance.
                      INSPECTION, SEARCH AND SEIZURE:
Preparation for Inspection:

    Collect the Dealer Complete details of the dealer from KVATIS.
    Collect the details of sales and purchases declared by the dealer in returns from KVATIS.
    Collect the details of Serial No. of Invoices declared by the dealer from KVATIS returns
     module.
    Collect the invoices issued by the dealer from the market in different dates.
    Make a test purchase if necessary, it will help to identify the manner of billing and this
     may also help to identify the software that in use.
    Carry two or more CD/DVD and one 4 GB Pen drive for copying the data.
    One marker pen for writing on the CD/DVD.
    Carry Winrar Software in the Pendrive/CD for zipping the files to be copied , if
     necessary, in the computer of the dealer.

Precautions to be taken at the beginning of the inspection:

    Dealer’s staff may not be permitted to operate the system after the inspection started
     because they may delete/edit the data base. And the entire computers must be secured.
    Check entire computers to detect and to seize any removable storage devices like Pen
     drive, External Hard Disk, External CD/DVD writer, Bluetooth storage device, etc that in
     use.
    The inspection team must make urgent steps to identify the number of computers and to
     detect the server as soon as possible if the systems are networked. This will help in
     preventing any alteration/deletion of database.
    Do not shut down the computer if find any programme be opened. If there is any multiple
     user/password access, this will help to access in that status.
    Compare the figures of sales and purchase in the billing software with the returned data
     to detect the variation if any .This will also help to identify whether the billing software
     contains parallel or unaccounted bills.
    Accounting software of the dealer must also be checked to see whether the details in
     billing software correctly exported in to it. Its correctness with declared figures must also
     be verified.
    Notices under Rule 58(20) may be issued if the dealer is not giving the user name and
     password of all the users. Some dealers are using different user id’s for making parallel
     entries.

Retrieval of Data :

    Generate the basic reports from the billing computer like Sales List, Purchase List,
     Estimates list, Sales order list, quotation list, day book, cash book, P&L a/c, Balance
     Sheet, etc. This may be generated from the computers in which the accounting software is
     seen opened at the beginning of the inspection.
    If server is located in a remote location connected through internet/WAN try to print out
     all the reports from the report menu as soon as possible, especially from the already
     opened programme, because if the server is disconnected the access to the database will
     be lost.
    Also take a back up of the running software in the CD/DVD
    Collect any other relevant documents available in the computers like actual
     sales/purchase details in excel/word format, business correspondence details, bank
     account details, etc.
    Check whether the auto backup option as required by the Rule 58 (20A) a (iv) is available
     with the software installed. If so collect the backup data, otherwise it will specifically
     mention in the SIR.
    If estimate slip that seen issued while in test purchase, extract the details of estimates
     issued from the billing software. And make sure that this must contain the details of
     estimate slips issued during test purchase.
    Try to find out using the search option that all the files with extensions of *.dbf, *.mdb,
     *.db, etc, or using checking all data base files using more advanced option available in
     the windows XP. This must include hidden files. This will help in collecting the database
     of parallel software, if any.
    If the dealer using Tally as his software try to find out all the ‘data’(database files) folders
     and *.tbk (backup files) files.
    Try to generate softcopies of the all the reports in the ‘reports menu’ using the export
     feature available with the software.
    Try to trace out any CD/DVD with previous back up.

How to collect details from Computers:

    Create folder in the name of the dealer in the desktop of the computer, or in any other
     directory if more space is needed.
    Create subfolders for each year for copying data of that year.
    Create another subfolder for copying the backups.
    Create another subfolder for copying the database files detected through search option.
    Create another sub folder to copy all reports generated and all other data collected from
     the computer.
    On completion of the copying, compress the folder using Winrar Software.
    This compressed folder can be written in to CD/DVD using the software ‘Nero’ and if the
     ‘Nero’ is not available, file can be copied using windows writing option available in all
     computers.
    If the folder cannot be copied in to CD/DVD due to reason like absence of CD/DVD
     writer, etc. the data can first be copied in to pen drive then it can be written in to
     CD/DVD using another system with facility to write files.
    While writing the CD it must be written in a Non-Rewritable format.
    The CD/DVD containing the data copied must be marked with the name of the dealer and
     SIR No.with date.
    Both the Intelligence Officer and the dealer must make dated signature to authenticate it.
    The matter that details of computer accounts are extracted and copied in a non-rewritable
     CD/DVD must be recorded in the SIR. The serial number of the CD/DVD may also be
     recorded in the SIR.


Server Recovery:
        In certain situation it may not be possible to copy the data in to a CD/DVD or to extract
the details or generate reports or it may become necessary to recover the CPU for further
verification. Then the following steps must be followed:
    Make sure that the computer detected must be the actual server.
    Server must be properly shutdown after exiting from the software and network, otherwise
     data may be lost.
    A mahassar may be prepared regarding server recovery and it must be recorded in the
     SIR.
    Server Number/CPU Number must be properly recorded in the SIR.
    It must be covered in white cloth and properly sealed using wax. Seals of the dealer may
     also be made in the wax.
    Paper containing SIR No. and signatures of Intelligence Officer and Dealer may also be
     affixed in the sealed portion.
    A recovery receipt may also be issued for the server.
    It must be carefully taken and kept under safe custody since any shake may corrupt the
     data in the hard disk.

Extraction of Data from Seized Servers:

    Prior Notice must be given to the dealer informing the date and place of recovering data
     from the recovered server.
    The file recovery tools and password cracker tools may be used for finding deleted data
     and to open password protected files.
    A mahassar must be prepared showing the details.
    The CPU must be handed over to the dealer after extraction of data under proper
     acknowledgement.

                             LATEST EVASION TECHNIQUES:

      Use of parallel billing/accounting softwares.
      Using removable storage devices like pen drive, removable external hard disk, external
       CD/DVD writer, Bluetooth storage devices, etc. for running the software and for storing
       data.
      Using advanced computer networking with ERP softwares.
      Use of multiple passwords in single software.
      Estimate billing, 8B billing or sister concern billing.
      Huge Discount.

                                 METHOD OF DETECTION:

      Collecting bills from market.
      Conduct of test purchases.
      Verification of bills invoice no. and date.
      Scrutiny of returns.
      Information from field.


                                    GROUP DISCUSSION:

    Whether any addition be needed in the Rule 58 (20).
    Maximum utilisation of this Rule (eg:- Detecting major software developers and their
     TO- Rule 58(20A) (a)(ii) ).
    Latest evasion practices.
    Need for advanced training.
    All other points.

**** ………………………………………………………........…………                                                ***

Annexure- I

Section 2 (1) (t) of the Information Technology Act,2000,

       "Electronic record" means data, record or data generated, image or sound stored, received

or sent in an electronic form or micro film or computer generated micro fiche;

(fiche-Small sheet of microfilm on which many pages of material have been photographed; a
magnification system is used to read the material.)

Annexure II

Rule 58(20A) (a) was effected as per SRO no.58/2010, published as GOP No.14/2010/TD
dtd.19.01.2010



Annexure- III

                                        ERP Softwares:

Commercial application:

Manufacturing
       Engineering, bills of material, work orders, scheduling, capacity, workflow management,
       quality control, cost management, manufacturing process, manufacturing projects,
       manufacturing flow
Supply chain management
       Order to cash, inventory, order entry, purchasing, product configurator, supply chain
       planning, supplier scheduling, inspection of goods, claim processing, commission
       calculation
Financials
       General ledger, cash management, accounts payable, accounts receivable, fixed assets

Project management
        Costing, billing, time and expense, performance units, activity management
Human resources
        Human resources, payroll, training, time and attendance, rostering, benefits
Customer relationship management
        Sales and marketing, commissions, service, customer contact, call-center support
Data services
        Various "self-service" interfaces for customers, suppliers and/or employees
Access control
       Management of user privileges for various processes



To be considered an ERP system, a software package should have the following traits:

      Should be integrated and operate in real time with no periodic batch updates.
      All applications should access one database to prevent redundant data and multiple data
       definitions.
      All modules should have the same look and feel.
      Users should be able to access any information in the system without needing integration
       work on the part of the IS department.

Benifits os ERP softwares are:

    In the absence of an ERP system, a large manufacturer may find itself with many
     software applications that cannot communicate or interface effectively with one another.
     Tasks that need to interface with one another may involve
    Eliminates the problem of synchronizing changes between multiple systems -
     consolidation of finance, marketing and sales, human resource, and manufacturing
     applications.

Disadvantages:

      Customization of the ERP software is limited.
      Re-engineering of business processes to fit the "industry standard" prescribed by the ERP
       system may lead to a loss of competitive advantage.
      ERP systems can be very expensive. (This has led to a new category of "ERP light"
       solutions.)
      ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and
       business process of some companies—this is cited as one of the main causes of their
       failure.
      Many of the integrated links need high accuracy in other applications to work effectively.
       A company can achieve minimum standards, then over time "dirty data" will reduce the
       reliability of some applications.
      Once a system is established, switching costs are very high for any partner (reducing
       flexibility and strategic control at the corporate level).
      The blurring of company boundaries can cause problems in accountability, lines of
       responsibility, and employee morale.
      Resistance in sharing sensitive internal information between departments can reduce the
       effectiveness of the software.
      Some large organizations may have multiple departments with separate, independent
       resources, missions, chains-of-command, etc., and consolidation into a single enterprise
       may yield limited benefits



Annexure- IV
                                    CIRCULAR No.23/08
Sub:- KVAT Act 2003 – Section 40 & 40A read with Rule 58(20) – Maintenance of accounts by
electronic means- requirements – enforcement-instructions-issued

        The Department has tried to take a progressive view of allowing Information Technology
in accounting and billing by dealers in view of the advantages it offers by way of economies,
transparency and speed of access. Section 40 of the KVAT Act, 2003 read with Rule 58
requires dealers to maintain true and correct accounts and such other records showing such
particulars as may be prescribed. Section 40A requires dealers to compulsorily issue a bill /
invoice /cash memorandum for sale of taxable goods involving an amount of one hundred
rupees or more. Rule 58(20) requires dealers maintaining accounts by electronic means to
intimate the concerned assessing authority in advance along with the password for operating
the electronic system. Unfortunately it has come to notice that these stipulations are being
observed more in the breach. Electronic Billing machines that re-start numbering every day
erasing traces of bills issued earlier, inability of personnel in a business premises to give data
immediately to the Department regarding stocks, sales and purchases and other relevant
matters owing to data being stored outside the State or on systems without access rights for the
Department has cast doubts on the credibility of data stored by electronic means. VAT involves
self-assessment by dealers, which requires the credibility of systems for billing and accounting
to be of a high standard.
Monitoring of compliance is significant in bridging the gap between the tax due and the tax
declared by the dealer. Hence it is proposed to clearly lay down the obligations of dealers
wishing to use IT for billing and accounting systems. A new proviso has been inserted by
Finance Bill, 2008 in Section 40 that dealers shall be permitted to use electronic billing and
accounting subject to such restrictions and conditions as may be prescribed. Accordingly, it
hereby made clear that dealers shall be permitted to use electronic billing and accounting
systems subject to the following conditions:
    1. Such dealers will intimate their assessing officer of the deployment of electronic billing
        and accounting systems. The fact of such deployment shall be indicated in the KVATIS
        in the Registration Module.
    2. Such dealers will inform their assessing officer the names and addresses of their
        software developers and vendors. This shall be done when deploying newly developed
        software and for its subsequent customisation/ modification, by whatever name called.
    3. Such dealers shall maintain up-to-date documentation of the software and system
        deployed, with full disclosure of all methods of capturing data in their software and its
        operational flow, including all menus, in their principal place of business in the State; the
        same shall be produced to the CTD officials on demand.
    4. Software developers and vendors shall be liable to sell and deploy to dealers under the
        KVAT Act only software compatible with the provisions of the KVAT Act & Rules.
    5. Dealers shall be liable to deploy only software that truthfully reflect their tax liability under
        the KVAT Act, 2003.
    6. If in the course of any investigation it is discovered that the software deployed has
        induced, aided or abetted tax evasion, the software developer and vendors are liable to
        be proceeded against along with the dealer for the loss of revenue to the Government
        and shall be liable to be penalized under section 67 of the Act.
    7. Such dealers shall give Administrator's UserID and Password for the software, database
        and systems in a sealed cover to their assessing officer before putting the system into
        use. Any changes in the Administrator's User ID and Password shall be similarly
        intimated to the assessing officer.
             a. The system deployed by the dealer shall be such as to enable the Department to
                get all other UserIDs and their Passwords, using the Administrator's User ID and
                Password.
             b. All additions/deletions and changes to the data should be possible only through
                the software after authentication by a valid UserID and Password.
                  c. While updating each transaction, the UserID of the updating user shall be
                        recorded in the database.
                  d. UserIDs in the software that are no longer needed should only be made invalid
                        and there should be no provision for deleting them.
                  e. The software deployed should have daily, weekly and monthly autobackup facility
                        and dealers shall be liable to submit these back-ups on demand to the
                        Department. If on inspection or verification the disclosures by the dealer in
                        respect of the above matters are found to be untrue, the entire books of accounts
                        are liable to be rejected and assessment of tax liability of the dealer done as per
                        law.
      8. The dealer shall provide necessary interface to the Commercial Taxes Department for
            administering (querying only) the database locally at the dealer's premise.
      9. Electronic billing machines used by dealers in the State shall not have any option for re-
            starting numbering of the bills issued. Such machines if found deployed shall be liable to
            be seized for further investigation by the Department.
      10. Unregistered dealers using electronic methods of billing and keeping accounts shall also
            be liable to follow the rules regarding these matters in the KVAT Act.
      11. Dealers using electronic billing and accounting systems will have mandatorily to file VAT
            Returns electronically.
      12. A true copy of all data captured in business establishments in the State shall be
            maintained in the business premises where it is captured regardless of where the server
            is hosted, and access to the same shall be made available to inspecting officers from the
            Department.
      13. If at any time it is found that data stored by or for a dealer on an external device differs
            from that available in the approved system / database, then the accounts of the dealer
            are liable to be rejected and assessments done as per law.
      14. The Commissioner may from time to time cause verification of the software and systems
            deployed by dealers by any agency of his choice to ascertain the extent of compliance.
....................................................................................................................................................

				
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