training material_computerised accounting(intelligence wing)

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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 account
ing 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 funct
ional modules.
Its of 2 types ie.
ERP software
s

and normal software
s
.
An
Enterprise Resource Planning

(
ERP
)

system is an integrated computer
-
based application used
to

manage
all the activities like manufacturing, sales, purchase, distribution, human resour
ces,
finance, etc.

Popular ERP softwares are

SAP

(System Application and Products)
, Tally ERP,

etc. Ordinary
software
s

are mere accounting softwares.

Eg:
-

Tally, other customised soft
wares 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 i
nformation 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, acces
s, 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 c
hannels 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 Com
puter name will display in the screen. It also
shows the folder in
all the
computer
s under

network
that

are shared with computer name. Most
probably billing software/accounting software will be placed in this shared folder
, so we can
i
dentify the server co
mputer 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 c
omputer 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 ent
ries
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 (wir
eless 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.

C
are 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 e
dit 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,20
05 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 p
er
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

so
ftware developers and vendors. This shall be done .when
deploying newly

developed software and for its subsequent customization / modification, by

w
hatever 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

Departmen
t 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 establishmen
ts 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 bi
lling 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

T
he dealers using electronic billing and ac
counting 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

dea
ler in respect of the above are
found to be untrue,
his

entire books of

accounts will be rejected.

o

T
he 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
sha
ll 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 r
ejected 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
:


Preparat
ion 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 r
eturns
module.



C
ollect 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
o
n 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.


Pr
ecautions
to be
taken

at the beginning

of the i
nspection:




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 st
orage 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 h
elp 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 dea
lers 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, Balan
ce
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 r
eport 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 avai
lable 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 installe
d. 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 detai
ls 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 softcop
ies

of th
e 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.



Cr
eate another sub folder to c
opy

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 c
an

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 t
he 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
r
ecorded 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 step
s 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 Seiz
ed 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 software
s.



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 bill
s

from market.



Conduct of test purchases.



Verification of bills invoice no. and date.



Scrutiny of returns.



Information from field.



GROUP DISCUSSION:




Whet
her 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 co
mputer 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 N
o.14/2010/TD
dtd.19.01.2010


Annexure
-

II
I

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 led
ger, 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, b
enefits

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 privile
ges 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 d
ata 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 ch
anges 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

an
d
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" w
ill 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 accou
ntability, 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, independen
t
resources, missions, chains
-
of
-
command, etc., and consolidation into a single enterprise
may yield limited
b
enefits


Annexure
-

I
V

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 /ca
sh 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 busi
ness 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 t
o 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 t
he 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 fo
r 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 Passw
ords, 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 updat
ing 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
an
d 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 an
d 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 billin
g 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 b
usiness 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.

.........................................................................................................................
...........................