KSCAA - Karnataka State Chartered Accountant Association

AN OVERVIEW OF PROPOSED VALUE ADDED TAX - KARNATAKA LAW

S. Venkataramani
Chartered Accountant

Present tax structure

Single point levy
Additional levies
Purchase tax
- Third Schedule
- Section 6
Second and Subsequent Sales
Tax on industrial inputs-Concessional rate
Declared goods
Exempted goods
Composition benefit
Works Contract
Leasing
- Taxable goods
Entry tax
Luxury Tax
- Stock of goods-Specified
- Imported Electronic goods
- Tobacco Products
Industrial Incentives
- Purchases
- Capital Goods
- EOU- Exempted
- Other cases-Conditional-Period related
- Inputs
- EOU-Exempted
- Other cases conditional-time related
Sales
- Exemption-
- Time related
- Investment related
- Deferment
- Time-related
- Investment related
- Exemption on works contract to infrastructure projects

Value Added Tax
- International Scene

Most countries have not adopted VAT in its purest form of single rate, but have opted for multiple tax rates. Provides for differential rates for necessities and luxurious goods.
peak rate of tax: Europe-25%, Asia - 35%
lowest rate is 3% in Singapore
VAT rates replaces sales tax, excise duty and service tax
Many countries have a negative list of commodities which are not under VAT
Many countries have special treatment of levying tax on composite scheme for small dealers

Preamble - Need For Reform

Economic Efficiency concerns - challenges of globalization.
Efficiency concerns in tax administration
Improving tax compliance levels
Declining buoyancy in tax revenues when limited reform measures of existing tax proved inadequate.

Basic Elements of VAT

Value Added Tax is an indirect tax on consumption.
VAT (multi-stage) is charged and collected at each stage of the production / processing / trading, on the value addition
VAT contemplates rebating of tax paid on inputs / capital goods.
VAT requires maintenance of accounts of tax paid on purchases and sales.
In VAT regime the tax component in any transaction is identifiable /computable

Variants of VAT

Consumption Variant: Tax levied on all sales with deduction for business inputs
Subtraction method: Estimating value added by taking difference between output and input
Indirect subtraction: Deducting tax on inputs from tax on sales for each tax paid.

Operation - consumption variant / invoice credit method

A
RM Producer
Sales Rs.100
Gross VAT Rs. 10
Net VAT Rs. 10

B
Manufacturer
Sales Rs. 200
Gross VAT Rs. 20
Net VAT Rs. 10
Rs. 10(20-10)

C
Wholesaler
Sales Rs. 300
Gross VAT Rs. 30
Net VAT Rs. 10
Rs. 10 (30-20)

D
Retailer
Sales Rs. 400
Gross VAT Rs. 40
Net VAT Rs. 10
Rs. 10(40-30)

Note: Total VAT collected is 10+10+10+10 = Rs.40
VAT - Assumed to be at the rate of 10%

Threats under VAT regime

Incorrect usage of non-VAT invoices
Use of fake bills
Inflation of purchase invoices
Incorrect classification of goods to avail setoff
Under-pricing of goods sold

Present Tax structure

Single-point levy
Additional levies i.e. resale tax
Purchase Tax - Schedule III & Section 6
No tax on second sales
Industrial inputs - concessional rate
Declared goods - 4%
Notification issued for exempt goods
Composite scheme for works contractors
Single point tax on leasing
Entry tax on notified goods
Industrial incentives - to EOUs, other cases - conditional
Industrial incentives - deferral, holiday to infrastructure projects

Proposed VAT Structure

Multi-stage levy
Provisions for rebating of local sales tax paid on inputs including capital goods
Fewer tax rates - exemption, zero-rating
Lesser rate for declared goods, inputs & ADE goods
RNR @ 12.5%
Special rate - Gold and Silver, Liquor, Non-vattable goods i.e., petroleum products
Zero-rating for exports
Select services subjected to VAT
Inter-state sales - status quo
Consignments/ stock transfers _ no rebate
No rebating for inter-state purchases
Composite dealers - no rebating
Centralised registration
Transitional issues
Sales tax exemption converted to deferral

Through Value Added Tax System

Transparency in incidence of levy
Avoids cascading
Reduces vertical integration
Seeks high compliance features
Self policing & better audit trail
Efficiency - no intervention in choices
Equity, Neutrality & not on destination principle
Painful reform process & detailed accounting required
Export - zero rated.

Proposed Value Added Tax System - Some issues

Not an ideal VAT regime _ setoff only partial
Not destination based
Interstate trade - not Zero rated
High Revenue Neutral Rate (RNR)

Study of new tax base

Deciphering the value chain of the commodity - from manufacture to consumption
Commodity consumption profile- sourcing of inputs/ goods- exports, interstate trade.
Study of input-output ratios, trade practices, trade margins - changes, factors influencing
Consequences- Price / Working Capital Changes
Determination of RNR

Definitions

The words Assessee, Assessing Authority, Body Corporate, Brand name, Casual trader, Miller, Notifications and Tax have not been defined under The VAT Act
The following have been newly defined:
- Assessment includes re-assessment made or deemed to have been made;
- Capital goods (above a prescribed price to be notified) means plant, including cold storage and similar plant, machinery, goods vehicles and equipment or any other goods used in the course of business other than for sale ;
- Documents includes written / printed records / title deeds or data stored electronically;
- Export & Import have been defined which is similar to section 5(3) of the CST Act;
- Government means State Government;
- Input means goods purchased in the course of his business for resale / use in manufacture / processing or packing / storing of other goods or any other use in business;
- Input tax means tax paid by a dealer on purchase of goods in the course of business;
- Output tax means tax leviable / payable by a registered dealer in respect of taxable sale & includes tax paid by an agent on behalf of the principal;
- Prevailing Market Price (PMP) means published wholesale price in force in the market at about the time proceedings are taken to purchase such goods;
- Published means publish in any newspaper / journal / periodical or notified by a market committee or any authority;
- Return means return prescribed or required to be furnished under the Act;
- Taxable sale means any sale of goods, taxable under the Act;
- Tax Invoice means a document listing goods sold with price, quantity and the prescribed information;
- Taxable turnover means the determined turnover on which a dealer is liable to tax but excluding, interstate sales, exports and interstate consignment / stock transfers;
- Total turnover means aggregate turnover of all goods in the State and includes exempt sales, interstate sales, exports and interstate consignment / stock transfers;
- Turnover means the aggregate amount for which goods are sold/ distributed / delivered or otherwise disposed off and includes URD purchases, interstate consignment / stock transfers (at the actual selling price or the PMP of such goods).

Incidence & Levy

In terms of Section 3 of The VAT Act every sale of goods in the State by a registered dealer (or dealer liable to register) is liable to tax
Taxable goods purchased from an unregistered dealer will be liable to tax in the hands of the dealer.
Exempted goods are listed in first schedule
Goods taxable at 1% are listed in second schedule
Goods taxable at 4% are listed in third schedule
Goods taxable at 20% are listed in fourth schedule
Input tax restricted goods are listed in fifth schedule
Packing materials when charged for separately will attract the same rate of tax as that of the goods sold
Power to reduce tax on sale of goods by way of Notification is retained
Place of sale of goods-
- In respect of local sale the sale or purchase is deemed to take place within the State irrespective of where the contract is entered into so long as the goods are within the State.
- In case of specific or ascertained goods at the time, the contract of sale is entered into
- In case of uncertain or future goods at the time of their appropriation
- In respect of Works Contract, if the goods are within the State at the time of transfer irrespective of the place where the contract is entered into
- In respect of Transfer of Right to use goods, if the goods are for use within the State tax is payable in the State irrespective of where the contract is entered into
Time of sale of goods
- Sale is deemed to take place at the time of transfer of title / possession or incorporation of goods in any Works Contract irrespective of receipt of payments
- If tax invoice is issued within 14days from the date of sale, sale is deemed to take place at the time of issue of invoice
- If tax invoice is issued prior to sale or receives payment in respect of such sale, sale is deemed to take place at the time invoice is issued or payment is received which ever is earlier
Agents
- There is no change in the taxability of agency transactions under the VAT Law when compared to KST provisions

Collection of Tax

Every registered dealer liable to pay tax shall collect tax and such collection of tax shall be accounted as prescribed
Central / State Governments, Statutory Body or a Local Authority shall collect tax on taxable sale of goods

Output Tax, Input Tax & Net Tax

Output Tax means tax payable under this Act on Taxable Sale of goods in the course of business
Output Tax includes tax payable by a commission agents on Taxable Sales
Commission agent is required to issue a prescribed declaration to the principal
Input Tax means tax paid or payable by a registered dealer on purchase of goods under this Act in the course of business
Input Tax includes tax paid by the registered dealer to his agents who purchases on his behalf
Input Tax are subject to restrictions specified in Sec 11, 12, 14, 17 & 18 of the Act
Net Tax means tax payable by a registered dealer on his output less Input Tax available as deduction
No deduction for Input tax will be permitted unless such deduction is supported by a Tax Invoice / Debit note / Credit note
Tax paid by the registered dealer on URD purchase need not be supported such Tax Invoice / Debit note /Credit note
If the Input Tax exceeds the Output Tax, the excess can be adjusted or refund claimed (together with interest) as prescribed

Input Tax restrictions

Tax paid on purchases relatable to sale of exempted goods
Tax paid on purchase of goods that are dispatched outside the State except interstate sales
Tax paid on capital goods will be allowable as deduction after commencement of commercial production or sale of taxable goods over a specified period (3 to 5 years)
No deduction shall be allowed in respect of goods specified in Schedule 5 and other specified goods
Input used in taxable goods sent on consignment / stock transfers will be rebatable only in excess of 4%
Petroleum products used as fuel in motor vehicles are not rebatable
Petroleum products when used as fuel in production of taxable goods or captive power generation will be rebatable in excess of 4%
Input tax paid on purchase from a dealer who is required to register, but has failed to register will not be rebatable
Input tax is not deductible in the hands of a commission agents purchasing or selling of goods on behalf of any other person
Stock of business inputs& capital goods held at registration are rebatable if purchased within the previous three month
A dealer who opts for payment of tax under composition scheme is restricted from claiming rebate on purchases
Proportionate rebating is envisaged in respect of a dealer whose sale consists of both taxable and exempt goods and stock transfers
Change in use of input goods / lost / destroyed / capitalised

Transitional Stock

Stock of goods for manufacture and resale held as on 1/4/2003 but purchased on or after 1/4/2002
Only Taxable goods that have suffered tax under the local sales tax law and taxable under VAT
Tax rate to be adopted for rebate will be actual rate if lower than VAT rate
Full stock to be supported by proof of tax paid
Periodicity of rebate- 3 months freeze and rebate in the next 6 months
Methodology of Rebating- Normal

Rebating

Inputs procured on Leasing eligible for normal rebating
Input Tax can be rebated against CST payable
Excess credit of Input Tax can be claimed as refund (Simple interest @ 12% after a period of 35 days)
Dealer can exercise option to carry over excess Input Tax credit to subsequent year
CST paid on inter-State purchases not part of input tax not rebatable.

Registration

Turnover exceeding Rs.2 lakhs as on 31.03.2003
Turnover exceeding Rs.15,000 p.m. in any month after 01.04.2003
Voluntary registration
Transfer of business as on 01.04.2003
Dealer involved in Inter-State transactions, Imports / Exports / Works contracts / Leasing / HP / Agency / Casual trader / Non-resident
If dealer fails to register, prescribed authority is empowered to Suo moto register
Commencement _ February/March 03
Dealer to apply in prescribed form
Prescribed authority to grant registration on his satisfaction that a applicant is bonafide dealer and on compliance of prescribed requirements
Registrations to be valid from the first of the following month or on such earlier date mutually agreed
Registrations can be refused for good & sufficient reasons
Commissioner to authorise for issue of RC to Central / State Governments, Statutory Body or Local Authority
Prescribed authority can demand security deposit as specified
Prescribed authority can forfeit security deposit when tax remains unpaid / misuse of certificates / declarations etc.,
Dealer to intimate changes in business/ ownership/ status/ name/ nature/ succession

Amendment to RC

In respect of amendment of registration certificate the provisions relating to the existing sales tax law hold good.

TIN (Tax Index Number)

There will be three components to the TIN
- State Code- two alpha characters as used in Motor Vehicle registration
- Two check digits _ commodity / business
- Seven digit serial number
  for example - KA XX 1234567
  - linked to Income-tax PANo.

Cancellation of Registration

Registration under this Act, can be cancelled when:
- The business is discontinued / transferred fully or otherwise disposed off
- Change in status / ownership
- Taxable turnover of sale of goods for a period of 24months is below Rs.2 lakhs
- A registered dealer issues Tax Invoice without affecting taxable sales
- For any other good or sufficient reasons
On cancellation of registration:
- Liability to pay tax / penalty / interest for period prior to date of cancellation continues
- Dealer liable to pay tax on stock of taxable goods held by him at prevailing market price
- Obliged to file a final return

Composition Dealer

Turnover not to exceed Rs.15 lakhs in a period of four consecutive quarters
Not permitted to issue Tax Invoice
Not eligible to receive goods from outside the State / Country
Exporter / Interstate seller is out of composition
Importer / Interstate purchaser is out of composition
Dealer executing works contract is out of composition in certain circumstances
Input tax not rebatable by compounding dealer
Rate of tax is yet to be specified; maximum being 5%

Accounts & Documentation

A registered dealer effecting Taxable Sale or sale of exempt goods shall issue a tax invoice marked as original containing prescribed particulars
A registered dealer is required to retain a copy of such Tax Invoice
A registered dealer is permitted to issue a Duplicate Tax Invoice if the Original Tax Invoice is lost by the purchasing dealer
A registered dealer selling non taxable goods or a composition dealer shall issue a sale bill containing the prescribed particulars
In case of Sales returns the seller / purchaser is required to issue a Credit note / Debit note to claim rebate
A registered dealer is required to maintain accounts of his purchases, receipts, sales, disposals, production, manufacture and stock of goods - commodity wise / quantity wise / value wise
Commissioner is empowered to notify registered dealers to maintain accounts in specified manner
A registered dealer is required to get his accounts audited by a Chartered Accountant / Sales Tax Practitioner if his TAXABLE TURNOVER exceeds Rs.25 lakhs
Books of accounts and other documents including Tax Invoices are required to be maintained for a period of five years from the end of the year or till such date the assessment / appeal / revision reaches finality
The dealers who maintain accounts and other documents electronically are required to retain them in electronically readable formats
Competent authority is empowered to request a dealer to furnish any document / data relating to business

Burden of Proof

Any dealer claiming exemption from payment & assessment of tax is required to furnish relevant proof
The burden of proving that inputs have suffered tax is on the dealer
A dealer who knowingly issues a false Tax Invoice / Debit note / Credit note / Declaration / Certificate or any other document to claim exemptions or input credit will be liable to penalty:
- on first detection at three times the tax due
- on subsequent detection at five times the tax due

Returns & Taxes

A registered dealer / Central /State Government is required to file a return within twenty days after the end of the month together with the amount of tax due
The competent authority can insist upon filing separate branch returns if a dealer has more than one place of business in the State.
Any omission or incorrect statement in the return to be revised within a period of six months
Interest @ 2% shall be payable if taxes due have not been declared in the return within a period of three months
Interest @ 2% is payable on non-payment of tax declared/ non-filing of return

Assessments & Reassessments

A scheme of deemed assessment is envisaged except in cases where the Commissioner notifies production of accounts
Best judgement assessments is envisaged in cases where monthly / final returns are not filed
In cases where best judgement assessment is completed and the dealer files the returns within a period of one month, the prescribed authority is empowered to withdraw such best judgement assessment
Protective assessment can be passed if the assessing authority has evidence to prove a liability to tax. In case of such protective assessment the tax / penalty / interest will become payable forthwith
In case of returns which are deemed to be assessed or an assessment which is completed if the prescribed authority has grounds to believed that such returns / assessment is incorrect, the prescribed authority can reassess to best of his judgement. In such cases the tax is required to be paid within ten days of service of notice. The dealer shall have an opportunity of being heard
An assessment or reassessment is required to be completed within an period of five years from end of the tax period. In case of evasion such period will be ten years
Mistakes apparent on face of the record can be rectified
Rectification of assessment / re-assessment if prejudicial to revenue to be within a period of 3 years from the date of relevant order
Power to withhold refund has been retained in certain circumstances
All other provisions relating to recovery of unpaid taxes are similar to the provisions of the existing KST laws

Departmental Audit

All registered dealers will be subject to departmental audit once in three to five years
Sensitivity index to be developed for such audit
Computer aided checks to be introduced for such audit
Compulsory audit in case of non compliance
Audit in dealer's premise

Entry, Search & Seizures

The prescribed authority may inspect business premise of any dealer and demand production books of accounts pertaining to business
Such authority is empowered to seal the premises or seize the books of accounts and other documents relating to business in case of suspicion of evasion of tax
Such authority is empowered to record statement of any authorised person and affix identification marks on accounts / registers / documents or goods
Such authority is empowered to take samples of goods if he deems fit in the interest of revenue
Such authority is empowered to seize stock of goods which are not accounted, however such value of stock seized shall not exceed the tax liability together with interest and penalty. The dealer can appeal against such seizure of stock within a period of seven days
All other provisions relating entry search & seizures are similar to provisions of KST Act

Check Posts

Prescribed authority is empowered to intercept goods in transit, cause their inspection and levy penalty in case where a tax invoice, a sale bill or a delivery note in the prescribed format is not produced on the spot
The person in-charge of the goods vehicle is required to mandatorily report at the first & last situated check post while entering & leaving the State border
If the competent authority has reason to believe that the (transporter or owner of goods while transporting or holding goods) goods are undervalued by a difference of more than 30%, such authority may purchase such goods subject to certain conditions

Information from certain persons

Every C& F agent / transporter / shipping / steamer / air cargo / courier agency engaged in business of transporting taxable goods in the State are required to furnish information relating to taxable goods cleared / transported
The prescribed authority is empowered to examine the books of accounts of such persons to verify the correctness of information
The prescribed authority may require a banker to furnish any information / document / statement
If the above persons don't furnish the required information penalty is attracted

Advance Rulings

Commissioner is empowered to constitute "authority for clarification & advance rulings"
Said authority shall clarify the rate of tax or exigilibility to tax of any transactions
When the issue is pending before such authority no officer/ tribunal shall proceed to decide on such issue
Order passed is binding on the applicant / subordinate officers and in respect of the goods or transactions
An aggrieved applicant can move the High court against the order

Appeals & Revisions

An order / proceeding affecting any person can be appealed before the appellate authority within a period of 30 days
An appeal against the order of the appellate authority lies before the tribunal and such appeal must be filed within a period of sixty days
Both the authorities above have the power to condone a delay of up to 180 days
First appellate authority is empowered to stay recovery of disputed taxes, however on such stay being granted appeal to be disposed of within a period of 120 days
Tribunal is empowered to grant stay provided 50% of the disputed taxes are remitted
The revisional powers of the Additional Commissioner and Commissioner are similar to the provisions of the existing law
Any dealer objecting to an order passed by the Additional Commissioner / Commissioner / Tribunal can appeal to the High court within 60days
All other provisions are similar to the provisions of the existing sales tax law

Penalties

Failure to register - Rs.5000 in addition to interest @ 2% of the tax payable
Failure to intimate the changes in business attract a penalty of Rs.5000
Failure to file return attracts penalty of Rs.200 per day plus a minimum of 10% but not exceeding 50% of the tax due plus interest @ 2% per month
A dealer who understates his tax or overstates the input credit by more than 5% will be liable to penalty of 20% of such tax
Filing of incorrect or incomplete return attracts penalty at Rs.200 per day till such incorrect or incomplete return is corrected
If a best judgement assessment is accepted by a dealer a penalty of 50% shall be imposed on such additional tax assessed
An unregistered dealer who collects tax or any amount purporting to be by way of tax will be liable for penalty which is equal to tax
Failure to maintain books & documents will attract penalty of Rs.5000 plus Rs.200 per day for such period
A C&F agent / transporter / banker/ who fails to furnish the relevant data will be subjected to penalties of Rs.5000 plus Rs.200 per day
A registered dealer who doesn't issue (or issues an incorrect) Tax Invoice / Debit note /Credit note will attract penalty of Rs.5000 or the tax amount which ever is higher
Penalties / prosecution can be initiated if any person tampers with the seal affixed to the premises by the competent authority
Fraudulent evasion of tax attract a fine of Rs.1 lakh or twice the tax evaded which ever is higher or an imprisonment of six months to five years or both
Compounding of offences in lieu of prosecution is provided for in the Act

VAT impact on manufacturing and outsourcing business

No input credit for inter-state purchases
Businesses may have to work out sourcing patterns - CST Vs. Local
Impact of input tax credits Vs. Restricted Input tax credits (when goods are stock transferred)
Whether input tax credit available, when goods are sent on Job-work basis - interstate
Input tax credits on Capital Goods purchased
Timing of Capital investments in current year is crucial, considering rebating is allowed on Capital goods
Exempted units to switch over to deferral
Study of pricing/margins in VAT regime
Accounting and documentation
Aligning computer systems to VAT requirements

VAT impact on business

While sourcing cost of purchases need to be worked out considering setoff availability.
Stocking at warehouses may have to be reconsidered, since input tax is denied on branch transfers
Costing system is imperative since certain taxes may not be vatable
Pricing structure to be evolved in a MRP scenario
Accounting/invoicing/documentation - vital to claim input credits
Current accounting packages do not factor VAT law. Needs revision
Consignment sales - whether principal or agent to claim rebate? The proposed VAT draft do not provide any change in the taxability of the agency transaction when compared to KST provision.

VAT impact on leasing

If leasing is kept outside VAT, input credits will not be available in local leases viz. West Bengal
If lease is within the purview of VAT, rebating will apply at every sub-lease stage increasing transaction cost
In case of interstate leases, no rebating; thus a local lease transaction is to be examined
In case of existing leases, the levy of VAT on rentals received after VAT date to be analysed. Whether foreclosure and fresh lease agreement is feasible to be studied

VAT impact on business

Pending assessments
Cut-off dates for issue/obtaining statutory forms
Tax paid on opening stock as on VAT date to be computed
VAT registration formalities _ whether fresh deposit required?
Whether revalidation of stock of statutory forms required?
Whether definitions of Input/Output/Capital Goods are same across India?

Issues

Policy Issues
- Closing Stock
- Industrial Incentives
- Other Issues
Works Contract
Leasing
Hire-purchase
Operational Issues

Issues-Treatment of Closing Stock

Capital Goods

Interstate
- Use-no rebate
- Sale - VAT - and no refund
Local
Use
- No rebating
- Rebating at a flat arte
Resold
- No tax-No rebate
- Levy VAT - No rebating
- Regular Vat rate-rebate on depreciated value
- Job work-No rebate
- Job Work& Manufacture-Rebate at Flat Rate
Inputs
I S Purchases
Local Purchase
- Tax Suffered
  - Earliest stage
  - Previous Stages
- URD
- Declared Good
- III rd Schedule Goods
- In Composition cases
Inflating Stock to get more rebate
Mis-classification of Stock
Options for rebating- on closing stock
- No rebating
- Rebating at a fixed rate
- Rebating to the extent of tax paid
- No rebating on
  - Interstate Purchases,
  - Imports and
  - goods not - suffered tax
- Misclassification and inflation to be judgment from the previous history

Industrial Incentives

Input Tax Exemption
- Inputs
- Capital Goods
Output Tax
- Deferment
- Exemptions
Which are
- Investment related
- Period related

Options

Purchase Tax incentives
- Zero rating the sales
- Exempting the sales
- Levy tax and give refund to industry
Incentives on Sales
- Tax Deferment
- Exempt the Output
- Zero rating Output

Other Issues

Works Contract
- Composition-No rebating
- Levy of tax on Transfer of property
  - Rebating on Tax paid purchases
  - No Rebating on expenditure
Leasing of Goods
- Apply VAT rate on rental
- Interstate Purchases _ No rebate
- Local Purchases-law to be evolved
  - Rebate on Tax paid to be set off on lease rentals
Sales to Govt Dept.,
- Interstate -
  - treating as consumers
- Concessional rate-with refund
- Local
  - regular VAT rater
  - Zero rating/Concessional rate with refund
  - Exemption
- Purchase of Capital Goods
  - By Manufacturer-rebating

Operational Issues

Organization Structure
- Integrated to Functional
- Assessment
  - Rectification
  - Re-assessment
  - Revision-Internal
- Arrears Management
- Registration
- Issue of Statutory forms
- Appeal
- Courts
- Administrative structure for other acts
  - KET, KAIT, PT, LT, Betting Tax

Before Introduction of VAT

Need to collect Existing Tax
Deployment of staff to administer existing law
Train staff
Educate
- Traders
- Public
Methods
- Publicity
- Educational Visits

After Introduction

Declare Effective date of Registration
Transitional period six months to one year
Careful Monitoring of Compliance level
- Staff deployment to check compliance
Treatment for non-compliance
- Lenient for bona- fide mistakes
- Stringent for fraud