business audit under mvat act

Business Audit under

the MVAT Act , 2002

Presentation on 08TH May 2010 at

Intensive Course on MVAT by WIRC

CA KIRAN G. GARKAR

Business Audit under

the MVAT Act , 2002

�Business audit

�Refund audit

� Its procedure

Relevance in MVAT Audit

May 19, 2010 KIRAN G. GARKAR 2

�Relevance in MVAT Audit

Coverage of topic

� Legal provision : Section 22

� Trade Circular 25-T/2008


� Internal Circulars

Accounting provisions

� Sec. 63 – Accounts to be maintained

� By every dealer liable to pay tax

�Who is asked by the CST in writing

In respect of sale & purchase of goods


� In respect of sale & purchase of goods

� By notification–for dealer/class of dealers

� To be kept at POB

� G/R- D/N & C/N – rate diff. to be claimed in

month of accounting

Accounting provisions (cont..)

� Sec. 86 Tax invoice

� Rule 77 Declaration on tax invoice


� Rule 55 conditions for grant of set off

� To maintained a true a/c of purchases of goods

� Sec. 84 Declaration of op. stock as on 1.4.05

Objective

�Usual route

�Assessment through Returns &

verification of books of accounts


�Administrative tool

-- Exceptional assessment

--Voluntary compliance/Self policing

� To ascertain and ensure compliance of

laws implemented by Sales Tax Dept.

� Practical level- to ascertain correctness of

returns

Objective


returns

� To identify inadequacies of returns,

� when checked with books of accounts

� And the circumstances of the business.

� To quantify the liability and enforce

recovery , if returns are not filed.

Sec.22 : Audit – An Analysis

� Audit qua Accounts v/s qua Business

� Enlarged scope.

� Not restricted to accounts but also to

cover the entire business.


cover the entire business.

� With a view to promoting compliance – CST

may arrange Audit of the Business of any RD

Sec.22 : Audit – An Analysiscontd….

� Sub-sec.1: Criteria for selection of dealers

– who have

� Not filed returns in time

� Claimed refund of tax


� Claimed refund of tax

� CST prima facie not satisfied with

correctness of any return filed OR is not

satisfied with any claim, turnover etc

� Selected based on ‘criteria or on random’

� Reason to believe


� Sub-sec.5: During the course of audit – the

dealer to

� Afford him necessary facility to inspect

Books, documents – which may be


Books, documents – which may be

available at such a place.

� Afford him facility to check or verify the

cash or stock.

� Furnish information


� Officer cannot remove any books of

accounts, other documents or any cash or

stock


� Time with in which Business audit is to be

completed – not provided

� Sub-section 2,4,6,7 & 8:

Deleted wef 1.4.2005

� Sub-section 3:

Sec.22 : Audit – An Analysis

contd….


� Sub-section 3:

Delegation by CST in writing:

Deleted wef 15.8.2007

Documents/data required at the

time of business audit.� Balance sheet/Trial balance/ Sch. under Companies Act, IT Act incl. Tax Audit Report in Form no.3CD.

� Sale & Purchase register- Summaries

� Sales invoices/Purchase invoices


� Sales invoices/Purchase invoices

� Returns & challans filed under MVAT Act, 2002 & CST Act, 1956.[Allied laws also]

� Ledger and all books of account

Documents/data required at the time

of business audit (cont..)

� Stock registers

� stock or cash verification sheets –to

facilitate verification of cash & stock - found

at POB


� Detailed party wise statement of sales and

purchases

� [e-Form 801 now prescribed for audits

which commenced on or after 1.4.2009]

Documents/data required at the

time of business audit (cont..)

� DN and CN , if any.

� Details and necessary dispatch proof of

return of goods; i.e. sales return and

purchase return


purchase return

� Transport receipts and delivery challans.

� Import/export documents like bill of

lading, bill of entry, packing lists, high

seas sale agreement if any, clearing

agents bill etc. supporting documents.



� Reconciliation statement of sales and purchases with MVAT returns filed Registers, Ledger, Manufacturing , Trading, Profit & Loss A/c, Balance Sheet

� Month wise summary of sales/purchases.


� Month wise summary of sales/purchases.

� Declarations in support of exemptions claimed under MVAT ACT, 2002 and CST Act, 1956; i.e. C forms, H forms, F forms etc.

� Any other documents/books required during conduct of audit.



� Statement of various input tax credit availed on

� opening stock as on 1.4.2005

� Regular purchases

� Expenses


� Expenses

� Assets purchased.

� Rate of tax on input and output goods.

� List of capital assets, and addition/ reduction if any.



� Audit officer may also ask for agreement,

purchase orders, work orders, tender

documents, if required for ascertaining

correctness of returns.


� Allied laws-PT/ Luxury Act

� Depending upon the facts, return or other

info. related to IT/Excise law

Scope of Audit

� Interview

� Free hand u/S 14

� Physical stock of goods

� Cash/bank balance


� Cash/bank balance

� Reconciliation

� Discretion of checking other period/ issues

� Intervention by Investigation Branch

� If info. Not kept ready, Penalty ?

Powers of Audit officer

� Powers or Duties?

� To communicate his observations to the

dealer, if possible on the date of audit or


dealer, if possible on the date of audit or

immediately thereafter.

� No order / information contemplated

� If discrepancies found

� Intimation (no time limit)

� Form 7 [Administrative purpose]

� After 1.7.09, under section 63(7)



� After 1.7.09, under section 63(7)

� No form yet prescribed[604 wef 1-5-10]

� To file revised return & pay differential

tax, claim lesser refund or recalculate

CQB.

� Corrective action

� File revise returns, pay off differential dues with interest.

� W.e.f 1.7.09, interest @25% under Sec.30(4)

� If not acceptable to dealer- initiation of



� If not acceptable to dealer- initiation of appropriate proceedings incl. assessment.

� Rejection of claim of refund / reduction in claim - Assessment notice (u/s.23)

� If already assessed – review u/s.25

� Intimation to appellate authority

� Orders to levy interest and penalties

Rights of the dealer

� To ask for valid authorisation of audit

officer.

� To check identity proof of audit team

� To continue his conduct of business


� To continue his conduct of business

� To take help of his Sales Tax consultant

� Right to know results within reasonable

time

Internal Circulars

� 15A of 2008 dtd.4/8/2008 for refund appli.

� Desk audit & Select ones for business audit

� Other criterias

� Random sampling ,


� Random sampling ,

� Refund = > Rs. One Crore

� 25% refund reduced in preceding year

� Abrupt rise in refund claim compared to

previous year

� First and last refund claim

� Dealers availing benefits under any PSI

for expansion unit

� Not covered under Voluntary refund

Internal Circulars


� Not covered under Voluntary refund

scheme

� Paying tax in investigation proceedings

and then claiming refund

� 17A /2008 dtd.18.08.08

� Pre audit preparations, dealer’s profile,

planned approach

� Type of audit

Internal Circulars


� Type of audit

� Entire year or periods

� Specific issue based audit

� Scope of specific audit: expandable

� Penalty: Defiance of law or prima facie

proof of ‘mens rea’.

� Time limit: Three months from date of visit

� Scrutiny of bank Statements

� Not merely placing on record

� Taking Stock/Cash counting:

Internal Circulars


� Taking Stock/Cash counting:

� Not to be resorted in routine manner

� Express permission from JC for strong

and valid reasons

� 20A/2009 dtd 4.9.09: Instead of

permission, discretion to be exercised

Internal Circulars

� 18A/2009 dtd.18.08.09

� Criteria for keeping forms on record

� Inter-State TO: Value of C form for record

� Up to 1 crore:Rs.50,000

Up to 10 crore:Rs.2,00,000


� Up to 10 crore:Rs.2,00,000

� Above 10 crore: Rs.5,00,000

� Formats

� For forms kept on record

� Received but not kept on record

� Defective forms & Not produced

� Instructions for cross checks

� Representative documents to be taken on

record for exports : Direct and deemed

� Deemed Exports:

Internal Circulars


� Deemed Exports:

� Conditions to be complied with

� Relevant documents

� No disallowance on ground that details

of overseas importer have not been

produced or defaced on the document

Business Audit – Some issues

� Time limit to initiate or complete the

business audit ? No such limitation

� Under the instructions of the business

auditor- revised return filed – differential


auditor- revised return filed – differential

taxes paid under protest

� If no assessment is done? Remedy of

appeal can’t be resorted

� If assessed –option to appeal open


� Can there be business audit even if refund audit is done?

� As such there is no bar

� No duplication of efforts

Tr. Cir. No 56 T/2007 Para 11(iv)


Tr. Cir. No 56 T/2007 Para 11(iv)

� It may be noted that intimation does not bar an authority from Initiating a fresh business audit proceedings or any other proceeding, for that matter against the dealer for the same period.

Tr. Cir.22 T/2009 [6.8.09]


� Can there be business audit even if Assessment is over? Yes- Business auditor may recommend review proceedings- refer to appellate authority.


� What if the stand of the MVAT Auditor and Business auditor is divergent?

� Declaration Forms – pending – Should taxes be paid if insisted by business auditor?

� Notice for conduct of the Audit?

� Only intimation letter issued.

� To end with intimation letter only, if any

� Multiplicity of proceedings



� Multiplicity of proceedings

� Concept introduced under PT Act

� No finality

� Departure from Advisory nature

� Lack of transparency

Refund Audit

� No specific provision under the Act

� One of the aspect of Business Audit

� Trade Circular 3T-2007 dated 10.1.2007





� Internal Circular 2A-2010 dated 10.2.2010

� Main Hurdle

“Tax received into Govt. Treasury”


� MVAT Auditor to take a call on this front

� Business audit notice is received

� Refund application in Form 501 filed


� Refund application in Form 501 filed

� Keeping track of developments

� Where Business audit/Refund audit is

being conducted simultaneously

� Likely Results based on observations of

Audit team



� Intimation , if any under sec.63(7)

� Action/compliance from Dealer’s side

� Proper observations in Form 704


� Where Business audit/Refund audit is

complete, prior to MVAT Audit

� Results

� Observations of Audit team


Observations of Audit team

� Intimation , if any under sec.63(7)

� Action/compliance from Dealer’s side

� Suitable disclosure in the Form 704