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For use of Indian Audit and Accounts Department only

Office of The Principal Accountant General

(Audit) Assam Guwahati

REVENUE AUDIT MANUAL ON ASSAM VALUE ADDED TAX

ISSUED BY THE PRINCIPAL ACCOUNTANT

GENERAL (AUDIT) ASSAM GUWAHATI

PREFACE

The relevant provisions of the law and procedure relating to assessment and collection of receipts of Assam Value Added Tax have been

set out in this manual. This manual has been prepared for the guidance of officials entrusted with the audit of receipts relating to Assam Value Added

Tax.

The manual provides a guide for officials and the audit checks indicated are only illustrative and not exhaustive.

The material contained in this manual needs to be updated regularly on account of amendment to the Acts/Rules and on account of notifications,

orders and instructions issued by the State /Central Government and instructions issued by the Office of the Comptroller & Auditor General of

India. I hope that this publication will be a useful guide to the staff and

officers of the Office of the Principal Accountant General (Audit) Assam, Guwahati in the efficient functioning and discharge of their duties.

Suggestions for improvement are welcome.

sd/ Principal Accountant General (Audit) Assam,

Guwahati

Revenue Audit Manual on VAT

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CONTENTS

Sl. No. Particulars Page No. Chapter – I Introduction 4-8 Chapter – II Organisational structure 9 Chapter – III Basic feature of AVAT Act 10-11 Chapter – IV Definitions 12-15 Chapter – V Registration, tax liability and computation of tax 16-22 Chapter – VI AVAT returns 23-24 Chapter – VII Assessment under AVAT 25-27 Chapter – VIII Refunds 28-29 Chapter – IX Penalties and offences 30 Chapter – X Audit of AVAT 31-44 Chapter – XI Transitional provision 45-47 Chapter -- XII Manner of deduction of tax at source 48-50 Chapter – XIII Internal control 51-53 Chapter –XIV Inspection report 54-55 Chapter – XV Follow up action 56 Appendix - 1 List of AVAT forms 57-58


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CHAPTER – I

INTRODUCTION Article 151 of the Constitution lays down that the Reports of the Comptroller & Auditor General on the accounts of the Union and the States shall be submitted to the President or the Governor for being laid before each house of Parliament or Legislature. The Reports of the Comptroller and Auditor General must relate to the totality of the accounts of the Union and of the States and consequently cover not only the expenditure but the receipts as well. Section 16 of the Comptroller and Auditor General’s (Duties Powers and Conditions of Service) Act, 1971 (Central Act 56 of 1971) stipulates that:

“It shall be the duty of the Comptroller and Auditor General to audit all receipts which are payable into the Consolidated Fund of India and of each State and each Union Territory having a legislative assembly and to satisfy himself that the rules and procedures in that behalf are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed and to make for this purpose such examination of the accounts as he thinks fit and report thereon”.

The audit of receipts is undertaken by the Comptroller and Auditor General in terms of the above Constitutional and statutory provisions.

GENERAL PRINCIPLES OF AUDIT

1.1 Audit regulated by general principles of receipt audit Audit of Value Added Tax receipts will be regulated by the general

principles governing the audit of receipts as laid down in Chapter-3, Section-II of the Manual of Standing Orders (Audit).

1.2 Responsibility of department to collect revenue It is the primary responsibility of the departmental authorities to see

that all receipts due to Government are correctly and properly assessed, realised and credited to Government Account. Audit should see that any payment for which a party may be liable to pay is actually received and brought to account and that the receipts which have entered in the books of a Department are correctly calculated and are, in fact, credited to the Government account in time.

(Para 2.3.7 of C&AG’s MSO Audit) 1.3 To ensure that adequate regulation exist

Audit is also to ensure that the requisite regulations and procedures have been framed by the revenue collecting department to secure an effective check on assessment, collection and to satisfy that such regulations and procedures are actually being carried out.


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1.4 Audit not to substitute revenue authorities

The Audit Department should not in any way substitute itself for the revenue authorities in the performance of the statutory duties. But audit should satisfy itself that legality and regularity are observed in individual assessment and in general that the departmental machinery is sufficiently safeguarded against error and fraud and that so far as can be judged, the procedure is calculated to give effect to the requirements of law.

(Para 2.3.3 of C&AG’s M.S.O. Audit)

1.5 Audit not to review judicial decisions It is not the duty of audit to review a judicial decision nor does audit

normally review the judgment exercised by officers in individual cases in arrears purely falling within their discretion. But it must be recognized that an examination of such cases is an important factor in judging the effectiveness of assessment, recovery procedures, etc., where the information available on an individual case is insufficient, to enable audit to ascertain how the requirements of the law have been complied with. Audit may consider its duty to ask for any further information to enable it to examine the effectiveness of the system.

(Para 2.3.4 of C&AG’s M.S.O. Audit) 1.6 To sum up, the most important functions of Audit in relation to assessment and refunds is to satisfy itself, by such test checks as it may consider necessary, that the internal procedure adequately provides for and actually ensures:

(i) the collection and utilisation of data necessary for the computation of the demand or refund under law,

(ii) the prompt raising of demands on taxpayers in the manner required by law,

(iii) the regular accounting of demands, collections and refunds,

(iv) the correct accounting and allocation of collections and their credit to the Consolidated Fund,

(v) that proper safeguards exist to ensure that there is no omission or negligence of levy or collect taxes or to issue refunds,

(vi) that claims of tax payers are pursued with due diligence and not abandoned or reduced except with adequate justification and proper authority, and

(vii) that double refunds, fraudulent or forged refund orders or other losses of revenue through fraud, default or mistake are promptly brought to light and investigated.

(Para 2.3.13 of C&AG’s M.S.O. Audit) 1.7 The audit of value added tax is done with reference to:

(i) Assam Value Added Tax Act, 2003 (Assam Act No. VIII of 2005) as amended.


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(ii) Assam Value Added Tax Rules, 2005 (iii) Central Sales Tax Act, 1956

(iv) Central Sales Tax (Registration & Turnover) Rules, 1957 (v) Central Sales Tax (Assam) Rules, 1957

(vi) Assam Industries (Tax Remission) Scheme, 2005

(vii) Assam Industries (Tax exemption) orders, 2005

AUDITING STANDARDS

1.8 Introductory Auditing Standards prescribe the norms of principles and practices,

which the auditors are expected to follow in the conduct of audit. They provide minimum guidance to the auditor that helps to determine the extent of auditing steps and procedures that should be applied in the audit and constitute the criteria or yardstick against which the quality of audit results are evaluated.

1.9 The auditing standards of C&AG of India The C&AG’s Auditing standards are broadly grouped under four

categories: (i) The Basic postulates (ii) The General standards (iii) The Field standards (iv) The Reporting standards

1.10 Basic Postulates

The Basic Postulates for auditing standards are basic assumptions, consistent premises, logical principles and requirements which help in developing auditing standards and serve the auditors in forming their opinions and reports, particularly in cases where no specific standards apply.

1.11 General standards The general auditing standards describe the qualifications of the

auditor and the audit institution so that they may carry out the tasks related to field and reporting standards in a competent and effective manner.

The general auditing standards include standards, which apply both to the auditors and to the audit institutions, and standards, which apply only to audit institutions. The standards common to auditors and audit institutions are that:

(a) the auditor and the audit institutions must be independent, (b) the auditor and the audit institutions must possess the required

competence; and (c) the auditor and the audit institutions must exercise due care and

concern in complying with these auditing standards. This embraces due care in planning, specifying, gathering and evaluating evidence, and in reporting findings, conclusions and recommendations.


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The general auditing standards for the audit institutions are that they should adopt policies and procedures to:

(a) recruit personnel with suitable qualifications, (b) develop and train employees to enable them to perform their tasks

effectively and to define the basis for the advancement of auditors and other staff,

(c) prepare manuals and other written guidance notes and instructions concerning the conduct of audits,

(d) support the skills and experience available within the audit institutions; identify the skills which are absent; provide a good distribution of skills to auditing tank and assign a sufficient number of persons for the audit; and have proper planning and supervision to achieve its goals at the required level of due care and concern,

(e) review the efficiency and effectiveness of internal standards and procedures.

1.12 Field standards

The purpose of filed standards is to establish the criteria or overall framework for the purposeful, systematic and balanced steps or actions that the auditor has to follow. These steps and actions represent the rules of investigation that the auditor, as a seeker of audit evidence, implements to achieve a specific result.

The field standards establish the framework for conducting and managing audit work. They are related to the general auditing standards, which set out the basic requirements for undertaking the tasks covered by the field standards. They are also related to the reporting standards, which cover the communication aspect of auditing, as the results from carrying out the field standards constitute the main source for the contents of the opinion or report.

The field standards applicable to all types of audit are:

(a) the auditor should plan the audit in a manner, which ensure that an audit of high quality is carried out in an economic, efficient and effective way in a timely manner,

(b) the work of the audit staff at each level and audit phase should be properly supervised during the audit, and a senior member of the audit staff should review documented work,

(c) the auditor, in determining the extent and scope of the audit, should study and evaluate the reliability of internal control,

(d) in conducting regularity (financial) audits, a test check should be made of compliance with applicable laws and regulations,

(e) competent, relevant and reasonable evidence should be obtained to support the auditors judgment and conclusions regarding the organisation, program, activity or function under audit,

(f) in regularity (financial) audit and in other types of audit when applicable, auditors should analyse the financial statements to establish whether acceptable accounting standards for financial


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reporting and disclosure are complied with. Analysis of financial statements should be performed to such a degree that a rational basis is obtained to express an opinion on financial statements.

1.13 The reporting standards The reporting standards set down the framework for reporting the

results of audit concisely, with accuracy, objectivity and clarity and in a constructive manner and for appropriate, conclusive and preventive follow up action.

On the completion of each audit assignment, the auditor should prepare a written report setting out his observations and conclusions in an appropriate form, its content should be easy to understand, fully supported by sufficient, competent and relevant audit evidence and be independent, objective, fair, constructive and concise.

With regard to fraudulent practice or serious financial irregularities detected during audit, a written report should be prepared. This report should indicate the scope of audit, main findings, total modus operandi of the fraud or the irregularity, accountability for the same and recommendations from internal control system, fraud prevention and detection measures to safeguard against recurrence of financial irregularity.

With regard to performance or value for money audits, the report should include a description of the scope and coverage of audit, objective of audit, area of audit, main findings in respect of the efficiency, economical (including impact) aspects of the area (subject matter) which was audited and recommendations suggesting improvements that are needed.

With regard to regularity audits, the auditor should prepare a written report which may either report on the financial statements or the value for money audit or a separate report on the tests of applicable laws and regulations. The report should contain a statement on the results of the tests to assurance i.e., positive or negative obtained from the tests.

Reporting standards constitute the framework for the audit organisation and the Auditor to report the results of audit regularity or performance audit or expressing his opinion on a set of financial statements. These standards are to assist and not to supercede the prudent judgment of the Auditor in observations, conclusions and report.


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CHAPTER – II

ORGANISATIONAL STRUCTURE 2. Knowledge of the administration set up of the department is as much essential for the purpose of revenue audit as knowledge of the Act and Rules. The effectiveness of internal checks at various levels and functions of different branches may help audit to determine the extent and scope of scrutiny it should exercise. The following paragraphs detail the set up of the Finance (Taxation) Department: 2.1 The Commissioner of Taxes is an administrative head of the Department and most of the powers have been vested in him as per Assam Value Added Tax Act, 2003. He has jurisdiction over whole of the Assam and he has officers of various designations to assist and discharge office functions. The Commissioner is responsible for enforcement of the Assam Value Added Tax Act, 2003 and he is responsible for work distribution among the officers and taking any action against them in case any of them fail to discharge the work assigned. 2.2 The Commissioner of Taxes is assisted by Additional Commissioners of Taxes, Joint Commissioner of Taxes at headquarters (apex office). The State is divided into 10 taxation zones and each zone is headed by a Deputy Commissioner of Taxes (DCT). There are five Deputy Commissioner of Taxes (appeals) in charge of the appellate offices located in Guwahati, Jorhat, Tinsukia, Nagaon and Silchar. 2.3 There are 36 unit offices (including two check posts) and 16 recovery offices in the State. The Assistant Commissioner of Taxes (ACTs)/Senior Superintendent of Taxes (SSTs)/Superintendent of Taxes (STs) are responsible for registration, assessment and realisation of taxes and other dues under the Assam Value Added Tax Act, 2003. The Inspectors of Taxes are responsible for conducting survey and are also required to assist the Assistant Commissioners/Senior Superintendents/Superintendents of Taxes in matters relating to registration and assessment of dealers. 2.4 Assam has been divided into 36 unit offices including two check posts which are headed by ACTs/SSTs/STs (Value Added Tax Officers) who are given responsibility to supervise the work.

The Department is responsible for: (i) Proper enforcement of the Assam Value Added Tax Act, 2003 in

Assam. (ii) Collection of VAT from persons/dealers.

(iii) Check on the tax evasion and action against the persons/dealers involved in violation of the provisions of the Act.

(iv) Smooth operation of trade by way of granting registration, issue of statutory forms and various certificates to dealers.


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CHAPTER – III

BASIC FEATURE OF AVAT ACT 3.1 Value Added Tax is one of the biggest reforms in the history of tax structure in India. It has been implemented by a majority of the States with effect from 1.4.2005. Value Added Tax (VAT) is a tax on value addition. It is a multi-point tax, which is levied at every stage of sale. It is collected at the stage of manufacture/resale and contemplates rebating of tax paid on inputs and purchases. Despite its name, VAT is intended as tax on consumption, and is a destination based tax. In VAT every transaction on sale of goods in the course of business is taxed, thus providing revenue to the Government on value addition at every stage. On account of set off being provided on preceding purchase, cascading effect on the cost of goods is avoided; it is a self policing system reducing the scope of tax evasion.

3.2 The present Assam Value Added Tax Act, 2003 (Assam Act No. VIII of 2005) received the assent of the President of India on 25.2.2005. The Act has come into force with effect from 1.5.2005 vide notification No. FTX-55/2005/2 dated 28 April 2005 The AVAT Rules are made on 26.4.2005 w.e.f the same date. Significant changes were made in the rates of tax by amending various schedules to the AVAT Act.

3.3 A major overhauling in the AVAT Act, 2003 has been done, mainly to remove anomalies and strengthen the Government while initiating recovery proceeding by the AVAT (Second Amendment) Act, 2005 and the AVAT Amendment Rules, 2005.

The main features of AVAT Act are as under: 1. AVAT is a multi point sales tax with set off of tax paid on purchases

and collected in instalments at each transaction. It does not have cascading effect due to the system of deduction or credit mechanism.

2. Every dealer liable to pay tax requires registration. 3. Local statutory forms have been scrapped under AVAT Act.

4. Credit is allowed to the purchase on the basis of Tax Invoice. 5. Removes the cascading of taxes due to its inherent features of offering

set off of tax paid already.

6. Encourages buyer to demand tax invoices from suppliers (to claim input credit when sold), thereby widening the tax base.

7. Encourage better compliance due to the availability of set off of taxes paid and thereby less evasion.

8. Contains lesser number of tax rates which makes administration much easier.

9. Ensures transparency because the purchaser knows exactly how much of taxes included in the purchase value.

10. It makes branch transfer easier. Under the AVAT, the State will retain 4 per cent of tax (except in case of gold, silver and jewelers where the


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State will retain the entire tax credit) and the rest will be available for set off.

11. Improves export competition of local industry due to zero rating tax of export.

12. Apart from other adjustments in the turnover and the output tax, it allows adjustment of tax for the amount written off as bad debts.

13. Provisions for self assessment by the dealer have been made under the AVAT Act.

14. Strict penal provisions have been incorporated. It will provide a satisfaction to honest tax payer and discouragement for tax evasion.

15. It creates an audit trail due to its inherent nature where the purchase invoices form the basis for obtaining the credit of tax. It also has a “self policing effect” since it requires proper maintenance of purchase and sale documents to avail the credits.


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CHAPTER – IV

DEFINITIONS The definitions of some of the words and terms relevant to the subject as given in various acts and rules are reproduced below:

4.1 Business Business includes: (a) any trade, commerce or manufacture;

(b) any adventure or concern in the nature of trade, commerce or manufacture;

(c) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern; and

(d) any transfer of property in goods involved in execution of a works contract.

(e) any occasional transaction in the nature of such trade, commerce, manufacture, adventure or concern whether or not there is volume, frequency, continuity or regularity of such transaction;

Whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern; Explanation: For the purpose of this clause:

(i) any transaction of sale or purchase of capital assets pertaining to such service, trade, commerce, manufacture, adventure or concern shall be deemed to be business;

(ii) purchase of any goods, the price of which is debited to the business and sale of any goods, the proceeds of which are credited to the business shall be deemed to be business;

(Section 2 (7) of the AVAT Act) 4.2 Capital goods Capital goods means plant, machinery and equipment moulds and dies purchased for the purpose of manufacturing or processing of goods in Assam.

(Section 2 (8) of the AVAT Act) 4.2 Casual dealer Casual dealer means a person who, whether as principal, agent or in any other capacity undertakes occasional transactions in the nature of business involving buying, selling, supply or distribution of goods or conducting any exhibition-cum-sale in the State whether for cash, deferred payment or for commission, remuneration or other valuable considerations.

[Section 2 (9) of the AVAT Act]


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4.4 Dealer Dealer means any person who, carries on (whether regularly or

otherwise) the business of buys or sells goods whether for cash or for deferred payment or for commission, remuneration or other valuable consideration and includes: (i) a local authority, body, company or other society which carries on such

business; (ii) a factor, commission agent, broker, declared agent or any mercantile

agent by whatever name called, who for the purposes of or consequential to his engagement in or in connection with or incidental to or in the course of the business, buys or sells or suppliers or distributes any goods on behalf of any principal or principals whether disclosed or not;

(iii) an auctioneer, who sells or auctions goods belonging to any principal belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;

(iv) a casual trader;

(v) any person who, for the purposes of or consequential to his engagement in or in connection with or incidental to or in the course of his business disposes of any goods as unclaimed or confiscated, or as unserviceable or scrap, surplus, old, obsolete or as discarded material or waste products by way of sale.


4.5 Declared goods Declared goods means goods declared from time to time under section

14 of the Central Sales Tax Act, 1956 to be of special importance in course of interstate trade or commerce.

[Section 2 (16) of the AVAT Act] 4.6 Goods

Goods means all materials, commodities and articles and all other kinds of movable property whether tangible or intangible and includes:

(i) livestock; (ii) computer software, subscriber identification module (SIM) cards

and the like; (iii) property in goods (whether as goods or in some form) involved in

the execution of a works contract, lease or hire-purchase or those to be used in the fitting out, improvement or repair of movable property.


4.7 Input tax Input tax in relation to the purchase of goods, means the proportion of

the price paid by the buyer for the goods which represents tax for which the selling dealer is liable under this Act.



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4.8 Manufacture Manufacture with its grammatical variations and cognate expressions,

means producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating or adopting any goods.

[Section 2 (30) of the AVAT Act] 4.9 Output tax

Output tax in relation to registered dealer means the tax charged in respect of goods sold by that dealer.

[Section 2 (33) of the AVAT Act] 4.10 Prescribed

Prescribed means prescribed by the rules made under AVAT Act. [Section 2 (36) of the AVAT Act]

4.11 Registered dealer Registered dealer means a dealer registered under this Act;

[Section 2 (39) of the AVAT Act] 4.12 Sale

Sale with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for other valuable consideration (not including a grant or subvention payment made by one government agency or department, whether of the Central Government or of any State Government, to another) and includes:

(i) transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;

(ii) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(iii) a delivery of goods on hire purchase or any system of payments;

(iv) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

(v) a supply of goods; and

(vi) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration; [Section 2 (43) of the AVAT Act]

4.13 Sale price Sale price means the amount paid or payable as valuable consideration for any sale, including:

(i) the amount of duties or fees levied or leviable on the goods under Central Excise Act, Customs Act or Assam Excise Act;


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(ii) in relation to the delivery of goods on hire purchase or any system of payment by instalments, the amount of valuable consideration payable to a person for such delivery including hire charges, interest and other charges incidental to such transaction; and

(iii) in relation to transfer of the right to use any goods for any purpose (whether or not for a specified period) the valuable consideration or hiring charges received or receivable for such transfer.


4.14 Tax invoice Tax invoice means the document listing goods sold with price, quantity, tax involved and other details as may be specified.

[Section 2 (51) of AVAT Act]

4.15 Tax Period Tax period means a calendar month, a quarter or a year as the case may be as may be prescribed.


4.16 Taxable turnover Taxable turnover means the turnover on which a dealer is liable to pay tax.

[Section 2 (54) of the AVAT Act] 4.17 Taxable goods Taxable goods mean goods other than tax free goods.


4.18 Value Added Tax Value Added Tax is a tax on sale of goods at every point made by the registered dealer with the provisions credit of input tax paid at the points of previous purchases.

[Section 2 (56) of the AVAT Act] 4.19 Works contract Works contract includes any agreement for carrying out for cash or for deferred payment or for valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, repair or commissioning of any movable or immovable property.

{Section 2 (57) of the AVAT Act]

4.20 Year Year means the financial year beginning from the first day of April to the last day of March.


4.21 TIN TIN means tax payers identification number which is recorded in the certificate of registration.

[Rule 13(9) of AVAT Rules]


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CHAPTER – V

REGISTRATION, TAX LIABILITY AND COMPUTATION OF TAX

5.1 The registration of dealers is the first stage in the scheme of levy of AVAT. Its object is to keep a complete record of the business activities of all dealers who are assessed to tax and to ensure that all dealers who are liable to assessment under the AVAT Act are so assessed. 5.2 Compulsory registration (1) Under Section 21 of the AVAT Act, no dealer shall carry on business as a dealer unless he is registered and possesses a certificate of registration: i) Provided that a dealer liable to pay tax shall apply for registration

within 30 days from the date on which he is first liable to pay such tax,

ii) dealing exclusively in tax free goods shall not be liable for registration, iii) liable to pay tax or registered or required to be registered under CST

Act, 1956. (2) Every dealer required to be registered shall apply for registration in

Form 2 to the Prescribed Authority; and (3) The Prescribed Authority may conduct such inquiry as he deems fit

and call for such evidence and information as he may deem necessary. After considering the evidence, if he is satisfied that the application for registration is in order, he shall register the applicant and issue a certificate of registration in Form 3 after specifying the class of goods dealt in or manufactured by him. The certificate of registration so granted shall not be transferable. If the Prescribed Authority is satisfied that the particulars contained in

the application form are not correct, he may reject the application after giving the applicant a reasonable opportunity of being heard.

For the purpose of identification of a registered dealer, the Prescribed

Authority shall issue a registration number known as Tax Payers Identification Number (TIN).

The registration shall take effect from the date of liability where the

application for registration is made within the prescribed period of 30 days. Where the application for registration is not made within prescribed time, the certificate of registration is from the date of filing the application but the dealer shall remain liable to pay tax as an unregistered dealer from the date of liability to the date of effect of registration.


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5.3 Registration by Prescribed Authority In accordance with Section 22 of AVAT Act, the Prescribed Authority

after allowing a reasonable opportunity of being heard, shall register a dealer who has failed to get himself registered. The registration shall take effect from the date of issue of the certificate of registration but the dealer shall remain liable to pay tax as unregistered dealer for the period from the date of liability to the date preceding the date of issue of certificate of registration. 5.4 Voluntary Registration

As per Section 23 of AVAT Act, any dealer who desires to get himself

registered voluntarily may apply for registration. The registration shall take effect from the date of receipt of the application for registration. 5.5 Provisional Registration

As per Section 24, any person who is not liable for registration under

Section 21 or otherwise may make an application in the prescribed manner to the prescribed authority for provisional registration. The registration made under this Section shall be in force for a period not more than three complete years and shall be deemed to have been cancelled on the expiry of the said three years. 5.6 Amendment, suspension and cancellation of certificate of registration (1) A registered dealer shall submit application for amendment of registration certificate (RC) in the following cases:

(a) if a dealer sells or otherwise disposes his business or any part of his business or effects any change in the ownership of his business or comes to know of any such change.

(b) if a dealer discontinues or changes his warehouse or changes the name or nature of his business.

(c) if a dealer being a company, effects any change in the constitution of its board of directors.

(d) if a dealer change any particulars furnished in the application for registration.

(e) if a dealer applies for or has an application made against him for insolvency or liquidation.

(2) The Prescribed Authority may amend the RC after due notice to the dealer where no application has been made provided the Authority is satisfied after enquiry that amendment is required.


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5.7 Cancellation of registration certificate The Prescribed Authority may at any time for reasons to be recorded in

writing and after giving the dealer a reasonable opportunity of being heard, cancel the RC in the following cases:

(a) if a dealer failed to file three consecutive returns within the time prescribed;

(b) knowingly furnishes incomplete or incorrect particulars in his returns;

(c) has failed to pay any tax due from him;

(d) having issued tax invoices or retail invoices and has failed to account for the said invoices in his books of account;

(e) holds or accepts or furnishes a declaration which he has reason to believe to be false;

(f) has been convicted of an offence under this Act; and (g) discontinues his business and has failed to furnish information of

such discontinuation.

5.8 Cancellation of registration certificate in case of loss, destruction etc Every dealer who applies for cancellation of his registration shall

surrender with his application the certificate of registration granted to him and every dealer whose registration is cancelled otherwise than on the basis of his application shall surrender the certificate of registration within 14 days of the date of communication of the order of cancellation. If a dealer is unable to surrender the certificate of registration on account of loss, destruction or defacement of such certificate, such dealer shall intimate the Prescribed Authority within seven days from the date of communication of order of cancellation of registration. 5.9 Restoration of registration

As per Section 27 (14) of the AVAT Act, suspension of certificate of

registration shall be withdrawn and the same shall be restored on an application made by the dealer on furnishing evidence of payment of all taxes and on furnishing overdue rerun/returns within 45 days from the date of suspension. 5.10 Liability to pay tax in case of cancellation of registration certificate

The cancellation of a certificate of registration shall not affect the

liability of any dealer to pay tax due for any period till the date of such cancellation that remained unpaid or is assessed after the date of cancellation.


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5.11 Registration of transporter Every transporter shall:

(a) get itself/himself registered within such time and in such manner as may be prescribed and;

(b) submit to the Prescribed Authority, such statements or returns as may be prescribed of all taxable goods cleared, forwarded, transported or shipped by him.

5.12 Maintenance of records by transporter

Under Section 28 (3) of AVAT Act, every transporter shall, in respect of goods taxable under this Act, maintain the record of such goods transported, delivered or received for transport in such forms as may be prescribed.

5.13 Examination of accounts of transporter

As per Section 28 (2) of the AVAT Act, the Prescribed Authority, shall

have the power to call for the books of accounts or other documents in the possession of such transporter or his agent with a view to verify the correctness of the statements or returns submitted.

5.14 Registration under composition scheme

Under Section 20 of AVAT Act and orders thereunder the Government

may permit any retail dealer, whose gross turnover in the commencement of any year first exceeds the taxable quantum but does not exceed such amount (taxable quantum) within such year pay at his option, in lieu of the amount of tax payable by way of composition calculated at the rate prescribed but not exceeding five per cent of such gross turnover.

A dealer in whose case composition is in force, shall not:

(i) be entitled to any claim of input tax credit in respect of purchase of any goods by him in the State;

(ii) charge any tax in the invoices in respect of sales of goods made by him; and

(iii) issue tax invoice to any dealer who has purchased the goods from him.

A dealer who desires to opt for the composition amount under this scheme shall make an application to the Prescribed Authority within 30 days from the first day of the beginning of the following year. On being satisfied, the Prescribed Authority shall grant a Certificate of Registration.

5.15 Composition Scheme for specified dealers

In accordance with sub-section (2) of section 20 the Government

notified the composition scheme for specified dealer as detailed below:


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(A) Composition Scheme for works contractor The Government vide Notification No. FTX. 55/05/Pt/14 dated

29.4.2005 permits a registered dealer who executes works contract, to pay at his option, in lieu of the amount of tax payable, by way of composition, at the rate of four per cent of the aggregate value of works contract received subject to the following conditions: (1) The dealer shall submit an application within 30 days from the date of

commencement of the scheme or business. If the business commences after the commencement of the scheme;

(2) the application shall be signed by a person competent to sign application for registration;

(3) the Prescribed Authority may cancel such permission if the dealer fails to pay tax or file the tax return, within the prescribed period; and

(4) every dealer opting to pay tax by way of composition under this scheme shall:

(a) display the certificate at a prominent location in his main place of business;

(b) pay tax, by way of composition, at the rate as notified by this scheme;

(c) not issue any tax invoice; (d) not receive any tax invoice; and

(e) not claim any input tax credit on his purchase. (5) Any tax already paid or deducted at source shall be adjusted against the

composition amount payable. (B) Composition Scheme for Brick Kiln Owners

The Government under notification no. FTX. 55/05/Pt/24 dated 29

April 2005 permits the brick kiln owner of the State to pay at his option lump-sum amount in lieu of the amount of tax payable by way of composition as detailed below:

Sl. no.

Capacity of kiln Category Annual rate of lump-sum tax payable on sales

1. Above 11 lakh (bricks) per round

A Rs. 1.20 lakh

2. 8 lakh to 11 lakh per round B Rs. 1.00 lakh 3. Upto 8 lakh bricks per round C Rs. 80,000

The above rates of lump-sum tax shall be applicable for each kiln and a

brick kiln owner having more than one kiln even at the same site shall be liable to pay the lump-sum tax for each kiln.


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A brick kiln owner liable to pay lump-sum tax, shall within 20 days of the commencement of the financial year or the date of his liability whichever is later shall inform the appropriate authority about the capacity of the kiln.

A brick kiln owner shall be liable to pay tax for the whole year even if

the kiln is in operation for a part of the year. (C) Composition Scheme for Retail Dealers The Government under notification no. FTX. 55/05/Pt/27 dated 29 April 2005 permits a registered retail dealer whose turnover exceeds taxable quantum (Rs. 1 lakh) but does not exceed Rs. 10 lakh per year to pay at his option, in lieu of the amount of tax payable by him, by way of composition, an amount calculated at the rate of one per cent of the gross turnover subject to the following condition: (1) Every dealer who has been permitted to pay tax under composition

scheme shall furnish a tax return for each quarter within 21 days of the succeeding month from the date of expiry of each quarter;

(2) The dealer opting for the scheme shall not be eligible to purchase or sale goods in course of inter state trade or commerce;

(3) The dealer shall not be entitled to use the statutory forms like ‘Delivery Note; and

(4) The scheme shall not be available to importers, a manufactures and contractors.

(5) The dealer shall not have any goods in stock which were purchased without payment of tax;

(6) The dealer must not have claimed tax rebate on stock in hand;

(7) The dealer whose gross turnover in a year exceeds Rs. 10 lakh shall continue to pay tax by way of composition during that year. The scheme shall cease to have effect only from 1st April next; and

(8) The dealer opting for composition scheme shall be subject to all other provision of the Act and rules made thereunder;

5.16 Liability to tax for intrastate sales

Under Section 10 of the AVAT Act, every dealer, who is liable to pay

tax for any year under Section 7, shall pay output tax on his taxable turnover for each year:

(a) Goods specified in First Schedule are exempted from tax under Section

9 of the Act. Altogether 52 categories of goods have been incorporated in the First Schedule.

(b) List of goods taxable at 4 percent are specified in Second Schedule under Section 10 (1) (a) of the Act. (Amended to 5%, vide Govt. notification No. FTX 55/2005/pt III/118, dt. Oct. 2009 (Sl. No. 01)


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(c) Goods specified in Third Schedule varies between 1 and 2 per cent. Third Schedule includes bullions, gold ornaments, silver items, precious stone etc.

(d) Rates of tax of goods specified in Forth Schedule varies between 1 and 27.5. Goods incorporated in Fourth Schedule are taxable at the point of first sale in the State.

(e) Goods specified in Fifth Schedule are works contract, lease and items not covered by 1st, 2nd, 3rd and 4th Schedule and taxable at the rate of 12.5 per cent. (Amended to 13.5%, vide Govt. notification No. FTX. 55/2005/Pt. III/118, dt. Oct. 2009 (Sl. No. 04)

(f) Percentage of deduction allowable for works contract specified in Sixth Schedule varies between 10 and 30 per cent. These deductions are admissible in absence of books of accounts as per provisions of section 11 (c) of AVAT Act.

(g) The Seventh Schedule incorporates negative list of capital goods on which input tax credit can not be claimed.

(h) The Eighth Schedule incorporates list of organisations and no tax under AVAT shall be collected from a dealer on his sales made to such organisations.

(i) Besides the above schedules there is a provision of Zero rated sales which means, the sales although subject to tax but no tax is payable and credit of input tax is allowable on fulfilling conditions specified under Section 9 of AVAT Act.

5.17 Liability to tax for interstate sales

Sales in course of interstate trade and commerce shall continue to be

leviable to tax under the Central Sales Tax Act as at present and all the forms such as C, D, E, F and H shall continue to be applicable because CST Act is not yet phased out. 5.18 Computation of tax a) Under the VAT, tax is payable at multipoint on sales by every successive dealer on the value addition tax, i.e., ‘output tax’ is computed on every taxable sale at the prescribed rate. Set off is allowed of the tax paid on creditable purchases made by a dealer and the difference between the two is ‘net tax’ payable by a dealer. Therefore, ‘net tax payable’ is output tax minus input tax. If the balance is a negative balance, it is adjustable towards C.S.T. payable & if there is still a negative balance, it is carried forward to next tax period. ‘Output tax’ is payable on the ‘taxable turnover’ of a dealer at the prescribed rates. ‘Input tax’ is paid by him on creditable purchases. Net tax payable is therefore output tax minus input tax. b) It may be noted that ‘input tax credit’ is available for purchases made for effecting taxable sales in Assam. Input tax credit is not available on


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purchases from a unregistered dealer and from a dealer who has opted for composition scheme. It is also not available for non creditable goods of Schedule Seven and on purchases from casual dealer. c) The dealer is entitled to adjustment in the output tax on account of adjustment on account of return of goods, variation/alteration in the sale price by agreement, discount and bad debt etc. 5.19 Audit Checks 1. Audit has to see whether the dealer has provided correct, complete and

required details in the registration application Form 2.

2. Whether prescribed security as per rules have been furnished or not. 3. Whether proof of identity has been furnished.

4. Whether the goods dealt in are recorded in the RC properly.

5. Whether taxes have been paid by the dealer at the rates prescribed in the schedules attached to AVAT Act.

6. Whether payment of tax under composition scheme has been made in advance or not.

7. Whether returns have been filed on due dates. If not whether interest and penalty have been levied at the prescribed rates.


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CHAPTER – VI AVAT RETURNS

6.1 Periodical returns and payment of tax

Under Section 29 of the AVAT Act and rules thereunder every

registered dealer whose taxable turnover exceeds Rs. 3 lakh and liable to pay tax shall furnish a correct and complete tax return in Form 13 and 14 by prescribed dates to the Prescribed Authority. By non-filing of returns within the given time the dealer is not only deprived of the benefit of self assessment but also liable for penal consequences. Submission of prescribed returns and due dates of submission are given below:

Sl. no. Periodical returns Due date of submission

1. Monthly tax return for each month in Form 13

Within next 21 days of the succeeding month.

2. Quarterly tax return for each quarter in Form 13

Within 21 days of the succeeding month from the date of expiry of each quarter.

3. Annual return of turnover in Form - 14

Within two months after the close of the year to which the return relates.

6.2 Non-furnishing of return in prescribed form/returns defaults (1) Under Section 30 of AVAT Act, if any dealer fails to pay the amount of tax due within the time prescribed he is liable to pay simple interest at the rate of one and half per cent, per month on the amount of tax not paid or on any amount remaining unpaid during such period. Interest shall be calculated for the period commencing from expiry of due date of the date of payment or the date of assessment whichever is earlier. If any dealer fails to pay interest along with return or revised return in accordance with the provisions of AVAT Act, such interest shall be levied by the Prescribed Authority. For the purpose of calculating interest:

(a) month shall mean 30 days,

(b) where the period of default is in respect of a period is less than one month, the interest shall be calculated proportionately.

(2) If any dealer, without sufficient cause, fails to pay the amount of tax due and interest along with return or revised return, the Prescribed Authority may after giving the dealer a reasonable opportunity of being heard, direct him to pay, in addition to tax and interest, a sum not exceeding two per cent per month of tax so payable, by way of penalty. Penalty is leviable from the first day of the month following the month in which it had become due to the date of its payment or to date of order of assessment, whichever is earlier. (3) If any dealer, without any sufficient cause fails:

(a) to furnish a tax return by the prescribed date; or

(b) to comply with the requirements of the notice issued; or


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(c) to furnish the revised return by the prescribed date; or (d) to furnish the proof of payment along with the return;

the Prescribed Authority may, after giving the dealer a reasonable opportunity of being heard, direct him to pay in addition to tax, interest and penalty under sub-section (3) of Section 30 a penalty of a sum of rupees one hundred per day of default subject to maximum of Rs. 10 thousand. 6.3 Rounding off of the amount of tax, interest or penalty (i) For the purpose of calculation of tax, taxable turnover shall be rounded off to the nearest multiple of ten rupees. If such amount is five rupees or more it shall be increased to ten rupees and if such part is less than five rupees it shall be ignored.

(ii) The amount of tax, penalty or any other sum payable by a dealer under the provisions of this Act or any sum refundable to a dealer shall be rounded off to the nearest rupee.

[Section 32 of AVAT Act] 6.4 Scrutiny of returns

Every return in relation to any period furnished by a dealer shall be

subject to scrutiny by the Prescribed Authority to verify; (i) the correctness of calculation,

(ii) application of correct rate of tax, interest, input tax credit claimed therein and;

(iii) full payment of tax and interest payable by the dealer during such period.

[Section 33 (1) of AVAT Act] 6.5 Submission of correct return

If any mistake is detected by the Prescribed Authority in course of scrutiny of returns a notice is served on the dealer to cure the defects and to make payment of extra amount of tax along with interest by a date specified in the said notice. The dealer shall correct the defects and submit a new correct and complete return within the period specified in the notice with evidence of payment of extra amount of tax and interest. 6.6 Auditable documents

The following checks are to be exercised for audit of AVAT returns: (i) whether Forms 13 and 14 have been duly filled in; (ii) whether purchases for the month and input tax credit have been shown; (iii) whether sales for the month, tax payable with reference to rate of tax

have been shown correctly; (iv) whether net tax payable has been worked out correctly; (v) whether tax has been paid within due date;


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(vi) whether there was undue delay in deposit of tax to Bank (in case of deposit of tax by cheque/bank draft to the Prescribed Authority);

(vi) whether adjustment of excess payment of tax with reference to last returns has been made correctly;

(vii) whether tax paid by the dealer has been noted in the daily collection register with reference to treasury challan number and date;

(viii) whether tax/interest noted in the daily collection register tallies with the amount recorded in the receipt schedules under the head of account “0040 – taxes on sales, trade etc.”;

(ix) whether scrutiny of return has been made by the Prescribed Authority;

(x) whether the goods dealt in have been covered by registration certificate.


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CHAPTER – VII ASSESSMENT UNDER AVAT

7. Assessment means determination of turnover of a dealer to ascertain his tax liability under AVAT Act and includes provisional assessment, self assessment, audit assessment and reassessment made under the Act. 7.1 Self assessment

Under the AVAT Act, assessment is related to a tax period and a dealer has been given an opportunity to compute his turnover and determine has tax liability in a self assessment manner.

In accordance with Section 35, a dealer liable to pay tax may be assessed separately for each year during which he is liable to pay tax. If a dealer has filed all the tax returns and the annual return or revised return within the prescribed date and has paid the tax payable according to such returns, the return so field shall be accepted and his assessment shall be deemed to have been made. 7.2 Condition for self assessment Subject to adjustment of arithmetical error apparent on the face of the said return. 7.3 Audit assessment

Correctness of self assessment will be checked through a system of

Departmental audit. A certain percentage of the dealers will be taken up for audit every year on a scientific basis. If, evasion is detected on audit, the concerned dealer may be taken up for audit for previous periods. The audit team will conduct its work in a time bound manner and audit will be completed within six months. The audit report will be transparently sent to the dealer also.

A registered dealer is selected for audit assessment:

(i) on the basis of any criteria or on random basis; or (ii) the Prescribed Authority is not satisfied with the correctness of the

return, claim of exemption, deduction, concession, input tax credit or genuineness of any declaration, evidence furnished by the dealer or

(iii) the Prescribed Authority has reason to believe that detailed scrutiny of the case is necessary or

(iv) a provisional assessment has been made. The prescribed authority may serve a notice on dealer requiring him to appear on a date and place specified therein, which may be in the business premises.


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7.4 Best judgment assessment Besides self assessment and audit assessment where a dealer fails to

furnish a tax return or has knowingly furnished incomplete return or statement for any period may be assessed by the Prescribed Authority to the best of his judgment basis. As per Section 37 of AVAT Act, the Prescribed Authority may assess or reassess to the best of his judgment after giving the dealer a reasonable opportunity of being heard. Best judgment assessment may be done in any of the following circumstances: (a) has not furnished annual return in respect of any period by the

prescribed date; (b) has knowingly furnished incomplete or incorrect return for any period;

(c) has failed to comply with the terms of any notice under sub-section(1) or (3) of Section 36; and

(d) has not maintained any accounts or has failed to maintain accounts in accordance with the provisions of the Act.

7.5 Limitation on assessment and reassessment

No assessment under Section 34 to 37 of AVAT Act, shall be made

after the expiry of five years from the end of the year to which the assessment relates. However, the above limitation shall not apply in offence cases where proceedings for prosecution have been initiated. 7.6 Limitation on assessment and reassessment in case of turnover

escaping assessment Where after assessment under Section 34 to 37 of the AVAT Act, the

prescribed authority has reason to believe that the whole or any part of the turnover of the dealer has:

(a) escaped assessment; or (b) been under assessed; or

(c) been assessed at a rate lower than the rate at which it is assessable; or

(d) been wrongly allowed any deduction, or (e) been wrongly allowed any credit therein.

The Prescribed Authority may, after giving the dealer a reasonable

opportunity of being heard and after making such enquiries, proceed to assess to the best of his judgment. No order of assessment and reassessment shall be made after expiry of eight years from the end of the year in respect of which the tax is assessable. 7.7 Audit checks to be exercised during audit of assessment It is to be checked in audit to ascertain whether:


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(1) the dealer has valid registration certificate in respect of AVAT/CST Act;

(2) the return has been filed on due date and the amount of tax paid is correct;

(3) the return is signed and verified in the prescribed manner; (4) the return contains the prescribed information and is accompanied by

challan for payment of tax and other documents and particulars; (5) the total turnover was correctly arrived at;

(6) the exemption claimed/allowed are correct with respect to the rules and provisions prescribed in the Act to ensure that the condition prescribed for the grant of concession/exemption have also been duly fulfilled;

(7) the taxable turnover is taxed as per prescribed rates as mentioned in various schedules of the Act;

(8) the amount of tax worked out correctly to ensure that no arithmetical computation error in determining the turnover and tax payable;

(9) the refund, if any, correctly worked out and option, if any, exercised by the dealer for taking refund or carried forward of credit to the next tax period is correct;

(10) the goods are correctly classified;


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CHAPTER – VIII

REFUNDS 8.1 When input tax credit exceeds output tax or it is found that a dealer has paid tax, interest or penalty in excess of what is due from him, the Prescribed Authority shall, on the claim made by the dealer, refund the amount of tax, interest and penalty paid in excess.

Such refund shall be made after adjusting the amount of tax or penalty, interest or sum forfeited or all of them due from the dealer. 8.2 Provisional refund (i) When the return filed by a dealer shows that an amount is refundable on account of sale in course of export, the dealer may apply for provisional refund pending audit and investigation to establish correctness of the claim. (ii) Prescribed Authority may grant a dealer provisional refund against bank guarantee or other security. 8.3 Interest leviable on excess refund

Under Section 51 (5) of AVAT Act interest shall be charged on excess

refund at the rate of one and half per cent per month from the date of grant of provisional refund till date of recovery of the amount.

8.4 Refund requires orders of sanctioning authority

Under Rule 29 (e) of AVAT Rules, refund requires orders of

sanctioning authority as under:

Sl. no.

Limitation of refund (amount) Sanctioning authority

1. When the amount to be refunded is more than rupees one lakh

Prescribed Authority shall obtain prior approval of Deputy Commissioner of Taxes (DCT).

2. When the amount to be refunded is more than rupees three lakh

DCT shall forward such cases to the Commissioner of Taxes for sanction/ approval.

3. Where the amount to be refunded is more than 15 lakh

The Commissioner shall take prior approval of the Government before sanctioning such refund.

8.5 The claimant may elect the mode of refund

When an order for refund is passed refund voucher shall be issued in

favour of claimant. If the dealer desires payment in cash the advice in Form 39 is issued to the dealer at the same time advice is forwarded to the Treasury Officer concerned.

It the claimant desires to adjust the amount of refund due to him the Prescribed Authority allows adjustment of refund against the tax.


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8.6 Manner of claiming refund.

If the dealer is a registered dealer and furnished return for a tax period

may claim for refund of excess payment of tax. A claim for refund of input tax credit may be made in AVAT Form – 41 to the Prescribed Authority within 30 days of the filing of such return. Application for provisional refund and refund on account of sales made in course of export out of the territory of India may be made in Form 42 and 43 respectively. 8.7 Audit of refund cases

The following points are to be seen in audit of refund cases:

(j) whether the refund is related to excess of tax credit over output tax;

(ii) whether the claim for refund of tax, penalty or interest paid in excess of the amount due under the Act;

(iii) whether the dealer applied for refund in proper Form stating fully and in detail the grounds upon which the claim is made; and

(iv) whether the refund has been sanctioned by the competent authority.


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CHAPTER – IX

PENALTIES AND OFFENCES 9.1 Penalties

Section 85 of AVAT Act, provided a list of offences and prescribed

penalties, which are tax related. In order to check the carrying of business without registration, non-submission of correct and timely tax returns, non-deposit of tax deducted at source etc. penalties are prescribed. In accordance with Section 90 of the Act, whosoever contravenes or fails to comply with, any of the provisions of this Act or the rules under this Act shall, if no other penalty is provided under AVAT Act, be liable to penalty of an amount not exceeding twice the amount of tax. 9.2 Offences

Offence is an act of breaking law. Punishment of an offence is

prosecution or fine or both. Penalties prescribed for various defaults committed by the dealers are given below: (1) If any dealer, fails to pay the amount of tax due and interest along with return or revised return, the Prescribed Authority may after giving the dealer a reasonable opportunity of being heard direct him to pay, in addition to tax and interest, by way of penalty a sum not exceeding two per cent per month of the tax from the first day of the month following the month in which it had become due to the date of payment or to the date of order of assessment whichever is earlier.

[Section 30 (3) of AVAT Act] 2. If any dealer, without any sufficient cause

fails to furnish a tax return by the prescribed date; or fails to furnish the required revised returns by the date prescribed; or fails to furnish proof of payment of tax as required under sub-section (5) of Section 29 the Prescribed Authority may after giving the dealer a reasonable opportunity of being heard, direct him to pay in addition to tax and interest a penalty of a sum of Rupees one hundred per day of default subject to a maximum of rupees ten thousand.

3. Under AVAT Act, whoever

(a) being liable to pay tax carries on business as a dealer without getting himself registered under section 21; or

(b) not being a registered dealer, falsely represents, while making any sale or purchase of goods that he is a registered dealer.

(c) Being a registered dealer falsely represents when purchasing any class of goods that goods of such class are covered by his certificate of registration; or

(d) submit a false return of turnover under this Act or furnishes a false statement or


33

(e) fails or neglects to issue sale invoice; or (f) fails to deduct tax at source as required under section 47, shall be

liable to pay penalty as prescribed under section 85 of AVAT Act.


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CHAPTER – X AUDIT OF AVAT

10.1 The Audit Manual defines key audit steps and tests for auditors to ensure compliance with the Act. The Act covers multiple transactions of various types, various business segments and entities of various sizes and legal forms maintaining different books of accounting and using either mercantile basis of accounting or cash basis of accounting. Audit Manual defines key documents to be verified which are, recommendatory, suggestive and generalised and are not exhaustive for every audit situation.

The Auditor should ensure that the facts of the case and all the

documents, records maintained by the entity so audited are understood before beginning the audit and decide on the audit steps and tests and review of documents. The Auditor needs to exercise own judgment and experience to adopt the audit steps and tests to the audit situation and the circumstances of the case. Further when required, the Auditor should conduct additional audit tests and review additional documents to conduct an audit which achieves its set objectives. The Auditor must conduct all such audit steps and tests and review of all documents as would be required, whether in the Audit Manual or not, in order to ensure compliance with the Act.

The Audit Manual is an evolving document and is based on the AVAT

Act, 2003 as a result audit manual would be required to be updated based on the notifications and amendments in the act and rules so appended and also based on the actual experience gained while conducting the audit, in order to ensure that the audit manual retain its relevance.

This Chapter consists of two parts as follows: Part – I Audit strategy Part – II Audit procedure 10.2 Audit strategy

The AVAT audit strategy explains the nature and extent of audit

process. It mainly consist of certain important points such as registration of dealers liable to AVAT but not registered, rate differentiation, tax invoices, refunds and item wise closing stock as on 30.4.2005 at the time of implementation of AVAT.

In order to make the collection of taxes more efficient under the AVAT system, dealers would be required to compute their own tax liability, file their returns, pay the correct amount of tax and make their own assessment without the department being involved.

System of self assessment is part of an obligation entrusted to dealers to voluntarily comply with their tax obligations. The key features of AVAT audit strategy are


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Coverage

Coverage refers to the percentage of dealers that are proposed to be audited. Ideally all the high risk dealers should be audited along with significant proportion of medium risk dealers. The extent of coverage would change across different aspect of AVAT administration e.g. it may be high of first refund cases and lower for establish bonafied credentials. Selection

Selection refers to the process selecting the cases for audit. Cases

should be selected based on the risk assessment. Opening methods

It should cover issues such as what type of audit should be performed,

what should be the duration of audit and what approach be taken by the auditors. Audit is required to see certain common types of offences committed by the dealers (i) non-registration of business (ii) under reporting of turnover (iii) non-reporting of AVAT credit (iv) use of fake invoices and (v) non-accounting of proper adjustments.

Staffing and training

Staffing and training aspect involve looking at the skill sets, staff,

resources and training needs to implement the audit programme. The skills set and training requirements for an auditor involves areas like technical aspect of the legislation, audit procedures etc. Monitoring system

Monitoring system involves the mechanism to monitor the audit programme including assigning target developing time standards, performing quarterly review etc. 10.2 Audit procedure

Audit procedure mainly deals with system and method under which

effective audit may be conducted. It consists of- (A) Comprehensive audit of registered dealers under which the following areas are to be focused. 1. Audit of sales 2. Input tax credit on intrastate purchases. 3. Goods in transit and Border Check Post. 4. Classification 5. Tax rate applied 6. Input/output tax adjustments 7. Works contract 8. Inter state sale


36

10.3 Audit of sale The audit must have understanding of the class of goods the dealer is

selling to ensure appropriate classification of goods for the purpose of AVAT. The goods could be held for resale, manufacture, trading and transfer to branch; export sale or other business or private purposes. The objective of audit of sale is to ensure that

(i) the dealer had returned his total sale for the period in his return in AVAT-13 & 14;

(ii) the sales have been correctly classified; (iii) the correct rate of output tax has been applied for each class of

goods; and (iv) the total output tax is correct.

The audit of sales comprises audit of the following items shown in AVAT Return Form (AVAT 13 & 14).

(a) Gross sale (b) Sales not liable to tax (c) Interstate sale (d) Export outside India (e) Sales liable to AVAT

Gross sale Auditable records

1. AVAT Form – 13 and 14 2. AVAT Form – 30 3. AVAT Form – 31

Audit Check The following points to be examined:

i) gross sale to be examined in detail (Form AVAT 13&14) for the sale period;

ii) sales correctly classified; iii) correct rate of output tax has been applied for each of goods; and iv) total output tax is correct.

Sales not liable to tax

The dealer might be dealing with certain goods which are not liable to

tax. AVAT is not chargeable on goods that are used consumed or sold outside Assam. Following goods are not liable to tax: (i) Sale in course of interstate trade or commerce, if the sale (a) occasions the movement of goods from one state to another or (b) is effected by a transfer of documents of title to the goods during their

movement from one state to another. (ii) Sale takes place outside Assam (iii) Sale in the course of exports, if the sale (a) occasions such exports i.e. direct export sale;


37

(b) is effected by a transfer of documents of title to the goods after goods have crossed the custom frontiers of India i.e. a sale in the course of export.

(iv) Sale in course of import, if the sale (a) occasions such imports; (b) is effected by a transfer of documents of title to the goods before goods

have crossed the custom frontiers of India i.e. it is in the course of import.

(v) Compare whether the amount of exempted sale and revenues not subject to tax as per AVAT Act. Return (AVAT-14) is same as details provided by dealer.

(vi) Certain goods are not taxable in Assam (list given in First Schedule of the Act.).

(vii) Certain dealers claiming exemption from payment of tax on sale of goods. It should be ensured during audit that the dealer has not erroneously disclosed a taxable sale as not taxable sales.

Sales liable to tax (AVAT) The following points to be seen:

(i) Description of goods sold with reference to items mentioned in the registration certificate;

(ii) Checking of classification; (iii) Application of prevailing rates of AVAT; (iv) Retail invoices and tax invoices; and (v) Tax invoices comply with the requirement of the Act.

10.4 Audit of input tax credit on intra state purchases Before commencing the audit of purchases, the auditor should be

conversant with the laws and have a sound knowledge of definition to understand the key terms while dealing with sales audit. It is very important that auditor understand how the dealer computed the figures of gross purchases including incoming branch transfer and purchase/branch transfer outside Assam, input tax credit allowed for purchases from within Assam mentioned in AVAT – 14. Auditable documents

(i) AVAT Return Form – 14. (ii) Debit/Credit note.

Audit Checks (1) A dealer who is registered or required to be registered shall be entitled

to a tax credit on the turnover of purchases made during the tax period in the course of his activities as a dealer which are to be used directly/indirectly by him for the purpose of

(i) consumption, use or sale in Assam (excluding personal consumption) (ii) in the course of interstate trade or commerce


38

(iii) in the course of import of goods into or export of goods out of territory of India

(2) It should be checked that the dealer has computed the figures of gross purchase including incoming, branch transfer and purchase/branch transfer form outside Assam. Input tax credit allowed for purchase within Assam as mentioned in AVAT Form-14. However audit is required to ensure that the--

(i) gross purchases including branch transfer that have been transferred;

(ii) purchase and branch transfer from outside Assam categorized correctly;

(iii) input tax credit can be available only on valid tax invoice i.e. on original invoice;

(iv) input tax credit cannot be claimed for non-business and private purchases;

(v) input tax credit can not be claimed in respect of tax exempted purchases;

(vi) the rate of input tax on the invoices is correct; (vii) input tax credit cannot be claimed on interstate purchases. (viii) Check that input tax is not being claimed for any non eligible

items. For example stores, fuels, lubricants for use in manufacturing process, vehicle for use in the business etc.

10.5 Audit of goods in transit & Border Check Posts Goods in transit can be defined as goods that are in transit between two

States including Assam. The purpose of audit of goods in transit is to ensure that goods in transit through Assam are not consumed in Assam. Goods in transit may be consumed in Assam without payment of AVAT which resulting in revenue loss to the Government. Audit is required to check:

(i) Purchases made during last tax period; (ii) Stock account to find out the internal transfer of the goods that the

registered dealer has made. Also to verify the high value purchases or purchases from unregistered dealer; and

(iii) Regarding transfer from other branches or the registered dealer audit has to verify whether the branch is in existence or not. Transporter’s documents indicating the originating and designating state also to be checked.

Auditable documents:

1. AVAT Return-14 along with statement. 2. Tax Invoices. 3. Transporters documents. 4. Challans, if any

Border Check Posts Section 75 of the AVAT Act provides that the Government may, by notification in the official Gazette direct the establishment of a check-post or


39

the erection of a barrier or both, at such place in Assam with a view to prevent evasion of tax and other dues payable under this Act. At any check post or barrier through which the dealer’s goods are transported are required to be examined by he departmental authorities, the contents and records such as goods transport receipt, sales invoice or delivery note in Form AVAT-61. If the dealer declares that the goods entering in Assam are meant to be carried outside Assam, the driver or the person-in-charge of the vehicle while obtaining transit pass from entry check post shall state the fact in the application for obtaining transit pass (TP). The driver or the person-in-charge of the vehicle after handing over goods to the dealers of concerned State shall produce copies of the TP along with goods receipt note. The security furnished shall be released to the person on submission of TP. Failing to do so within the prescribed period he is required to pay tax as if goods are sold in Assam. 10.6 Audit of classification

The application of rate of taxes depends upon the variety of goods in

which the dealer is dealing.

Auditable documents (i) AVAT Return Form – 14. (ii) Stock account. (iii) Tax Invoices.

Audit checks Audit is to check: (i) the correct application of tax rates in classification of goods in relevant

tax period. (ii) The correct taxable turnover and description of goods disclosed in

AVAT return – 14 (iii) Checking of AVAT form and comparisons of goods mentioned in

AVAT with the stock register. (iv) Checking of tax invoices to see whether the classification of goods

mentioned therein are correct.

10.7 Audit of tax rate applied The rate of tax payable on sales of goods in Assam is in consonance

with the classification of goods. The objective of audit of tax rates applied is to ensure that correct rates are applied to the taxable turnover in the relevant tax period. However, chances of application of lower rate of tax and of incorrect rates of tax could not be ruled out which may reduce the amount of output tax liability. Audit checks Audit is to check :

(i) application of AVAT rates as prescribed in various schedules;


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(ii) checking of AVAT Return – 14; (iii) checking of tax invoices.

10.8 Audit of input and output tax adjustment Adjustment to tax credit refers to adjustments made in calculating the

tax payable by a dealer in the return for a tax period. Adjustment to tax can be made in the following circumstances:

1. Use of goods for mixed purposes: If the goods are partly used for business purposes and partly for personal purposes, the audit has to see that the amount of tax credit availed on such goods be allocated in two parts and claim the credit for eligible parts only.

2. Change in use of goods: If the goods are purchased or imported with the intention for the use or consumption in Assam and are subsequently used fully or partly for other than business purposes and vice versa the tax credit claim in respect of such purchases shall be reduced/increased respectively for the tax period. The audit is required to ensure that calculations for the tax adjustment

are arithmetically correct and tally with the return correctly. The audit is required to check the list of tax adjustments that the dealer has made in the tax period and to test check/verify tax adjustments to find out whether adjustment to tax has been made on account of cases i.e. cancelled sales, change in consideration for which sale has been altered e.g. due to the offer of a discount, any fundamental variation in the nature of sales, sales return or bad debts. In the above circumstances, it is also to be ensured that the dealer has provided a tax invoice on account of sales. It needs to ensure that the dealer makes the adjustment correctly. Audit is required to ensure that

(i) Adjustment of input tax credits and output tax liability has been correctly computed in the relevant tax period.

(ii) Whether the components of adjustments are correctly stated in AVAT Return i.e. Form – 13 and 14.

(a) Adjustment for any change in use of goods. (b) Branch transfer of adjustments.

(c) Other input adjustments. (d) Adjustment of AVAT payable on sales.

10.9 Audit of works contract The works contract tax is levied on transfer of property in goods in the

execution of a works contract which in addition to the services rendered involved the transfer of property in goods or in any other form. Activities involving fabrication, execution, erection, installation, fitting, improvement, repair or commissioning of any movable or immovable property in which materials are transferred could constitute a works contract.


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In a works contract a contractor receives cumulative price for both labour and material. Audit is required to review the agreements to review segregation of consideration received between materials and labour. Hence it becomes important that the auditor reviews the agreement for each of the works contract that the registered dealer may enter into and ensure that the consideration has been clearly segregated. Auditable documents (i) Works contract agreement. (ii) Certificate regarding tax deducted at source.

(iii) Documents relating transfer of works to sub-contractor. (iv) Challans

Audit checks (a) Review of invoices raised in pursuance of works contract.

(b) Examination of return filed by the dealer and identification of output tax liability.

(c) Ascertain the nature of business of the dealer. (d) Examination of accuracy of claim to ascertain whether works contract

or sale contract. (e) Ascertain whether documented agreements in place for the works

contract entered by the dealer during the audit period. Ascertain if such agreement provide segregation between material and labour.

(f) Ascertain if mechanism for proper segregation exists between sale contract and works contract.

(g) Ascertain whether the contract is for construction of the building or for immovable assets.

(h) Ascertain whether it is a fixed or cost plus contract. In case of fixed price, ascertain if the terms provide for clear distinction between goods and services, documents for audit work papers. In case of cost plus contract, the charge is on the value of goods and services.

(i) Examination of accuracy of classification.

10.10 Audit of Industrial unit enjoying tax incentives (i) Industrial unit enjoying tax incentives at the introduction of VAT Under the Assam Industries (Sales Tax Concession) Scheme, 1997, which was basically an exemption scheme, all local purchases of input and sales of finished goods manufactured by the eligible unit were exempt from local sales tax and central sales tax. Maximum limit of exemption was fixed with reference to percentage of fixed capital investment. If the unit reaches the admissible amount before the time limit fixed, it will not be eligible for incentive thereafter.


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The unexpired time limit and the un-availed monetary ceiling of the existing industrial unit enjoying sales tax exemption have been allowed to be carried forward under the VAT regime by way of conversion of exemption into a remission scheme. The notable difference is that the unit under remission scheme will pay tax on purchase of raw materials and charge tax on sales of finished goods and will issue tax invoice to maintain the VAT chain. The suggested checks are: Pre VAT period i.e. before 01/05/2005 - Check whether the unit possesses Certificate of Eligibility from

Industry Department under the Assam Industries (Sales Tax Concession) Scheme, 1997;

- Check whether the unit possesses Certificate of Authorization under the 1997, Scheme;

- Check whether the unit filed Annual return & monthly statements under the AGST Act, 1993 and the CST Act, 1956;

- Check whether the unit also filed return in Form VIII under Assam Industries (Sales Tax Concession) Scheme, 1997;

Post VAT Period after 01/05/2005: - Check whether the exemption under 1997 scheme has been converted

into remission for the balance/unexpired amount and whether the balance/unexpired period has been extended by multiplying with 9/7.

- Check whether the unit has applied for Certificate of Entitlement of the Assam Industries (Tax Remission) Scheme 2005;

- Check whether unit possesses Certificate of Entitlement from Tax Authority;

- Check whether the unit has been filing tax returns in Format IV and annual return in Format V of the Assam Industries (Tax Remission) Scheme, 2005;

- Check whether the unit has been filing return under the CST Act, 1956;

- Check the input tax credit of the unit. - Check the output and tax;

- Check whether the correct rate of tax has been applied on sales by the unit;

- Check whether any input tax credit has been claimed in respect of manufacturing of goods taxable at the first point of sale under the Fourth Schedule (which is otherwise ineligible);

- Check whether the unit has been paying 1% of the tax due under the AVAT Act and the CST Act.


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- Check whether the unit enjoying remission, has been mentioning the number and date of Certificate of Entitlement in the invoice issued by it along with a declaration that the goods sold by it are covered by the remission scheme

(ii) Industrial unit commencing production & enjoying tax incentives after

the introduction of VAT The new industrial unit which commences its commercial production

after introduction of VAT i.e. Ist May, 2005 and the existing unit the resultant commercial production of which after expansion/modernization or diversification commences after introduction of VAT have also been allowed exemption under the Assam Industries (Tax Exemption for Pipeline Units) Order, 2005.

The suggested checks are: - Check whether any ‘manufacturing activity’ is really carried by the

unit as per the new definition of “manufacture” given in section 2 (30) of the AVAT Act. As per the new definition, the manufacturing activity must result into transaction of a new article having district name, character and use;

- Check whether the unit’s activity falls under the category of negative or inteligible list;

- Check the monetary limit of tax incentive/remission. Is it commensurate to fixed capital investment?

- Check the fixed capital investment.

- Check whether the dealer has claimed input tax credit in respect of non-eligible items used as fuel, lubricant, stores etc which have been excluded from the definition of “raw materials” as given in section 2 (38) of the AVAT Act;

- Check whether the unit possesses Eligibility Certificate from Industry Department under the Assam Industries (Tax Exemption for Pipeline Units) order, 2005;

- Check whether the unit possesses Certificate of Entitlement from Tax Authority;

- Check whether any input tax credit has been claimed in respect of manufacture of goods taxable at the first point of sale under the Fourth Schedule (which is otherwise ineligible);

- Check whether the quantity of annual production shown by the unit is commensurate with its annual installed capacity;

10.11 Audit of Import of taxable for re-sale As per definition of ‘import’ contained in section 2 (24) of the AVAT Act, ‘import’ means bringing of goods in Assam from other state or country, as a result of purchase or otherwise.


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The receipt of goods by a commission agent in Assam from an outside Principal or receipt of goods by a branch from its head office in other state falls under the definition of import. An importer is a dealer, who makes first sale of such goods after import into Assam. According to section 7 (6), the taxable quantum/threshold limit in respect of an importer is nil meaning thereby that an importer is liable to pay tax even in respect of first transaction of sale of such imported goods and therefore the dealer is liable to be registered under the AVAT Act. In respect of a dealer, who claims to have made inter-state import of taxable goods, the following checks can be considered: (i) Check whether “Registration Certificate” duly covers the goods so

imported; (ii) Check whether the goods so imported are either sold or used in

accordance with the purpose mentioned in the Registration Certificate;

(iii) Check whether the goods have been imported on the strength of “Delivery Note” (Form 61) duly obtained by the importer from his jurisdictional tax authority;

(iv) Check whether there is any discrepancy between the particulars received from check post and those furnished by the dealer;

(v) Check whether the importer obtained any “Delivery Permit” (From 66) from his jurisdictional tax authority in respect of import of goods by rail/air etc before taking delivery of goods from the transporter;

(vi) Check with reference to invoices/pro-forma invoice/stock transfer note whether the imported goods taxable at different rates are duly accounted for in different heads of Purchases/goods A/c;

(vii) Check whether the dealer has duly accounted for “freight inward” in his accounts and whether the net sale price of goods is higher compared to landing cost of goods;

(viii) Apart from the above checks, in respect of inter-state purchase the following checks should also be exercised:

(a) Verify whether the dealer has claimed any input tax credit on

purchases made using the C Forms.

(b) Check whether the importer has issued any ‘C’ Form to avail the concessional rate on inter-state purchase;

(c) Check whether the dealer is registered u/s 7 (2) of the CST Act; (d) Check whether the item imported is covered by the Registration

Certificate under the CST Act; 10.12 Audit of interstate sale

As per section 3 of CST Act, a sale or purchase shall be deemed to take place in course of interstate trade or commerce if the sale or purchase: (a) occasions the movement of goods from one State to another; or


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(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.

Where the goods are delivered to a carrier or other bailee for transmission, the movement of the goods, for the purpose of clause (b) above, shall commence at the time of delivery and shall terminate when delivery is taken from such carrier or bailee.

[Explanation 1 to Section 3 of CST Act] Merely the goods passing through some other State, if the delivery

commences and terminates in the same State shall not amount to interstate sale.

[Explanation 2 of Section 3 of the CST Act] Auditable documents

(i) AVAT Return Form – 14 (ii) Statutory Forms (iii) Reconciliation Return under Rule - 4 of CST Rules, 1957 (iv) Purchase order.

10.13 CST implication pertaining to domestic sale classified as interstate

sale using in transit sale arrangement. Section 6 (2) of CST Act provides that where interstate sale of any

goods occasioned movement of goods from one State to another or is effected by a transfer of documents of title of such goods their movement from one State to another i.e. in transit sale, and any subsequent sale during such movement effected by a transfer of documents shall be exempt from tax where the subsequent sale is to:

(a) Government (including departments) and it issues a prescribed certificate in Form – D to the seller or

(b) Registered buyers issues prescribed declaration in Form C to the seller and

(c) The original selling dealer issues a certificate in Form E-I (if it is sale made by way of transfer of document of title during interstate movement of goods) or the second or subsequent dealer issues a form E-II (in case of second and subsequent sale made by way of transfer of document of title during interstate movement of goods).

10.14 CST implication pertaining to domestic sale classified as inter-state

sale As per section 8 (1) of the CST Act, tax is charged at a concessional

rate of 4 per cent in case of undeclared goods, if the goods are sold to a registered dealer against form C. It will be charged @ 10 per cent or at the rate applicable on such goods of state rate whichever is higher, if such goods are sold to unregistered dealer.


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Further CST will be charged at nil rate or rates not exceeding 4 per cent in case of goods are declared goods and are sold to a registered dealer against form C. Where such declared goods are sold to unregistered dealer the rate applicable shall be twice the rate applicable on such goods maximum of 8 per cent.

Section 8 (i) of CST Act provides that in case of interstate sale the rate of CST is 4 per cent (or the lower rate in the seller state if any) where: (a) goods are sold to Government;

(b) Goods are sold to registered dealer, where in; (i) the buyer issued prescribed declaration in Form – C to the seller;

(ii) The goods are purchased for further resale, or use in the manufacture or processing of goods for sale; and

(iii) The goods are enlisted in the registration certificate of the buyer issued under the CST Act.

The concessional rate of tax in interstate sale is admissible under the following conditions: (a) both the buyer and seller are registered dealer as per Section 8 read

with Section 9 of CST Act. (However, in case of form D Government department need not be registered with the sales tax department);

(b) Goods should be bought by buyer for a specified eligible uses; (c) Goods must be specified in the CST registration certificate of the

purchasing dealer; (d) It must be an interstate sale;

(e) The goods must have crossed the border of the State; and

(f) The buying dealer is required to furnish Form C to the selling dealer. Audit checks

The Audit has to categorize the sale, local interstate, export and

exempt sale. Then audit has to examine amount receivable or debtors with high value transaction with the following documents.

1. Whether the dealer is a registered dealer under the CST Act. 2. Whether the dealer’s invoice with tax (AVT/CST) state

separately.

3. Whether the Form ‘C’ received from the buyer.

4. Whether the quantities in invoice to Form ‘C’ is mentioned. 5. To verify lorry/railway receipt and airways bill.

6. Verify transporters invoice for the dispatch of goods in question.


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10.15 Audit of export

As per rule 12 of CST Rules, 1957, a dealer may in support of his claim that he is not liable to pay tax under CST Act, 1956, in respect of any sale of goods on the ground that the sale of such goods out of the territory of India shall furnish to the Prescribed Authority a certificate in Form H duly filled and signed by exporter alongwith the evidence of export of such goods.

A dealer who is making sales/export in the course of interstate trade or commerce shall not issue a tax invoice.

Audit checks The following checks are to exercised in audit: i. The exports made by the dealer should be specified in AVAT Return

(Form AVAT-14) and to verify the export transactions such as:

(a) check the commercial invoices for the export of goods. A commercial invoice is a document that facilities the billing of receivables to the customer, mentioning destination outside India, Port of exit of goods from India.

(b) Check the shipping bill for exports.

(c) Check the document of title of the goods. (d) Check the export duty (if applicable) paid by the dealer for the goods

exported. The bill of ladding and the airway containing the details of custom duty paid on the goods.

(e) Check that the dealer has not issued the tax invoice for exports made by him.

(f) Check the sale whether the refund claimed by the exporter. (g) Check whether the dealer has availed of any input tax credit in respect

of export of any gods specified in the Fourth Schedule of the AVAT Act, 2003 which are otherwise in eligible for such credit.

(h) In case of penultimate sale in course of export, if such sale is interstate one

(i) Check whether the last sale has been made after receipt of the export order or not

(ii) Check whether the dealer had received any ‘H’ form from exporter.

(iii) Check whether the goods mentioned in Form H are the same as the goods that are exported.

(I) In case of penultimate sale in course of export, if such penultimate sale is intra-state one

(i) Check whether the last sale has been made after receipt of the export order or not


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(ii) Check whether the dealer had received any form 56 under the AVAT Rule from the exporter.

(iii) Check whether the goods mentioned in Form 56 are the same as the goods that are exported.

Conclusion: Sales in the course of interstate trade and commerce shall

continue to be liable to tax under CST Act as at present and all the forms such as C, D, E-I, E-II, F & H shall continue to be applicable since CST Act is not yet phased out.


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CHAPTER – XI

TRANSITIONAL PROVISIONS

11.1 Registration during transition As per Section 109 (1) of AVAT Act, a registered dealer who would

have continued to pay tax under the Assam General Sales Tax Act, 1993, shall be deemed to be a registered dealer under AVAT Act till a fresh registration is granted.

On the other hand, if the dealer does not qualify for automatic registration and wishes to be registered under AVAT Act, he can apply for registration as provided under section 21 to 24 of AVAT Act. 11.2 Submission of returns

Any dealer, liable to furnish return under the repealed Act, shall

furnish such return in respect of tax payable for sales or purchases made upto the day immediately before such appointed day and pay tax in accordance with repealed Act. 11.3 Sales tax concession under Assam Industries scheme

A registered unit which had been enjoying the benefits of Sales Tax

concession under Assam Industries (Sales tax Concessions) Scheme, 1997, would continued to be eligible for any period which is to end after the appointed date.

(Section 109 (4) of AVAT Act)

11.4 Transitional credit on opening stock A dealer registered under AVAT Act shall be entitled to claim a tax

credit for the tax already paid under the AGST Act on his opening stock. The dealer shall furnish the required statement.

(Rule 58 of AVAT Rules) 11.5 Eligible stock (opening stock) for tax credit

No tax credit under Section 108 of AVAT Act shall be allowed unless:

(i) the dealer has in possession, sales voucher issued by a dealer registered under AGST Act against the purchase of said goods.

(ii) the goods are intended to be used for the purpose of (a) sale by him in the State; or (b) sale in course of inter state trade or commerce; or (c) sale in course of export out of the territory of India; or (d) use as raw materials or as capital goods in the

manufacturing and processing of taxable goods; or (e) use as containers or packing materials

(Section 108 (1) and sub-section 2 of section 14)


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11.6 Non-eligible stock

(a) No tax credit (under Section 108) can be claimed in respect of finished goods held as opening stock if such goods are manufactured out of tax paid raw materials or capital goods.

(b) No tax credit can be availed of for opening stock of goods that were taxable at last point under the AGST Act.

11.7 Penalty leviable for claiming non-entitled or excess tax credit

Under Section 108 (5) of the AVAT Act, if the Commissioner of taxes is satisfied that a dealer,

(a) has claimed input tax credit for such stock for which he is not entitled for claiming tax credit as per the provisions of Section 14 or provisio to sub-section (1) of Section 108 of AVAT Act; or

(b) has claimed tax credit in excess of what is admissible under sub-section (1) of Section 108 of AVAT Act, he may, after giving the dealer a reasonable opportunity of being heard direct him to pay a penalty equal to twice the amount of tax credit so claimed.

11.8 Procedure for claiming transitional credit A dealer is required to submit a statement of tax paid stock in hand as

on 30.4.2005 in Form – 77 indicating details of invoice against which purchases were made viz date of purchase, invoice/bill no., name and address of the selling dealer, registration certificate no., item, quantity/number, purchase value excluding tax and tax involved.

1. The statement has to be submitted within one month from the date of commencement of the Act.

2. The statement has to be furnished by a registered dealer wishing to claim credit under Section 108.

3. The goods on which credit is being claimed should be physically held in Assam by the dealer in the date of commencement of the Act.

4. The goods on which credit is being claimed have been purchased within one year prior to the date of commencement of the Act, form a dealer registered under AGST Act, 1993 and the dealer should have in his possession the invoices.

5. The goods in the stock are taxable at first point under AGST Act, 6. The dealer should claim the entire amount of credit to which he is

entitled in a single statement. 7. Every dealer, who claims tax credit in respect of the stock held and if

such dealer is required to get his accounts audited under any Act he shall obtain a certificate signed by a Chartered Accountant, certifying that the net credit claimed is correct.


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8. Quantity wise details are required only when the dealer deals in one commodity.

11.9 Points to be seen in audit

Transitional area is the most critical area and it is therefore, important

that transition is smooth, accurate and facilitates the operational and procedural aspects of the AVAT.

The audit has to see that. 1. The goods were purchased by the dealer after 1.5.2004 and

before 1.5.2005. 2. No credit was allowed in respect of those first point goods.

3. The goods were physically held as on 30.4.2005. 4. The opening stock of goods were purchased by the dealer from

a registered dealer for the purpose of making local taxable sales or inter-state sale of export outside India.

5. The invoices for purchase of goods were issued by a registered dealer.

6. No credit was allowed on finished goods or capital goods. 7. The statement of opening balance was furnished within one

month of commencement of AVAT Act i.e., by 30-6-05. 8. The dealer has submitted a certificate of a Chartered

Accountant certifying that claim is true and correct.


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CHAPTER – XII MANNER OF DEDUCTION OF TAX AT SOURCE

12.1 Deduction of tax at source (a) Every person other than an individual, a firm or a company not under

the control of the Government, responsible for making any payment of any amount being the full or part payment to the contractor or payment to the dealer of such amount in cash, by cheque, by adjustment or in any other manner, shall deduct an amount calculated at the rate of 12.5 per cent of the taxable turnover of such works contract.

(b) Where on an application being made by any contractor in this behalf, the Prescribed Authority is satisfied that any works contract involves both transfer of property in goods and labour or only labour and services and accordingly, justifies deduction of tax on a part of the sum payable in respect of any works contract or as the case may be, justifies no deduction of tax at all, he shall after giving the contractor a reasonable opportunity of being heard, grant him such certificate as may be appropriate.

(c) Any person entering into any contract with any contractor for execution of work shall furnish within 15 days from the date signing the contract, to the Prescribed Authority such information as may be prescribed. Failure to do so shall entail a penalty not exceeding Rs. 500/- per day of default after giving such person a reasonable opportunity of being heard.

(d) Government or corporation, board, authority, undertaking or any other body by whatever name called, owned, financed or controlled wholly or substantially by the Government at the time of payment to the payee in cash by cheque, by adjustment or in any other manner, shall deduct an amount calculated at the rate as specified in the Schedule of the Act.

[Section 47 (1) and (3) of AVAT Act] 12.2 Payment of tax deducted at source

Any tax deducted at source shall be paid into the Government account

within ten days from the expiry of the month in such manner accompanied with four copies of challans in Form 25 and statements of accounts as may be prescribed. The challan shall specify the name of the Government Department and tax payers name, address and TIN.

The person making any deduction of tax at source and paying it into the Government account shall issue the payee within seven days a certificate of tax deduction in Form – 29. The dealer shall furnish one copy of challan with certificate to the Prescribed Authority. Any amount deducted in excess of the tax so assessed shall be refundable under Section 47 (8) of the AVAT Act.


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12.3 Filing of return The person responsible for deduction of tax shall within the prescribed

time after the end of each year, file a return in the Form 35 to the Prescribed Authority within two months from the end of each year.

[Section 47 (9) of AVAT Act] 12.4 No penalty against the dealer

No interest or penalty shall be imposed against the dealer or the payee

for non-recovery of the amount or non-deposit of tax to Government account. [Section 47 (10) of AVAT Act]

12.5 Liability of the person who deducted the tax but not deposited to

Government account (a) Where the amount has not been deposited after deduction of the amount shall be recovered from the person who deducted tax at source, as arrears of land revenue. Provided that no recovery proceeding shall be drawn up by the Prescribed Authority without prior approval of the Commissioner of Taxes.

[Section 47 (11) of AVAT Act] (b) If any person as referred in this chapter fails to make deduction or after making the deduction fails to deposit the amount to Government account, the Prescribed Authority may, after giving such person, a reasonable opportunity of being heard, direct that such person shall pay by way of penalty, a sum not exceeding twice the amount of tax deducted at source besides tax not deposited into the Government account.

[Section 47 (12) of AVAT Act] (c) If any person as referred in this chapter fails to deposit the amount deducted at source he shall be liable to pay a simple interest at the rate of one and half per cent per month on the amount deducted but not deposited from the date on which such amount deducted to the date on which such amount is actually deposited into the Government account.

[Section 47 (13) of AVAT Act] 12.6 Audit checks

The following checks are to be exercised in audit:

(1) whether the tax deducted at source satisfied the requirement of sub-rule 4 of Rule 28.

(2) Accounts of tax deduction in Form 36 showing the amount of tax deducted, certificate of tax deduction issued and particulars of remittances if available with auditee office are to be checked.

(3) Whether tax deduction certificate along with treasury challans been submitted to the Prescribed Authority by the dealer concerned (as required under sub-rule (1) (d) of Rule 28).

(4) Whether the amount in treasury challan submitted in support of deposit of tax agrees with the receipt schedules of concerned treasury.

(5) Whether the information has been furnished by an officer of Government department entering into contract with a contractor for


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transfer of property in goods to the Prescribed Authority as required under sub-rule (3) of Rule 28 and sub-section (1) (c) of Section 47.

(6) A cross check between the records of the department entering into contract and the Prescribed Authority may be made to ascertain the number of contracts made by a department during a specified period and intimation furnished to the prescribed authority. Penalty leviable at the rate of Rs. 500/- per day of default but not levied are to be pointed out.

[Sub-section (1) (c) of section 47]

(7) Whether the department, body, authority making deduction of tax at source (from suppliers bills/from work contractors bill) has been allotted tax deduction account number as required under sub-rule (5) (a) of Rule 28.

(8) Whether any person after deducting the tax failed to deposit the same so deducted. If so, simple interest at the rate of one and half per cent per month on the amount so deducted is to be worked out from the date of deduction of tax to the date of audit/date of deposit.

(9) Cases where person, as referred in Section 47 has failed to make the deduction or after deduction failed to deposit the amount, necessary proceedings for levy of penalty under sub-section (12) of Section 47 have been initiated or not are also to be seen.

(10) Whether proceeding been initiated for recovery of tax deducted at source but not deposited to Government account, as arrears of land revenue.


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CHAPTER – XIII

INTERNAL CONTROL

COMPONENTS OF INTERNAL CONTROL AND ROLES AND RESPONSIBILITIES OF AUDIT

13.1 Components of internal control

Internal control is designed to provide reasonable assurance that the

entity’s general objectives are being achieved. Therefore, clear objectives are prerequisite for an effective internal control process. Internal control consists of five inter-related components i.e. control environment, risk-assessment, control activities, information and communication and monitoring.

The Control environment is the foundation for the entire internal control system. It provides the discipline and structure as well as the climate, which influences the overall quality of internal control. It has overall influences on how strategy and objectives are established and control activities are structured. Having set clear objectives and established an effective control environment, an assessment of the risks facing the entity as it seeks to achieve its objective provides the basis for developing an appropriate response to risk.

The major strategy for mitigating risk is through internal control activities. Corrective actions are necessary complement to internal control activities in order to achieve the objectives. Control activities and corrective actions should value for money. Their cost should not exceed the benefit resulting from them.

Effectiveness information and communication is vital for an entity to run and control its operations. Entity management needs access to relevant, reliable, timely communication related to internal as well as external events. Information is needed throughout the entity to achieve its objectives.

Finally, since internal control is a dynamic process that has to be adopted continuously to the risks and changes an organisation faces, monitoring of the internal control system is necessary to ensure that the internal control remains tuned to the changed objectives, environment, resources and risks.

13.2 Roles and responsibilities

Everyone in an organisation has some responsibilities for internal

control. Commissioner of Taxes is directly responsible for all activities of the organisation, including the internal control system. His responsibilities vary depending on his function in the organisation and the organisation’s characteristics.

Internal auditors examine the effectiveness of internal control and recommended improvement, but they don’t have primary responsibility for establishing or maintaining it.

Staff members contribute to internal control as well. Internal control is an explicit or implicit part of everyone’s duties. All staff members play a role


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in effecting control and should be responsible for reporting problems or operations, non-compliance with the code of conduct or violation of policy.

External parties also play an important role in the internal control process. They may contribute in achieving the organisation’s objectives, or any provide information useful to effect internal control. However they are not responsible for the establishment or operation of the organisation’s internal control system.

Supreme Audit Institutions (SAIs) encourage and support the establishment or effective internal control in the government. The assessment of internal control is essential to the SAI’s compliance, financial and performance audit. SAI’s should communicate their findings and recommendations to the departments.

External Auditors audit Government departments. They and their professional bodies should provide advice and recommendations on internal control. 13.3 Audit of Internal Control

Ordinarily, audit will see that the internal procedures adequately secure

correct and regular accounting of demand, collection and refunds, that no amounts due to Government remain outstanding in it’s books without sufficient reason and that the claims are perused with due diligence and are not abandoned or reduced except with adequate justification and with proper authority.

To some of the most important function of the audit and area of audit concern in relation to assessment and refunds is to satisfy itself by such test checks as it may consider necessary that the internal procedures adequately provided for and actually ensure.

(i) The collection and utilisation of data necessary for the computation of the demand or refund under law.

(ii) Computation and realisation of various taxes, fees, rents, royalty etc. are in accordance with the application of tax laws.

(iii) Prompt raising of demands on tax payers in the manners as prescribed by law.

(iv) Regular accounting of demands, collection and refund. (v) Correct accounting of collections and deposit of the same to proper

head of Government account. (vi) That the relevant and requisite records are being maintained

properly; (vii) Proper arrangements are in place to safeguard against negligence or

omission to levy or collect taxes or to authorise refunds. (viii) Adequate control and monitoring mechanisms have been devised to

prevent loss or leakage of revenue; (ix) That there has not been any loss or leakage of revenue on account

of lacunae or loopholes in the rules framed for the purpose or on


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account of avoidable delay in the issue of the necessary notification and orders;

(x) That the machinery for detection of cases of evasion is adequate. (xi) That double refund, fraudulent or forged refund orders or other

losses of revenue through fraud, default or errors are promptly brought to light and investigated.

(xii) That claims to tax payers are perused with due diligence and are not abandoned except with proper authority.

(xiii) That cases pending before appellate authorities have been persued adequately and appeals whenever considered necessary have been filed within the period of limitation.


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CHAPTER – XIV

INSPECTION REPORT

14.1 The Inspection Report should be drafted in three parts:- PART – I

(a) Introductory, (b) Incumbency, (c) Budget estimates and actuals, (d) Settlement of outstanding objections in brief from previous

reports. (e) Schedule of persistent irregularities.

PART – II A Major irregularities relating to cases of under/over assessments and

loss of revenue of substantial money value that are likely to materialise/converted into potential draft paragraph and cases of system failure.

PART II B

Irregularities which though not major are required to be brought to the

notice of higher authorities. PART – III

Test Audit Note (TAN) containing minor irregularities to which a

schedule of items settled on the spot should be attached. The procedural irregularities in respect of which the head of office has held out assurances about following correct procedure in future should be noted in TAN. However if a number of similar errors or irregularities are noticed, it may be desirable to mention their type, citing one or more instances, so that proper instructions may be issued for future guidance of the Government servants concerned. It is desirable that statements and figures in relating to any defects or irregularities discovered should be based on clear documentary evidence.

The Draft Inspection Report (DIR) should be completed before leaving the office inspected by the inspecting Audit Officer/Inspecting Auditor. The head of the office (or any other officer acting on his behalf) has to be given the opportunity of reading and discussing it and suggesting any omissions or modifications. Seen and discussed with dated initial of the head of the office (or any other officer acting on his behalf) is to be obtained in the DIR.

The Inspection Report should be as brief as possible, but the points raised in it should be supported by key documents. Reply in detail, in respect


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of TAN is not required but it should be verified at a subsequent inspection to ensure that adequate action was taken on it. 14.2 Processing of Inspection Report

The draft Inspection Report (DIR) after having been discussed with the

officers concerned a minutes of discussion is to be recorded and should be sent to SRA HQ’s within three working days from the date of completion of audit. In case where the discussion could not be held on the last date of audit and is deferred at the request of the administrative authority, the fact should be reported to the HQ’s within this period and the report submitted within three days from date of deferred discussion.

The DIR on receipt and refund accounts received from the audit party shall be examined to see that:

(i) All the columns of the title sheet have been properly filled in and the Inspecting Officer/AAO/Section Officer has signed at places provided for in the title sheet.

(ii) The audit has been carried out to the extent prescribed.

(iii) Part-I of the IR (list of outstanding audit objections of previous years) have been correctly drawn up and review note with recommendation has been submitted.

(iv) Adequate reasons have been recorded for each preliminary objection statement (POS/Inspection Memo) treated as settled.

(v) All statements, certificates and proforma etc. as required in the title sheet of the IR have been received.

(vi) The IR has been discussed with the head of office.

(vii) A copy of the TAN has been made over to the office inspected where necessary and acknowledgement thereof exists.

(viii) Certificate of loss sustained by the office audited is attached. (ix) Whether the requisitions/POS/inspection memos bears dated

initials of Inspecting Officers/Inspecting Auditor and whether received by the auditee office with dated initials.

After vetting of Inspection Reports, the draft Inspection Report as finally approved by the Group Officer shall be got typed.

One copy of the report is issued to the unit office, another to commissioner office and another copy to Government of Assam for compliance. In case of fraud the matter is to be specifically brought demiofficially to the notice of Government as required under Headquarter office instructions issued vide letter NO. 126/Audit (AP)-1/2004 dated 6th September 2006.


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CHAPTER – XV

FOLLOW UP ACTION

Replies to Inspection Reports should normally be received within one

month from the date of issue. Replies to Part-I and Part-II of the Inspection Report should be closely watched.

The objections included in IR should be persued by prompt reminders till finality. All objections should be entered in an objection book and their settlement watched. The outstanding audit objections are to be watched regularly. These unsettled outstanding objections may be discussed with department through adhoc committee consisting of high level officers of audit and auditee organisation. The objection book should be closed every month under the signature of the branch officer and reviewed by group officer.

The Audit Reports are forwarded to the Secretary, Assam Legislative Assembly for presentation to the legislature. The rules framed under Article 208 of the Constitution in respect of states provide for examination of the Audit Reports by the Committee of legislatures known as the Public Accounts Committee (PAC). The PAC submit their reports containing findings on the audit reports examined by them and their recommendations to the State Legislature.

The Principal Accountant General is invited to be present at the meeting of the PAC and witnesses are examined and reports are considered. Usually Principal Accountant General assists the Committee in its deliberations.


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Appendix – 1 List of AVAT Forms

Form 1. Form 1. Certificate to be furnished by the purchasing oil company 2. Form 2. Application for Registration 3. Form 3. Certificate of Registration 4. Form 4. Application for General Registration Number (GRN) 5. Form 5. Certificate of Registration 6. Form 6. Register of Certificate of Registration 7. Form 7. Application for refund of security 8. Form 8. Application for Amendment/Cancellation of Registration certificate 9. Form 9. Information to be furnished by the transferee

10. Form 10. Application for registration of transporter 11. Form 11. Certificate of registration of transporter 12. Form 12. Register of certificate issued to transporter 13. Form 13. Tax Return 14. Form 14. Annual Return of Turnover 15. Form 15. Notice to furnish return 16. Form 16. Notice for forfeiture and imposition of penalty 17. Form 17. Notice 18. Form 18. Application for refund of forfeited amount 19. Form 19. Notice for curing of defect (s) in return 20. Form 20. Notice under section 36 of the Assam Value Added Tax Act, 2003 21. Form 21. Notice under section 37 of the Assam Value Added Tax Act, 2003 22. Form 22. Notice under section 38 of the Assam Value Added Tax Act, 2003 23. Form 23. Notice under section 40 of the Assam Value Added Tax Act, 2003 24. Form 24. Challan 25. Form 25. Notice of demand of Tax/Interest/Penalty 26. Form 26. Register of daily collection 27. Form 27. Register of demand, assessment and collection 28. Form 28. Notice for special mode of recovery 29. Form 29. Certificate of deduction of tax at source 30 Form 30 Application for grant of a certificate under clause (b) of sub-section

(i) of section 47, for no deduction of tax or deduction of tax on a lower amount

31. Form 31. Certificate under sub-section (1) (b) of section 47, relating to deduction of tax at source or no deduction, as the case may be

32. Form 32. Form of particulars to be submitted by the contractee 33. Form 33. Form of application for allotment of tax deduction account number 34. Form 34. Tax deduction Account Number (TAN) certificate under the Assam

Value Added Tax Act, 2003

35. Form 35. Form of return to be furnished by a person responsible for deduction of tax at source

36. Form 36. Register to be maintained by the person responsible for deduction of tax at source

37. Form 37. Application for refund 38. Form 38. Refund voucher 39. Form 39. Refund Advice 40. Form 40. Refund Register


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41. Form 41. Application for refund of input tax credit 42. Form 42. Application for refund 43. Form 43. Application for refund by exporters 44. Form 44. Sale Book 45. Form 45. Purchase Book 46. Form 46. Tax Invoice 47. Form 47. Certificate of Audit of Accounts 48. Form 48. Statement of particulars 49. Form 49. Consignment Note 50. Form 50. Forwarding Note 51. Form 51. Despatch register to be maintained by transporter 52. Form 52. Delivery register to be maintained by transporter 53. Form 53. Statement of goods transported into Assam 54. Form 54. Statement of goods transported outside Assam 55. Form 55. Manifesto 56. Form 56. Certificate of export 57. Form 57. Register of certificate of export 58. Form 58. Application for authorisation 59. Form 59. Authorisation to search 60. Form 60. Bill of Sale 61. Form 61. Delivery Note 62. Form 62. Road Permit 63. Form 63. Tax Clearance certificate 64. Form 64. Transit Pass 65. Form 65. Trip sheet to be submitted in triplicate 66. Form 66. Delivery Permit 67. Form 67. Notice for showing cause against purchase of goods 68. Form 68. Memorandum of Appeal 69. Form 69. Memorandum of Appeal filed before the Appellate Tribunal 70. Form 70. Memorandum of cross objection before the Appellate Tribunal 71. Form 71. Intimation regarding the acceptance of composition money 72. Form 72. Particulars of the Manager/Authorised Person 73. Form 73. Summon under section 97 of the Assam Value Added Tax Act, 2003 74. Form 74. Application for furnishing of certain information 75. Form 75. Authority under section 103 of the Assam Value Added Tax Act,

2003

76. Form 76. Application form for determination of disputed question under section 105

77. Form 77. Statement of tax paid stock in hand