Business Audit Under MVAT Act

Business Audit under
the MVAT Act , 2002
Presentation on 08TH May 2010 at

Intensive Course on MVAT by WIRC
CA KIRAN G. GARKAR
Business Audit under
the MVAT Act , 2002
Business audit
Refund audit
Its procedure
Relevance in MVAT Audit
May 19, 2010 KIRAN G. GARKAR 2

Coverage of topic
Legal provision : Section 22
Trade Circular 25-T/2008
Internal Circulars

Accounting provisions
Sec. 63 – Accounts to be maintained
By every dealer liable to pay tax
Who is asked by the CST in writing
In respect of sale & purchase of goods
By notification–for dealer/class of dealers

To be kept at POB
G/R- D/N & C/N – rate diff. to be claimed in
month of accounting

Accounting provisions (cont..)
Sec. 86 Tax invoice
Rule 77 Declaration on tax invoice
Rule 55 conditions for grant of set off

To maintained a true a/c of purchases of
goods
Sec. 84 Declaration of op. stock as on

1.4.05
Objective
Usual route
Assessment through Returns &
verification of books of accounts
Administrative tool
-- Exceptional assessment
--Voluntary compliance/Self policing

Objective
To ascertain and ensure compliance of
laws implemented by Sales Tax Dept.
Practical level- to ascertain correctness of
returns
To identify inadequacies of returns,
when checked with books of accounts
And the circumstances of the business.
To quantify the liability and enforce
recovery , if returns are not filed.
Sec.22 : Audit – An Analysis
Audit qua Accounts v/s qua Business
Enlarged scope.
Not restricted to accounts but also to
cover the entire business.
With a view to promoting compliance – CST

may arrange Audit of the Business of any RD

contd….
Sub-sec.1: Criteria for selection of dealers

– who have
Not filed returns in time
Claimed refund of tax
CST prima facie not satisfied with
correctness of any return filed OR is not
satisfied with any claim, turnover etc
Selected based on ‘criteria or on random’
Reason to believe
contd….
Sub-sec.5: During the course of audit – the

dealer to
Afford him necessary facility to inspect
Books, documents – which may be
available at such a place.
Afford him facility to check or verify the
cash or stock.
Furnish information

contd….
Officer cannot remove any books of

accounts, other documents or any cash or
stock
Time with in which Business audit is to be

completed – not provided

contd….
Sub-section 2,4,6,7 & 8:
Deleted wef 1.4.2005
Sub-section 3:
Delegation by CST in writing:
Deleted wef 15.8.2007

Documents/data required at the
time of business audit.
Balance sheet/Trial balance/ Sch. under
Companies Act, IT Act incl. Tax Audit
Report in Form no.3CD.
Sale & Purchase register- Summaries
Sales invoices/Purchase invoices
Returns & challans filed under MVAT Act,
2002 & CST Act, 1956.[Allied laws also]
Ledger and all books of account

Documents/data required at the time
of business audit (cont..)
Stock registers
stock or cash verification sheets –to
facilitate verification of cash & stock - found
at POB
Detailed party wise statement of sales and
purchases
[e-Form 801 now prescribed for audits
which commenced on or after 1.4.2009]

Documents/data required at the
time of business audit (cont..)
DN and CN , if any.
Details and necessary dispatch proof of
return of goods; i.e. sales return and
purchase return
Transport receipts and delivery challans.
Import/export documents like bill of
lading, bill of entry, packing lists, high
seas sale agreement if any, clearing
agents bill etc. supporting documents.

Reconciliation statement of sales and
purchases with MVAT returns filed
Registers, Ledger, Manufacturing ,
Trading, Profit & Loss A/c, Balance Sheet
Month wise summary of sales/purchases.
Declarations in support of exemptions
claimed under MVAT ACT, 2002 and CST
Act, 1956; i.e. C forms, H forms, F forms
etc.
Any other documents/books required
during conduct of audit.
Statement of various input tax credit
availed on
opening stock as on 1.4.2005
Regular purchases
Expenses
Assets purchased.
Rate of tax on input and output goods.
List of capital assets, and addition/
reduction if any.

Audit officer may also ask for agreement,
purchase orders, work orders, tender
documents, if required for ascertaining
correctness of returns.
Allied laws-PT/ Luxury Act
Depending upon the facts, return or other
info. related to IT/Excise law

Scope of Audit
Interview
Free hand u/S 14
Physical stock of goods
Cash/bank balance
Reconciliation
Discretion of checking other period/ issues
Intervention by Investigation Branch
If info. Not kept ready, Penalty ?

Powers of Audit officer
Powers or Duties?
To communicate his observations to the

dealer, if possible on the date of audit or
immediately thereafter.
No order / information contemplated

If discrepancies found
Intimation (no time limit)
Form 7 [Administrative purpose]
After 1.7.09, under section 63(7)
No form yet prescribed[604 wef 1-5-10]
To file revised return & pay differential
tax, claim lesser refund or recalculate
CQB.

Corrective action
File revise returns, pay off differential dues
with interest.
W.e.f 1.7.09, interest @25% under Sec.30(4)
If not acceptable to dealer- initiation of
appropriate proceedings incl. assessment.
Rejection of claim of refund / reduction in
claim - Assessment notice (u/s.23)
If already assessed – review u/s.25
Intimation to appellate authority
Orders to levy interest and penalties
Rights of the dealer
To ask for valid authorisation of audit
officer.
To check identity proof of audit team
To continue his conduct of business
To take help of his Sales Tax consultant
Right to know results within reasonable
time

Internal Circulars
15A of 2008 dtd.4/8/2008 for refund appli.
Desk audit & Select ones for business audit
Other criterias
Random sampling ,
Refund = > Rs. One Crore
25% refund reduced in preceding year
Abrupt rise in refund claim compared to
previous year

Internal Circulars
First and last refund claim
Dealers availing benefits under any PSI
for expansion unit
Not covered under Voluntary refund
scheme
Paying tax in investigation proceedings
and then claiming refund

Internal Circulars
17A /2008 dtd.18.08.08
Pre audit preparations, dealer’s profile,
planned approach
Type of audit
Entire year or periods
Specific issue based audit
Scope of specific audit: expandable
Penalty: Defiance of law or prima facie
proof of ‘mens rea’.
Internal Circulars
Time limit: Three months from date of visit
Scrutiny of bank Statements
Not merely placing on record

Taking Stock/Cash counting:
Not to be resorted in routine manner
Express permission from JC for strong
and valid reasons
20A/2009 dtd 4.9.09: Instead of
permission, discretion to be exercised
Internal Circulars
18A/2009 dtd.18.08.09
Criteria for keeping forms on record
Inter-State TO: Value of C form for record
Up to 1 crore:Rs.50,000
Up to 10 crore:Rs.2,00,000
Above 10 crore: Rs.5,00,000
Formats
For forms kept on record
Received but not kept on record
Defective forms & Not produced
Internal Circulars
Instructions for cross checks
Representative documents to be taken on
record for exports : Direct and deemed
Deemed Exports:
Conditions to be complied with
Relevant documents
No disallowance on ground that details
of overseas importer have not been
produced or defaced on the document
Business Audit – Some issues
Time limit to initiate or complete the
business audit ? No such limitation
Under the instructions of the business
auditor- revised return filed – differential
taxes paid under protest
If no assessment is done? Remedy of
appeal can’t be resorted
If assessed –option to appeal open

Can there be business audit even if refund
audit is done?
As such there is no bar
No duplication of efforts
Tr. Cir. No 56 T/2007 Para 11(iv)
It may be noted that intimation does not
bar an authority from Initiating a fresh
business audit proceedings or any other
proceeding, for that matter against the
dealer for the same period.
Tr. Cir.22 T/2009 [6.8.09]
Can there be business audit even if
Assessment is over? Yes- Business
auditor may recommend review
proceedings- refer to appellate authority.
What if the stand of the MVAT Auditor and

Business auditor is divergent?
Declaration Forms – pending – Should

taxes be paid if insisted by business
auditor?
Notice for conduct of the Audit?
Only intimation letter issued.
To end with intimation letter only, if any
Multiplicity of proceedings
Concept introduced under PT Act
No finality
Departure from Advisory nature
Lack of transparency

Refund Audit
No specific provision under the Act
One of the aspect of Business Audit
Trade Circular 3T-2007 dated 10.1.2007
Internal Circular 2A-2010 dated 10.2.2010
Main Hurdle
“Tax received into Govt. Treasury”

MVAT Auditor to take a call on this front
Business audit notice is received

Refund application in Form 501 filed
Keeping track of developments

Where Business audit/Refund audit is
being conducted simultaneously
Likely Results based on observations of
Audit team
Intimation , if any under sec.63(7)
Action/compliance from Dealer’s side
Proper observations in Form 704

Where Business audit/Refund audit is
complete, prior to MVAT Audit
Results
Observations of Audit team
Intimation , if any under sec.63(7)
Action/compliance from Dealer’s side
Suitable disclosure in the Form 704


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Business Audit under

the MVAT Act , 2002

Presentation on 08TH May 2010 at

May 19, 2010 KIRAN G. GARKAR 2

Trade Circular 25-T/2008

May 19, 2010 KIRAN G. GARKAR 3

By notification–for dealer/class of dealers

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Rule 77 Declaration on tax invoice

Rule 55 conditions for grant of set off

Sec. 84 Declaration of op. stock as on

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With a view to promoting compliance – CST

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Sub-sec.1: Criteria for selection of dealers

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

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Officer cannot remove any books of

Time with in which Business audit is to be

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To communicate his observations to the

No order / information contemplated

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What if the stand of the MVAT Auditor and

Declaration Forms – pending – Should

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Business audit notice is received

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