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Seminar on New MVAT Audit Report – Form 704

Seminar on New MVAT Audit Report – Form 704. 6.12.2008 Organised by Mulund CA CPE Study Circle of WIRC of ICAI Presentation by Rajat Talati chartered Accountant talatico@mtnl.net.in. Overview. The new MVAT Form 704 is divided into three parts –

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Seminar on New MVAT Audit Report – Form 704

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  1. Seminar on New MVAT Audit Report – Form 704 6.12.2008 Organised by Mulund CA CPE Study Circle of WIRC of ICAI Presentation by Rajat Talati chartered Accountant talatico@mtnl.net.in CA Rajat Talati, Mumbai

  2. Overview • The new MVAT Form 704 is divided into three parts – • Part – I deals with audit & certification • Part – II deals with general information • Part – III are the schedules of turnovers and tax calculations and annexures • Effectively assessment of turnovers and tax liability / refund CA Rajat Talati, Mumbai

  3. Instructions • No enclosures unless prescribed or essential for furnishing information • All boxes / fields to be filled in • For multi-state activities GP & NP ratios to be given on all India basis. All other ratios at state level only. • Tax liability to be computed “as required by law” where documents not available or are insufficient. • Auditor to sign and seal all pages CA Rajat Talati, Mumbai

  4. GENERAL POINTS • Instruction No. 9 in Form 704 at Pg. 1: • Link with returns • Part 3 of Report, linked with Type of Return filed • Return filing instructions, applicable to report • Auditor shall follow Return Instructions for filling Schedules of Audit Report • Only PDF form • No space for additional info. /observations CA Rajat Talati, Mumbai

  5. GENERAL POINTS • Fill up only relevant/ applicable Sch of Part 3 & Annexure (ref. note 6) • Non applicable Schedules - need not be printed – give note • Auditor ‘must’ give his remarks in table 3 of part I • must??? Not possible to ascertain precise reason for every difference CA Rajat Talati, Mumbai

  6. GENERAL POINTS • Remark for Short Comings/ Deficiencies in Compliance of law: • i.e. shortages, Incomplete, Improper, Incorrect Data or Document. • In brief or In detail (if required) • Report at Table-3 in Part 1 giving reference of Row & Column of relevant Schedule CA Rajat Talati, Mumbai

  7. Audit & Certification • Clause 1: Report about “statutory” audit under “IT Act, 1961” • “statutory” audit will cover only companies, trusts, societies, statutory bodies, etc. • Intention to cover dealers not covered under any statute, viz individuals, HUFs, firms, etc • Some dealers may not be liable to any audit other than MVAT audit • Clause 2: Scope limitation clause • Responsibility of management for maintenance of books and records. • Auditors’ responsibility to express an opinion on “sales tax related records” and “financial statements” CA Rajat Talati, Mumbai

  8. Audit & Certification • Application of AAS and conduct of audit to “obtain reasonable assurance that records and financial statements are free from material mis-statement(s)” • Application of test checks • Assessment of accounting principles and estimates and evaluating over financial statement presentation • Clause 3(A): Details of dealers and returns verified • Clause 3(B): certifications • Auditor has read and understood the instructions • All information and explanations have been obtained • Books, documents and records are sufficient for verification of returns • Records relating to movement of goods properly maintained. • Tax invoices issued are in accordance with provisions CA Rajat Talati, Mumbai

  9. Audit & Certification • Gross turnover of sales declared in returns includes all transactions of sales • Gross turnover of purchases declared in returns includes all transactions of purchases. • Adjustments of turnover is based on entries in books and documents • Deductions from turnovers is supported by documents • Adjustments / deductions not claimed in returns are not required or authorised. • Rate of tax applied on sales is correct and computation of tax payable is proper • Computation of set off and adjustment is correct • Computation of CQB is in conformity of the provisions CA Rajat Talati, Mumbai

  10. Audit & Certification • Tax payable / refund claimed in returns is correct • Other information provided in returns is correct • Dealer is conducting business from place(s) declared by him as his main place and additional places • Entries in bank statements have been reflected in books • Transactions in books are fully reflected in bank statements • Whether the dealer has maintained stock register? • Whether proper records of receipts, despatch and delivery of goods are maintained? CA Rajat Talati, Mumbai

  11. Audit & Certification • Clause 4: Computation of tax liability and CQB and differences. • Clause 5: Advise to dealer • Pay additional tax or repay refund received • Claim additional refund or reduce claim • Reduce tax liability • Revise closing balance of CQB • Any other recommendation • Clause 6: Details of differences for each figure in schedules • Remarks on non-compilance, short comings and deficiencies. CA Rajat Talati, Mumbai

  12. Audit & Certification • Report, Remarks & Observations for each difference found in amt as per Return and Audit • Remark means “comment, noticeable point, observation, opinion, statement, note.” • Remark for Non-Compliance of provisions of MVAT/CST law w.r.t e.g. Returns, Exemptions, Computation of Turnover, Tax Rate, Set-off claims, Record, etc. CA Rajat Talati, Mumbai

  13. General information – to be collected from dealer • Details of divisions and units for which separate books are maintained. • Names and version of accounting software • Major changes during the year • Address where books of accounts are kept • Whether profession tax returns filed and payment made • Whether profession tax enrollment has been paid • Financial ratios / information for current and previous year with reasons for change. • GP : NP • NP : NTO of sales CA Rajat Talati, Mumbai

  14. General information – to be collected from dealer • Net sales in Maharashtra • Cash sales : total sales • Cash purchases : total purchases • Local sales : net sales • Inter-state sales (excl. exports) : net sales • Exports : net sales • Set off : net sales • Tax : net sales • Opening stock including WIP • Closing stock including WIP • Closing stock : net sales CA Rajat Talati, Mumbai

  15. General information • Details of bank accounts with BSR code • Details of activity code number of the dealer • Details of new local suppliers for purchases exceeding Rs.5 lakhs on which set off was claimed CA Rajat Talati, Mumbai

  16. Part 3/ Sch I- Normal VAT Dealer • Computation of Sales Turnover: • 1a. GTO of Sales= Total Sales & Service Income • Net T.O.+ Tax Collected+ Lab chs+ job work chs+ stock transfers • Sec 2(33) ‘T.O. of sales’= Sales- G/R –Deposit/R • Sec 2(25) ‘SP’ = SP-Tax collected • Sec 2(24) ‘Sale’ = Sale of goods (it does not include labour/ service chs) • GTO of Sales in Audit Report is assigned a specified coverage. CA Rajat Talati, Mumbai

  17. Part 3/ Sch I- Normal VAT Dealer • 1b Less: TO of Inter-State sales & stock transfers covered under other Schedules • (TO+ Tax) which is covered & reported in Other Schedules i.e. II To V (not CST Sch VI)e.g. Restaurant, Bakery, PSI Unit, etc. • 1c. Balance: Balance TO (1a-1b) • Balance TO relevant to this Schedule CA Rajat Talati, Mumbai

  18. Part 3/ Sch I- Normal VAT Dealer • 1d Less: Allowable Credit Notes issued for goods returned/ discount/ rate difference • Net TO + tax as per CN / 6 months for G/R, Sales Cancellation/ Rejection, DOC evidence, Entries in accounts Ignore non allowable credit notes. • 1e Less: Net VAT amount • Tax collected separately • Tax element as per Rule 57(1) where tax inclusive. CA Rajat Talati, Mumbai

  19. Part 3/ Sch I- Normal VAT Dealer • 1f Less: Local Stock Transfer within Maharashtra on which Agent pays tax. • Stock Transfer Memo ,Dispatch proof • Agent’s Confirmation (for TIN, T.O. & Tax paid) • VAT paid challan copy • 1g Less: Sales under Section 8(1), (Taken in Schedule VI) • CST Act T.O. (Exports, Form H, Inter state sales & High Seas Sale) • Inter state stock transfer. • CST collected. CA Rajat Talati, Mumbai

  20. Part 3/ Sch I- Normal VAT Dealer • 1h Less: Sales of Tax Free goods • Schedule A goods (e.g. Agricultural Implements, (notified), books & periodicals, etc. • 1i(i) Less: Sales fully exempt u/s 8(2) as per Notification • Sales of fuel & lubricants to Foreign Aircrafts CA Rajat Talati, Mumbai

  21. Part 3/ Sch I- Normal VAT Dealer • 1i(ii) Less: Sales fully exempt u/s 8(3) • Sales of specified goods, interse between SEZ, STP, EHTP, EOU. • 1i(iii) Less: Sales fully exempt u/s 8(3A) • Sales based on Import & Export Policy • 1i(iv) Less: Sales fully exempt u/s 8(3B) • Sales by CSD / INCS to members of armed forces, etc. CA Rajat Talati, Mumbai

  22. Part 3/ Sch I- Normal VAT Dealer • 1i(v) Less: Sales fully exempt u/s 8(3C) • WC for Textile Processing • 1i(vi) Less: Sales fully exempt u/s 8(4) • Sales by PSI Unit following Exemption Route. • 1i(vii) Less: Sales fully exempt u/s 41(4) • Sales of Motor Spirit & Petroleum products, interse between Oil Cos. & Motor Spirits sold in retail by Petrol Pumps. Note: Returns do not have the exempt Sales T.O. under different sub sections of Sec 8. CA Rajat Talati, Mumbai

  23. Part 3/ Sch I- Normal VAT Dealer • 1j Less: Job work/ Labour chs • Pure labour/ service chs. • No material involved • 1k Less: Other allowable Reductions/ Deductions • Transit Insurance chs collected • Installation chs collected • Resale of goods manufactured by exempted PSI Unit, as per Rule 57(2) CA Rajat Talati, Mumbai

  24. Part 3/ Sch I- Normal VAT Dealer • Rent for immovable property • Interest/ Dividend Income • Commission Income, if included in GTO of sales • 1l Balance Turnover • Taxable Net Sales T.O. CA Rajat Talati, Mumbai

  25. 2 Computation of Tax Payable under MVAT Act CA Rajat Talati, Mumbai

  26. 2. Computation of Tax Payable under MVAT Act • Difference assumed to be in Tax Amt • Goods sold as per Notification u/s 8 liable to VAT @ 4%, be shown here. • Reference of relevant Schedule Entry, not asked for. CA Rajat Talati, Mumbai

  27. 2. Computation of Tax Payable under MVAT Act • 2A Excess Tax Collected *Refunded to customer *Else forfeiture, so payable (Excess Tax Collected, if refunded to buyers before passing of Forfeiture Order, then Forfeiture issue does not arise- Transelektra Domestic Prod. Ltd. SA 402/ 2002/ 26-2-08). CA Rajat Talati, Mumbai

  28. 3. Computation of Turnover of Purchase including Branch Transfer • 3a: Total turnover of Purchases Corollary of Sales • 3b:Less: T.O. of Purchase Covered under Schedule II to V Exclude purchase not relevant for this Schedule. • 3c Balance T.O. (3a-3b) • 3d Less: Goods Returned, Rate Difference., Discount. • Allowable Debit Note/Credit Note • Time Limit of 6 months • Separate Tax Element CA Rajat Talati, Mumbai

  29. 3. Computation of Turnover of Purchase including Branch Transfer • 3n Less: Local RD Purchase of Taxable Goods Not supported by Tax Invoice • Where Tax not shown separately in Invoice • 3o Balance: Local Purchase Supported by Tax Invoice. • Refer Annexure I CA Rajat Talati, Mumbai

  30. 3. Computation of Turnover of Purchase including Branch Transfer • 3P(i) Local RD Pur. Supported by Tax Invoice, but Not eligible for setoff u/r 54 • Eg: Passenger Motor Vehicle, IPR, WC related to Immovable Prop.,etc • (Annexture I, Pt.no.2) • 3P(ii) Local RD Pur. Supported by Tax Invoice, but Liable for Retention u/r 53 • Eg: Fuel, Furniture & Fixture, Office Equipments, etc. (Annexure I, Pt.no.4) CA Rajat Talati, Mumbai

  31. 3. Computation of Turnover of Purchase including Branch Transfer • 3P(iii) Local RD Pur. Supported by Tax Invoice, Eligible for Full Setoff • Eg: Plant & Machinery, Raw Materials, Packing Materials, etc. • Mismatch between data under col. 3P & Annexure I • How to give Data when affected by rule 53(2),53(3), etc? CA Rajat Talati, Mumbai

  32. Annexure I to Schedule 1 Computation of Setoff :- • `1A Details of Tax Paid Purchases of Inputs, Raw Material, Business Expenses, Packing materials, etc. CA Rajat Talati, Mumbai

  33. Annexure I to Schedule 1 Computation of Setoff :- • 1B Details of Tax paid on Capital Assets • (i.e. Plant & Machinery, Furniture & Fixtures, Office Equipments, etc.) • Data as Above • 1C Total of 1A & 1B – Data as Above CA Rajat Talati, Mumbai

  34. Annexure I to Schedule 1 Computation of Setoff :- 2. Details of Tax Paid on purchases, Not eligible for Setoff u/r 54: • Data as above • E.g. Software for self use, copy right 3. Details of Tax Paid on Purchases Eligible for Setoff: • Data as above 4. Details of Tax Paid on Purchases, Liable for Retention u/r 53: • Data as above CA Rajat Talati, Mumbai

  35. Annexure I to Schedule 1 Computation of Setoff :- 5. Details of Allowable Setoff i.e. Total of 3 – Total of 4 CA Rajat Talati, Mumbai

  36. 4. Computation of Tax Payable : CA Rajat Talati, Mumbai

  37. 5: Details of TDS Deductible/Deducted by Dealer as Employer Note: Period-wise & Party-wise TDS liability, with Interest. 6. Determination of TO of Purchases & sales If reqd. reconciliation of Sales & Purchases : Returns / Profit & Loss A/c / Computed in Audit. CA Rajat Talati, Mumbai

  38. Audit Report Part 3- Sch VI- CST Sales Computation of CST • 1 GTO of sales • 1a less: Local Sales • 1b less: Interstate sales u/s 6(3) • Sales of any goods under Form ‘J’ (to collect transaction wise) to Foreign Diplomats or Foreign Consulates in India or United Nation, etc. CA Rajat Talati, Mumbai

  39. Computation of CST • 1c less: Goods Returned u/s 8A(1)(b) • Within 6 months • Credit Note • Entries in Accounts • 1d less: T.O. of sales outside the State • Out & Out sales CA Rajat Talati, Mumbai

  40. Computation of CST • 1g less: Interstate Stock Transfer u/s 6A • To own Branch/ Agent • Stock Transfer Memos • Dispatch Proof • Form ‘F’ (One per month) CA Rajat Talati, Mumbai

  41. Computation of CST 2 Balance: Interstate Sales effected from Maharashtra 3 Balance: Taxable Interstate Sales 4 less: Tax Deduction u/s 8A(1)(a) • Tax collected separately or inclusive 5 Balance: Net Taxable Interstate Sales (Col.3-Col.4) CA Rajat Talati, Mumbai

  42. Computation of CST 6A Sales Taxable Under Form ‘C’ (u/s 8(1) or 8(5)):One Form ‘C’ per Quarter) CA Rajat Talati, Mumbai

  43. Computation of CST • 6B Sales Taxable without Form ‘C’ (u/s 8(2)) • Table as above- for difference, give Remark • w.e.f 1-04-2007, CST @ local VAT rate applicable in State. • Instruction Note No. 8 for Form 704; Insufficient/ No doc., then tax computation @ ? • 6C Tax Collected in excess of tax payable – • Penalty u/s 10 CA Rajat Talati, Mumbai

  44. CST Payable & Paid 9 Balance CST Payable (7e – 8e) OR 10 Balance CST Refundable (8e – 7e) 11A: CST paid with Returns/ challans: • 11B: RAO Details CA Rajat Talati, Mumbai

  45. Pending CST Forms • 12: Pending Form List ( C / H / I / J / E-I / E-II ) • 13: Pending Form ‘F’ for Stock Transfers: CA Rajat Talati, Mumbai

  46. 14. Other Observations in CST e.g. Incomplete or Invalid Form C/H/F, etc. ----------------------------------------------------------------- ----------------------------------------------------------------- Encl: 1) Income Tax Audit Report & Annexures 2) Audited P&L A/c, B/S & Annexures CA Rajat Talati, Mumbai

  47. Reporting Done Away with in New Form • List of Record/ Registers verified. • In case of Works Contract, Opted for Composition or Vat provisions. • Observations for delay in filing Returns or tax payments • Method followed for valuation of Stock Transfers. • Reference of Sch. Entry, qua sales of Tax Free/ Taxable goods. • Reference of documentation & operating procedures, qua exports, imports, sale in transit, stock transfers, etc. CA Rajat Talati, Mumbai

  48. Reporting Done Away with in New Form • Contraventions of purchases under Form ‘C’. • Details of purchases from URD, of Rs. 10,000/- or more. • VAT TDS record maintenance, issue of certificates, Party wise details of transactions liable to TDS, but not deducted. (Period wise TDS deductible shall be reported) • Pending forms E-I/ E-II. • Number of CST Forms collected & utilized. • Enclosure of Statutory Audit Report. (IT Audit Report shall be enclosed) CA Rajat Talati, Mumbai

  49. THANK YOU ALL QUERIES? CA Rajat Talati, Mumbai

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