Authored by: C.A. C. B. THAKAR, Advocate
The Maharashtra Value Added Tax Act, 2002 (MVAT Act, 2002) is in force from 01.04.2005. One of the features of this Act is that specified dealers are required to submit Audit Report as obtained from Auditor i.e. either Chartered Accountant or Cost Accountant. This requirement is by way of section 61 of the MVAT Act, 2002. For non filing or late filing of the Audit Report, penalty at the rate of 0.1% of the turnover of sales is also leviable. As explained from beginning, under VAT Act the assessments will be sparing, based on selection criteria. Therefore, to have authentic checking of the returns/tax liability of the dealer, the VAT Audit provision has been introduced. The VAT Audit report in Form 704 is accordingly notified in the MVAT Rules right from 01.04.2005. However, the said Form is now replaced by Notification dated 26.08.2009 under Rule 17A(2) of MVAT Rules,2005 applicable from 01.04.2008. The newly introduced Form will accordingly be applicable from financial year 2008-2009. Some of the important aspects of this Form can be noted as under:
1. This form is applicable for 2008-2009 and onwards. So far as prior periods (i.e. before 1.4.2008) are concerned the audit report will be filed in old form and in physical form.
2. In the new form emphasis is shifted from returns to tax liability. In the earlier report the main thrust was to certify the correctness and completeness of the returns filed by the dealer. In the new Form, the thrust is on certification of tax liability of the dealer based on his books and records.
3. In the earlier report for almost each column and row, remarks from the Auditor were asked for. This was creating confusion and every Auditor followed different way of giving such remarks. The new Audit Form is designed in such a way that the remarks will get reported at one or two places viz; para-3 or para-5 of Part-1. This will be helpful to the Auditor as well as the user. In para 3 the reasons for negative certification, if any, can be given. In para 5 of Part I important observations having impact on tax liability can be given.
4. The most important aspect is that this new Audit Report is to be filed Electronically. The earlier Report was to be filed physically. The situation is that Report relating to the period upto 31.03.2008 will be still in the old physical Form. Only Reports to be filed for the period from 01.04.2008 will be in this new Electronic Form. The Commissioner of Sales Tax has issued Circular bearing No. 27T of 2009 dt. 01.10.2009 by which the procedure for e-filing of this Report is clarified. Though, Auditor will give his Report to the dealer, the dealer will upload the same. Therefore, the Auditor may be required to give Report in Electronic Format alongwith physical copy to facilitate the dealer to file new Report Form. After uploading the Report the dealer is also required to submit ‘statement of submission’, as explained in the above Circular.
5. The new VAT Audit Form has three parts. Part-1 is about certification, whereas Part-2 is about general information of the dealer and Part-3 is about calculation of tax liability consisting of Schedules/Annexures.
In Part-1, at the beginning, there is portion containing Instructions. There are about 19 Instructions. The rule making authority has given weightage to these Instructions, in as much as in the Certification Part the Auditor has to certify that he has read and understood instructions and followed the same while preparing the Report. Thus, the Auditor is expected to follow the instructions and in any case, if not in position to follow the same, he will be required to report in para-3 of Part-1.
6. As stated above, Part-1 is about certification. The para-2(B) of Part-1 starts as under:
“Subject to *my/our remarks about non-compliance, short comings and deficiencies in the returns filed and tax liability computed and presented in respective schedules and Para-4 of this Part, I/We certify that,-……”
Thus, an impression arises that this is not a Report as such but certification. Report is generally an opinion based on the overall verification of the records, certification means certifying correctness of the facts so certified. For example, if a ‘debtors list’ is certified, as per any records then such certification is expected to be correct as per actual amounts, leaving no difference even of Rupee or Paise. Therefore, an issue may arise whether the VAT Auditor is giving certification, so that the amounts/tax liability mentioned in the Audit Report is verified fully in all its respects, including 100% accuracy of the various claims and amounts mentioned. In certification in para-2(B), there are certain items mentioning that the Auditor has fully verified the facts stated therein. For example, in clause (i) the Auditor certifies that ‘all such declarations and certificates are produced before me. I have verified the same and they are in conformity of the provisions related thereto’.
Due to above certification, it may be understood that the Auditor is supposed to check each and every declaration form (like ‘C’ form), physically and that also with correctness of the details mentioned therein. There are certain more items of similar nature. Therefore, understanding the scope of Audit is important. It has to be kept in mind that though above is the mode of reporting, the report is still an expression of opinion only and it is not certification as understood in relation to Audit. This aspect is clear from the overall reading of the Form, particularly from the reading of the responsibility statement after para-1C in Part-1. The said statement is as under:
“Maintenance of books of accounts, sales tax related records and preparation of financial statements are the responsibilities of the entity’s management. Our responsibility is to express an opinion on their sales tax related records based on our audit. We have conducted our audit in accordance with the standard auditing principles generally accepted in India. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the sales tax related records and financial statements are free from material mis-statement(s). The audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates by management as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.”
Based on above responsibility statement, it can be said that the report is in the form of opinion and not a certificate as such. Therefore, the Auditor can give the specified certificates in para-2(B) of Part-1, based on his satisfaction from the verification, which may include test verification of the relevant records. However, now in light of above responsibility statement, the Auditor will have to maintain his working papers meticulously to word off any charge of negligence etc..
7. In Part-1, the VAT Auditor has also to give liability picture in summarized form by way of Tables. Unlike the old Form, in new Form the Auditor is not to give any recommendation for revising the returns. He has to only report about additional liability/refund etc. The dealer will take call to revise the returns accordingly or not. There is amendment in section 20(4) of MVAT Act, 2002 which is about revised returns. Section 20(4)(b) is about revising the returns pursuant to Audit Report. From reading of said section, it transpires that the dealer will be required to revise each individual return, as per the changes required in the same. In relation to old Form, the Commissioner of Sales Tax had issued Circular 26T of 2006 dated 18.09.2006 by which the dealer was able to revise only last return, to take care of all the changes during the audit period. Thus, the responsibility of the dealer has increased.
8. In Part-2, general information is called for. As compared to old Form, certain new requirements have been added. Like, details about filing of returns and payment under Profession Tax Act/Luxury Tax Act etc have been called for. Though, strictly speaking in the VAT Audit Report, details about other enactments can not be asked for, it appears that since the other enactments are also administered by the sales tax department, these details are asked for. The other distinguishing feature in Part-2 is that the Activity Code is also required to be reported. These Activity Codes are made available on government website and the Auditor, after selecting applicable codes has to give bifurcation of turnover qua such codes. One more additional feature is that particulars of bank accounts in the given format are also asked for.
9. Part-3 is about computation of liability. It has six schedules and eleven Annexures. The Schedules- I to V are for reporting transactions under MVAT Act, 2002, whereas Schedule-VI is about reporting transactions under CST Act, 1956. As clarified in the Instructions, the Schedules are as per return format. Under MVAT Act, 2002, there are different type of returns viz; From Nos.231, 232, 233, 234 & 235. Schedule-I relates to Form No.231 and so on. It is also possible that more then one Schedule may also apply, depending upon the type of returns applicable to the said dealer.
In addition to the Schedules, there are also Annexure from ‘A’ to ‘K’. These are supplementary to Schedules. In the Electronic Format, the Auditor is supposed to first fill up Annexure, so that some of the fields in the Schedules and Tables will be auto calculated. Though, there can be various minute details about each item of the Schedules/Annexure, for sake of brevity, the same are not discussed here. However, some of the additional items in this new Form, as compared to old Form, can be mentioned as under:
(i) List of new suppliers on the purchase of which set off is claimed. (Annexure ‘G’.
However, this Annexure is dropped in E-template).
(ii) List of TIN wise suppliers showing total purchases and taxes. (Annexure ‘J’).
(iii) List of TIN wise purchasers showing total sales and taxes.
(Annexure ‘J’). At present, there is no requirement for noting the TIN of the purchasers and hence, probably the dealer may not have these details available. However, the object behind such requirement appears to be to cross check the set off claims of the purchasers and if these details are readily available with the Audit Report, the department may not go for manual cross checking, making the process faster and avoiding human contacts. Therefore, the Auditor may give the required information to the extent possible, with suitable disclosures.
(iv) List of credit notes, party wise, showing amounts and taxes.
(v) List of debit notes, party wise, showing amounts and taxes. (Annexure ‘J’).
(vi) Ratio analysis. (Annexure ‘F’).
(vii) Bank statement examination, for certification as per para-2(B)(m) of Part-1.
(viii) Stock records requirement for reporting at various places.
(ix) Reconciliation with Excise / Custom records.(Instruction-19).
(x) Interest working as per (Annexure ‘A’ & ‘B’).
(xi) Personal visit to Place of Business.
The new Audit Form-704 is more elaborative. It also requires more details then the old one. In first year, the dealers may not be able to generate the details to comply with these requirements and it may involve additional work. However, in subsequent years, care can be taken to see that the softwares are changed suitably to generate the required details. It appears that in long run, the new Form will be more dealer friendly, once it works satisfactorily for first year. Being in the Electronic Form, the users/department will be able to take maximum advantage of the same and will be useful in monitoring the dealers/future planning.