New MVAT Audit Form 704

  • Additional responsibilities as an Auditor
  • Additional features to be reported in New Form 704
  • Issues and Difficulties
  • Welcome Changes and Redundant Sections in Old Form 704

Additional responsibilities as an Auditor

  • Carefully prepare Reconciliation Sheet with balance Sheet figures
  • Add back all amounts debited to Sales and then allow the deductions considering the  facts and circumstances of the case
  • While allowing set off, correct treatment w.r.t Purchase Returns, rate difference, etc. needs to be verified
  • Whether Stock Register is to be maintained
  • Verification of PT returns filed & payments made under PTRC
  • Verification of PT returns filed & payments made under PTEC
  • Determination of Cash sales made during the year. Cash sales means sales against which cash has been received
  • etermination of Cash purchases made during the year. Cash purchases means sales against which cash has been paid
  • Verification of Bank statements for the year along with the BRS statements and supporting for items pending in BRS
  • Verification of refund received after the year of audit
  • List  of Vendors from whom Purchases are effected for the first time under the period of audit

Additional Features to be reported in new Form 704

  • E-mail address
  • Details Of Bank accounts along with Account No, Branch & Branch BSR Codes
  • Audited Previous & Current Year’s Financial Statements With Statutory Audit Reports And Tax Audit Report
  • Stock Register along with the appropriate records
  • Refund Application made in Form 501
  • Refund received/granted by the Department for the period under audit
  • Additional places of business
  • Whether separate books of accounts are maintained at those places
  • Name & version of the Accounting Software in use
  • Change in product line in comparison to previous year
  • Place of business where books of accounts are normally kept
  • New business activity commenced during the year if any
  • Opening Stock (including WIP in Maharashtra)
  • Closing Stock (including WIP in Maharashtra)

Issues and Difficulties

1. Part-1 Point B (m):

  • Examination of Bank Statements
    • Intention of examining Bank Statements needs to be understood
    • Can STANDARD on Auditing SA 600 (Using the work of another Auditor) be relied on?

2. Part-1 Point B (n):

  • Maintenance of Stock Register
    • There is ambiguity with regard to the meaning of Stock.
    • In case of a Works Contractor how can Stock be verified as

Work-in-progress= Material+ Labour

3. Part-1, Table 2, Sr. No. 6:

  • Refund already granted to dealer
    • For the Financial year 2008-09, refund is received in the year 2009-10. Should it be considered while auditing for the year 2008-09?
    • In case of small traders, if refund is deposited in the Financial year 2009-10 and the Bank reconciliation Statement is prepared annually, how would the same be verified?

4. Part-2 Point C (iv):

  • Change in Product Line
    • Ambiguity in what encompasses a Product Line

5. Part-2, Point G

  • Part-2, Point G (2): Is it necessary to verify whether the deductions under PTRC is correct or not?

6. Part-2 Point M and N:

  • Financial Ratios for the year under audit
    • How will one provide Gross Profit ratio, Net Profit ratio and other ratios if books are not maintained as per Income tax Act?

7. Part-2 Point N (2):

  • Cash Sales
    • Accounting Definition of Cash Sale
    • What is the intention of the Department in inserting this requirement?

8. Part-2 Point N (3):

  • Cash Purchases
    • What is the treatment for imprest or expenses debited to Profit & Loss Account?

9. Part-2 Point N (8):

  • Tax to Turnover of Net Sales
    • If Net Sales is excluding taxes would the required ratio be Tax/Net Sales?
    • Another issue being whether tax also includes CST Collection?

10. Point b in Schedules I, III, IV and V and Point 2 in Schedule II:

  • Turnover of sales including inter-State consignment transfers / branch transfers
    • Clarity is required on the above Point.

11. Annexure-1 Point C (2):

  • Rule 54

Welcome Changes

1.  The new Form 704 is mainly split into three parts:

  • Part I: Audit & Certification
  • Part II: General Information, Ratios, Remarks & Observation etc
  • Part III: Schedules & Annexure.

2.  The form is aligned with the returns filed

Redundant Sections in old Form 704

1. SECTION P: Details of Purchases on Form C in Contravention of the CST Act, 1956.

2. SECTION Q: Details of Purchases of Rs. 10000/- Or More, From Dealers/ Persons Not Registered under MVAT Act 2002.

3. SECTION U: Stock Account of Declaration Collected and Utilized During the Period of Review.

More Under Goods and Services Tax

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Category : Goods and Services Tax (7121)
Type : Articles (17305)
Tags : Income Tax Refund (205) MVAT (812) Statutory Audit (113) Tax Audit (281)

0 responses to “New amended form No. 704 and issues in it under the MVAT”

  1. Laxman sundesha says:

    Sales R. 3967000.00 vat collected Rs. 39670.00. Vat Audit Applicable ?

  2. sanjay jain says:

    A DEALER HAVE TAXABLE PURCHASES BUT NO SALE IN INDIA(SOFTWARE EXPORT ONLY) DOES HE ELEGIBLE FOR REFUND OF TAX PAID ON PURCHASES

    • Sandeep Kanoi says:

      Why he haven’t purchased the same against H Form. Purchase against H form entitle him to Purchase without paying any sales tax and same can be issued only if we are exporting the product purchased. Yes he can claim refund of tax paid on purchases by filing form No. 501 if he is from Maharashtra.

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