TRADE CIRCULAR
No. VAT/JC/BA-3/ BA-Proce/ Mumbai Dt : 23.07.2008
(Trade Cir. No. 25 T of 2008)
Sub:- Business Audit under MVAt
Gentlemen/Sir/ Madam,
The trade is aware that Business Audit Divisions of the Department have become fully functional. VAT system is based on voluntary compliance with law. The present circular is being issued to clarify certain aspects related to Business Audit.
02. Objects of Business Audit :
As expressly mentioned in Section 22, the primary object of business audit is to promote compliance with law. Business audit is a device with the Department to ascertain and ensure compliance of laws that are implemented by the Department. At a practical level, the object of audit is to ascertain the correctness of returns and to identify inadequacies in returns, if any when checked against the books of account and the circumstances of the business. If the returns are not filed then, the audit officer is expected to quantify the liability of the dealer and enforce recovery.
03. Procedure of Audit :
As per the present procedure, the audit is carried out at the place of the dealer by the officers working in the Business Audit Divisions. The cases for audit are selected by the Business Audit Criteria Committee on the basis of certain criteria. Normally, the audit is carried out with prior information of the date to the dealer, unless there is deliberate decision to conduct surprise audit. The notice of information to the dealer shall also contain what information he should keep ready at the time of visit. The officer is authorised by the Joint Commissioner of Sales Tax of the respective Business Audit Division for this purpose. If however the officer is unable to keep the appointment then he will inform the dealer well in advance. If the information sought for in the notice sent to the dealer is not kept ready by the dealer at the time of the visit, the auditor may levy penalty in suitable cases.
04. Scope of Audit :
i) As the primary object of Business Audit is to ensure the compliance of laws implemented by the Department, the audit officer will ascertain the correctness of returns filed by the dealer, both under MVAT Act and CST Act. Obviously, the audit officer will verify the books of accounts maintained by the dealer along with sale bills, purchase bills, sales journals, purchase journals, ledger, cash book, delivery chalans, dispatch proofs, bank statements and every other document or piece of evidence to ascertain the correctness of turnover returned and also the correctness of claims made through returns. The audit officer may also ask for agreements, purchase orders, work orders, tender documents etc., if such documents are required for ascertaining the correctness of returns. The audit officer is also authorised to ask for the details of filing of returns and payments, if required.
ii) The audit officer is expressly authorised to make enquiry as to whether the dealer has filed returns and made payments under other allied laws, such as
Profession Tax Act, Luxury Tax Act. The audit officer may also ascertain correctness of payments made under these Acts. Depending upon the facts, the auditor may also ask for returns or any other information related to Income Tax / Excise laws.
iii) It will be the dealers’ responsibility to give correct and complete information during the course of an interview conducted by the auditing officer and he shall ensure that all persons concerned with the accounts, filing of returns, payment of taxes, sales, purchase, production and other business activities are available with information sought by the audit officer. The object of holding interview is to have better information of the dealer’s business, his accounting system and also to speed up and accelerate the audit process, so that the dealer as well as the Department can save time.
iv) In discharging the function of audit, wherever warranted, the audit officer can use the powers delegated to him by the Commissioner under section 14. By taking recourse to section 14, the audit officer can use all the powers of a Civil Court for the purposes of proof of facts by affidavit, summoning and enforcing the attendance of any person and examining on oath of affirmation, compelling production of documents etc. These powers would be utilized by the audit officer only in circumstances where use of such powers becomes necessary for achieving the purpose of audit.
v) The audit officer is also authorised to take physical stock of goods and ask for clarification if there is any variation. In addition, the audit officer is also authorised to count cash and bank balance and to ask for reconciliation thereof, if warranted. It is, however, made clear that the audit officer on no account shall remove or cause to be removed from the place of business any books of accounts, other documents or any cash or stock.
The dealer shall furnish self-certified copies of documents and statements as required by the audit officer.
vi) Even if the audit is on a particular issue or for a shorter
period, the audit officer can make enquires as regards other periods or other issues. In other words, the audit officer can scrutinize any or all claims pertaining to the year under audit as per his discretion.
vii) If the dealer under audit does not co-operate or adopts a negative approach and avoids production of books of accounts or any documents which have evidentiary value, or if the audit officer thinks that critical pieces of evidence would not be produced by the dealer or where he apprehends the disappearance or destruction of such document or evidence, then the audit officer, with the permission of concerned Joint Commissioner of Sales Tax, can seek an intervention by the Investigation Branch.
05 Powers of the Audit Officer :
If any discrepancy is noticed in the process of audit, either in returns or books of accounts or otherwise, then the audit officer has to communicate his observations to the dealer, if possible on the date of audit itself or immediately thereafter. The communication to dealer is expected to be unambiguous and clear in its import. If the audit observations / objections are acceptable to the dealer then after compliance by the dealer the process of audit would stand concluded. The corrective action could be filing of revised returns and making payment of differential dues, if any, including interest.
In the event of audit observations / objections not being acceptable to the dealer, the audit officer would initiate appropriate proceedings including assessment.
06 Duties of Dealer :
As expressly mentioned in Section 22 read with section 2 (18), 63 (4), 64, the dealer under audit has to afford necessary facility to auditor to inspect books of accounts. The dealer shall give unhindered access to his books of accounts and / or to computerized books of accounts. The audit process can be hastened only if the dealer keeps his books of accounts, bills and all relevant documents at the place of business. The queries raised by audit officer are expected to be clarified with requisite evidence or documents then and there only so that the issues are immediately resolved and the resolution of issues is not kept pending. Legal issues having financial implications, of course, could be resolved on a later date. The dealer shall also furnish the E-mail addresses and contact numbers of his vendors/ vendees.
07 Rights of the Dealer :
The dealer under audit has a right to ask for valid authorisation of audit officer for carrying out audit. He can also ask for Identity proof of audit-team. The dealer can continue his business during audit. He can also take help of sales tax consultant / practitioner, if so required by him. It is the discretion of the dealer either to accept or reject the audit observations communicated to him by the audit officer. The dealer under audit will have a right to know the result of audit within a reasonable period of time. Normally, audit process is expected not to continue beyond a period of three months or so for reaching to final conclusions, provided the dealer extends full co-operation in the proceedings. This time limit would of course not be applicable, if the audit results in initiation of assessment proceedings.
08 This circular cannot be made use of for legal interpretation of provisions of laws, as it is clarificatory in nature. If any member of trade has any doubt, he may refer the matter to this office for further clarification.
You are requested to bring to the notice the contents of this circular to the members of your association.
Yours faithfully,
Sanjay Bhatia)
Commissioner of Sales Tax,
Maharashtra State, Mumbai.
