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1 Drafting of New MVAT Audit Form 704. By CA Umesh Sharma.

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1 1 Drafting of New MVAT Audit Form 704. By CA Umesh Sharma

2 2 Why New 704? Old 704: - - contains 24 pages i.e., Very long to fill in. - - ready comparison of returns and books figure was not available. - - Final computation of Tax liability and advise to file revised return was not adequate to present data in Part I. - - Particulars, Verification, Observation and Remarks were misleading and confusing in Section of Part III. - - Or rectification of mistake by Sales Tax Dept or Others reasons like changes in law,..,

3 3 Lets have a look at New 704, which is very attractive or..,,,

4 4 Highlights of New Instructions List. 3 Parts. Part 1 of Audit Report, 15 point certification, computation of tax, etc Part 2 of General Information, profession tax and ratios. Part 3 of 1 to 5 Schedules of sales and purchases as per returns under MVAT and 6 th for CST.. 1 Annexure of setoff with Schedules.

5 5 New 704 Part I- Heading Its Start With New heading “ Audit and Certification” Old Forms was not having such heading. We were already giving opinion as auditor and certifying the disclosures. Now Specific wording of “Certification” leads greater responsibility. New Form 704 contains some disclosures which are there in the old 704 and some new. Out of them some disclosures are prominent which leads to verification and auditing and some are certifying paras.

6 6 Part 1 Clause 1 1. *I/We report that the statutory audit for the year __________________ of _______________________ (mention name and address of the dealer) …., Here statutory audit would mean audit conducted in pursuance of the provisions of the Income Tax Act, 1961? Statutory audit means Company Act, Co-op Trust Act, etc. The details of the income tax auditor along with date of audit report has to be given. It means VAT audit is compulsory to be signed after the completion of Tax Audit.

7 7 Part 1 Clause 1 1. *I/We report that the statutory audit for the year __________________ of _______________________ (mention name and address of the dealer) …., Issue: In many cases the dealer is not required to carry out the statutory audit in pursuance of the provisions of the Income Tax Act, but is required to carry out the VAT Audit as per Section 61 of the Maharashtra Value Added Tax Act, e.g. liquor dealer having turnover below forty lakhs, or dealer having a turnover less than forty lakhs but effected the Capital Assets purchases more than forty lakhs. In these cases VAT Auditor should state “Not Applicable” wherever the details of statutory auditor has been asked. Suggested Notes to Audit Report” “ On the basis of Information and explanation provided by the dealer Audit provisions under Income tax act, 1961 are not applicable and he is not required to get his books of account audited. Under MVAT Act, the dealer is a Liquor dealer, were audit u/s 61 is mandatory. Hence the books of account are unaudited under any law and our this Report and disclosure in Para 1 of Part 1 is based on the same.”

8 8 Part 1 Clause 1 1. *I/We report that the statutory audit for the year __________________ of _______________________ (mention name and address of the dealer) …., Issue in relation to last Clause of Enclosure Is Statutory Audit Reports under other Acts other than Income Tax Act is not required to be annexed with this VAT Audit Report? It is necessary to attach all audit reports as Form 3CA refers other audit report as part of it. Where a dealer is liable for VAT Audit for its branch in Maharashtra and having principal place of business outside Maharashtra. In such cases the income tax audit report of unit as a whole is to be attached.

9 9 PART 1 Clause 2: Maintenance of Books of Accounts' Sales Tax related records and Financial Statements are the responsibility of the Entity's Management……, This is a new para inserted in Form 704 by recommendation of ICAI. Prior to that old 704 was open on this view, thus created unsafe environment for auditor. It safeguards the responsibility of the auditor and states the responsibility of the management. It gives emphasis on the basis and Limitations of Audit on which the opinion has been given by the auditor. It is inspired by format of Statutory Audit Report under the Companies Act, It prescribes the responsibility of an auditor to comply auditing standards. NEW

10 10 PART 1 Clause 2: Maintenance of Books of Accounts' Sales Tax related records and Financial Statements are the responsibility of the Entity's Management……, Further it includes.., “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 Statement presentation. We believe that our audit provides a reasonable basis for our opinion.” This is welcome para and gives the overall picture of basis on which audit opinion are given. Thus our other Professional brothers are put on hold to perform Audit due to this Para. NEW

11 11 Part 1 Clause 3(A)- For verification of returns as per Table below: Clause 3 (A). Is old clause, now the words “Subject to the limitation of the audit indicated in above para,” has been added for verified correctness and completeness of the below mentioned Sales Tax Returns. In some cases CST returns are not filed for all period being turnover is NIL. Necessary disclosure will have to be made. We will see it further.., Table of General Information and returns is there, e- mail address in newly asked. OLD

12 12 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., Clause 3(B): Clause 3(B): and subject to *my / our remarks about non-compliance, shortcomings and deficiencies in the returns filed by the dealer as given in the Table 3 of Part 1 of this report, certify that, and subject to *my / our remarks about non-compliance, shortcomings and deficiencies in the returns filed by the dealer as given in the Table 3 of Part 1 of this report, certify that, Table 3 of Part 1 is most important aspect of New Audit Report, all non-compliance, shortcomings and deficiencies are to be mentioned there in only. Table 3 of Part 1 is most important aspect of New Audit Report, all non-compliance, shortcomings and deficiencies are to be mentioned there in only. But there are shortcoming otherwise than Table 3, were to be mentioned? Earlier there were 9 Points now 15, 6 new points are added. Earlier there were 9 Points now 15, 6 new points are added. New Points should be included in Management Representation letter. New Points should be included in Management Representation letter. Lets see 6 new points some renewed points one by one.., Lets see 6 new points some renewed points one by one.., Renewed

13 13 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., L ets Check New 6 Points.., 1 st New Point : 1 st New Point : a) *I/We have read and understood the instructions for filling up this audit report and the and the Annexures if required. a) *I/We have read and understood the instructions for filling up this audit report and the Auditor is required to fill in schedule I / II / III / IV / V/ VI (score out whichever is not applicable) and the Annexures if required. *I/We have obtained all the information and explanations which' to the best of *my / our knowledge and belief' were necessary for the purposes of our audit. NEW

14 14 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., L ets Check New 6 Points.., ISSUES: Thus Instruction becomes integral part of this audit report, which is required to be sign by auditor and attach the same with audit report. The 10 Instruction becomes the scope of Audit, cognizance of the same is required in Audit programme. The 10 Instruction becomes the scope of Audit, cognizance of the same is required in Audit programme. Lets check the Instructions.., Lets check the Instructions.., Renewed

15 15 10 Instructions to Audit Report NEW 1. Please read these instructions carefully before filling up the report. 1. Please read these instructions carefully before filling up the report. 2. No additional enclosure unless prescribed or unless it is essential for furnishing the information is to be filed with this report. 2. No additional enclosure unless prescribed or unless it is essential for furnishing the information is to be filed with this report. ISSUE An Auditor may attached “Notes to Audit Report” beside the “Reconciliation Statement”. As it is essential for furnishing the information and Table 3 of Part 1 is insufficient and correlates with Schedules only.

16 16 10 Instructions to Audit Report NEW 3.Do not leave any field or box blank. In case any field or box is not applicable' enter 'zero' (0) in numerical fields and write 'N.A.' for 'Not Applicable' or as the case may be' 'Nil' in other fields. 4.This report is divided in three parts. Part 1 is mainly related to verification and certification. Part 2 is mainly related to general information about the dealer under audit. The auditor is expected to ascertain the various parameters in part 2 and supply the details required. Part 3 is about the various schedules and their Annexures.

17 17 10 Instructions to Audit Report NEW 5. The auditor MUST give his remarks in brief in table 3 of Part I' wherever difference is found between Amount as per returns and Amount as per audit. This is essential to make the report complete and transparent. It will also prevent avoidable queries by the Department. 6. Filling of Part 1 and Part 2 of this report is mandatory in respect of all the dealers. It is mandatory to fill in the relevant schedule's of part 3 as also the Annexures wherever required.

18 18 10 Instructions to Audit Report NEW 7. If the dealer has multi-State activities' then ratios related to gross and net profit may be given at all India level and other ratios should be given at State level. - But the table of Ratio is incomplete, which we will deal later on.. 8. The tax liability is to be computed as required by law wherever documents are not made available to the auditor or are insufficient. ISSUE Term ‘Document’ is defined in Section 2(10) which is inclusive definition and relates to records but does not include declaration. Thus, whether for wanting declaration tax liability is to be calculated? What about wanting Declaration? - Whether it leads to calculate Tax Liability of “C” Forms or Other Forms not received and disclose the same as payable?

19 19 10 Instructions to Audit Report NEW 9.Third part of the report is linked with the type of return/s filed by the dealer and is to be filled in accordingly. Instructions provided for filling in information in the return/s are applicable to respective items of the schedules' as shown in following table. If' while filing returns' these instructions have not been followed' the auditor should ensure that they are followed in the audit report. ISSUE -See how the auditor is trapped or guided: -From Part 1 -to- Instruction to 704- then to- Instruction to Returns- then to- Returns Forms. -Some figures in schedules are not disclosed in returns format, in such cases what to do?

20 20 10 Instructions to Audit Report NEW ISSUE A dealer doest files CST returns, being turnover is NIL and takes cognizance of Circular No.15 of 1981, in such case whether Schedule VI is to be attached? - The same issue was raised in circular No.26T of Sept 2006, there dept has clarified that “Appropriate disclosure should be made”. -Schedule VI need not be attached, but disclosure should be made in Report in Part I. Suggested Remark: “During the period, the dealer has not effected any sales in the course of inter State trade or exports and as therefore not filed returns under the CST Act,1956 in accordance with the administrative concession granted vide Trade Circular No. 15 of 1981 dated ”

21 21 10 Instructions to Audit Report NEW 10. Auditor is requested to sign and put his seal on every page of the report. ISSUE Is signature of Dealer necessary? No specific mention is there in Audit Report either old or new, but it is recommend to take signature of dealer on Reconciliation Statement and/or at end of each schedule. As it safeguards the interest of auditor and keep binding on dealer. Further some dealers may not be friends, on whom we can trust, they may mislead.. We auditor are watchdogs and they..,,

22 22 New Definition of Friend: Friend is a person who can tolerate your success and ignore your failure. Old definition of Friend: Friend in Need is friend in deed.

23 23 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., Lets Check New 6 Points.., Renewed Point: Renewed Point: b)In *my / our view the books of accounts' purchase and sale invoices as also cash memos and other sales tax related records and registers maintained by the dealer are sufficient for verification of correctness and completeness of the returns. The records relating to receipts and dispatches of goods are properly maintained. The tax invoices issued are in conformity with the provisions of law. RENEW

24 24 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., Lets Check New 6 Points.., Renewed Point: Renewed Point: New disclosure which leads the change in Audit documentation are of : New disclosure which leads the change in Audit documentation are of : The records relating to receipts and dispatches of goods are properly maintained. The records relating to receipts and dispatches of goods are properly maintained. - Additional disclosure which correlates with Point O and requires to verify: Which are records relating to receipts and dispatches of goods? Does any law required, maintenance of such record? -GRN, Lorry Receipts, Stock Transfer Notes, Delivery Challans, etc. RENEW

25 25 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., Lets Check New 6 Points.., Renewed Point: Renewed Point: f) The deductions from the gross turnover of sales and other adjustments thereto including deduction on account of goods returned, adjustments on account of discounts as also debit/credit notes issued or received on account of other reasons, claimed in the returns are supported by necessary documents. f) The deductions from the gross turnover of sales and other adjustments thereto including deduction on account of goods returned, adjustments on account of discounts as also debit/credit notes issued or received on account of other reasons, claimed in the returns are supported by necessary documents. Further, the deductions and adjustments not claimed or made in the returns, are neither required nor authorized to be claimed or made in the returns under the provisions of relevant Act. Further, the deductions and adjustments not claimed or made in the returns, are neither required nor authorized to be claimed or made in the returns under the provisions of relevant Act. One can certify that deductions claimed are in accordance with provisions of law but how one can certify that deduction which are not claimed are not claimable or not authorized to be claimed. Therefore, the sentence ‘Further, relevant Act be deleted’. RENEW

26 26 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., Lets Check New 6 Points.., Renewed Point: Renewed Point: ISSUES Does this not violate the Fundamental right of dealer U/s 24 “Rectification of Mistakes” which provides time of 2 yrs time to dealer and powers to Commissioner to rectify? If the dealer is yet to file revise return on the basis of advice of auditor then is the disclosure tenable? In Such type of cases Can a Auditor give such opinion? What type of disclosure needs to be give to save the auditor or dealer? Suggested Remarks: “ The dealer is advised to file return according to Clause 5 of Part 1 of this report. Dealer is of opinion that above discloser doest effect the right to file revise return U/s 20 and rectification of mistake U/s 24 in case of the deductions and adjustments not claimed or made in the returns.” RENEW

27 27 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., Lets Check New 6 Points.., 2nd New Point: 2nd New Point: j) The quantum of tax payable /claim of refund are correct. j) The quantum of tax payable /claim of refund are correct. This is newly inserted. This is newly inserted. Suggested Remark: If there is difference in amount of tax payable / claim of refund as per return and as per audit, the word “Subject to differences mentioned in Table 2 & 3 of Part 1 of the report” may be inserted. NEW

28 28 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., Lets Check New 6 Points.., 3rd New Point: 3rd New Point: L) The dealer is conducting his business from the place/places declared by him as his main place of business/ and the additional places of business. L) The dealer is conducting his business from the place/places declared by him as his main place of business/ and the additional places of business. This is newly inserted, which seems unnecessary as how an auditor will disclosed this in absence of information out of books. Verify the copy of R. C. of the dealer or any other document (i.e change of address application) for principal place of business and additional places of business declared by him. If there is deviation, then mention the same in Notes to Audit Report. NEW

29 29 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., Lets Check New 6 Points.., 4th New Point: 4th New Point: m) The bank statements have been examined by *me/us and they are fully reflected in the books of accounts. Excepting in so far as transactions recorded in the cash book, the transactions recorded in the books of accounts are fully reflected in bank statements during the period of review. m) The bank statements have been examined by *me/us and they are fully reflected in the books of accounts. Excepting in so far as transactions recorded in the cash book, the transactions recorded in the books of accounts are fully reflected in bank statements during the period of review. This clause is unnecessary in MVAT Audit and is out of preview of taxation of MVAT as per Act and Rules. Mavt Auditor may rely on the Statutory Audit of the dealer, with a suitable disclosure that: How does, other transaction, like sales/purchase transaction, debit notes/credit notes, adjustment entries like accounts written off, assets written off, etc. various provisions like depreciation/tax provision, etc., recorded in books of accounts will get reflected in bank statements “ We have relied on the Statutory Books Audited by the Auditor as mentioned in Part 1 of clause 1 of this report and further cognizance of limitation as mentioned in clause 2 of Part 1 of this report have been considered for above disclosure” NEW

30 30 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., Lets Check New 6 Points.., 5th New Point: 5th New Point: n) Whether dealer has maintained stock register. (Yes/No) n) Whether dealer has maintained stock register. (Yes/No) Here auditor is expected to give answer in Yes/No only, hence if stock register is maintained but not adequate, the same may be given in Notes to Audit Report and for reference of maintenance of stock register or quantities details, VAT auditor can rely of the report given by Tax Auditor. Here auditor is expected to give answer in Yes/No only, hence if stock register is maintained but not adequate, the same may be given in Notes to Audit Report and for reference of maintenance of stock register or quantities details, VAT auditor can rely of the report given by Tax Auditor. Reason for Non maintenance need not be given, but same should be taken on records in working papers. Reason for Non maintenance need not be given, but same should be taken on records in working papers. Further there are no setoff calculation based on input and output ratio in MVAT, like in excise law, then what purpose is served is not know? NEW

31 31 Part 1 Clause 3(B)- For certification of 15 Points of Opinion.., Lets Check New 6 Points.., 6th New Point: 6th New Point: o) Whether dealer has maintained proper record relating to receipt, dispatch and delivery of goods. (Yes/No) o) Whether dealer has maintained proper record relating to receipt, dispatch and delivery of goods. (Yes/No) Here also auditor is expected to give answer in Yes/No form only. Also Refer the comments given for clause (b) above. Reason for Non maintenance need not be given, but same should be taken on records in working papers. ISSUE No standard records has been prescribed under MVAT law, then even if some records like delivery challans or GRN, etc been maintained, whether Auditor has to put Yes. If a Trader, maintains Purchase Invoices for receipts and Sales Invoices for dispatch, showing qty of goods, then whether it is proper record or maintenance of delivery challans on receipts and dispatch is necessary. Opinion may defer on case to case basis. NEW

32 32. PART 1 Para 4: New Table No. 2 of Differences in Computation of tax in returns and audit. Table 2 is refined & simplified with reference to Old Form for Computation of Tax liability. Table 2 is refined & simplified with reference to Old Form for Computation of Tax liability. It is divided into 3 parts., It is divided into 3 parts., Part 1 is for MVAT tax liability. Part 1 is for MVAT tax liability. Part 2 is for CST Tax liability. Part 2 is for CST Tax liability. Part 3 is for CQB. Part 3 is for CQB. Part 1 figures are to be linked with Schedules I to V for MVAT. Part 1 figures are to be linked with Schedules I to V for MVAT. Part 2 figures are to be linked with Schedule VI for CST. Part 2 figures are to be linked with Schedule VI for CST. Part 3 figures are to be linked with Schedule IV for CQB. Part 3 figures are to be linked with Schedule IV for CQB. Interest Amount is newly inserted. Interest Amount is newly inserted. ISSUE There is no space in Schedules III for “Credit of tax as per tax deduction at source certificates”. NEW

33 33 PART 1 Para 5: Advise to file revised return- Clause A Total 6 options are given in to advise out of which 2 are old and 4 are new. (a) file revised returns for the period from ……………to ………….. and - (i) Pay additional tax liability of Rs. ……………… or ( earlier it was differential tax liability (+/- as the case may be) (ii) Pay back excess refund received of Rs. …, or (New/ applicable for RAO)) (iii) Claim additional refund of Rs. ……………….…, or (iv) Reduce the claim of refund by Rs. …………,or (New) (v) Reduce tax liability by Rs. …………………, or (New) (vi) Revise closing balance of CQB by Rs. ………., ISSUE Now a questions arsis on following facts that “How a dealer can file revised return in 9 month when the audit report is to be submitted in 10 months.?” MVAT and CST figure are to clubbed or shown separately? RENEW

34 34 PART 1 Para 5: Advise to file revised return- Clause B (B) Following other recommendations are made to the dealer (Please Specify) 1) This is newly inserted disclosure; here auditor can specify his recommendations on the compliance of MVAT and CST Act by the dealer. What is mean by recommendation: As per COD “ a suggestion or proposal as to the best course of action” thus Notes to Audit report may not fall under this clause. It will be a professional judgment of each one to recommend any thing in absence of guidelines in this regard. 2) If Notes to Audit report are to be enclosed, then such notes to audit report may be given in Separate Sheet along with reconciliation statements attached at the end of each Schedule I to VI. NEW

35 35 PART 1 Para 6: New Table 3 for Remarks and Observation on diff, in returns and audit as per schedule. NEWSr.No.Schedule Row Reference Difference Remarks on non- compliance, short comings and deficiencies This table could have been avoided, if the last column of “Remarks..,” have been added in Schedules 1 to 6, it self after difference column. Earlier observation and remarks were asked against the compliance of instruction given in Verification column in each section of old 704. Now instruction for verification has been completely waived off. Prefect linking of Schedule and Row reference is required. (Possible in excel or software if any).

36 36 PART 1 Last Para for Sign, Attachments.., Status of Auditor as ‘Proprietor/ Partner” is newly inserted. Address of Auditor is newly inserted. MVAT Auditor may refer “Details of deviation, if any, from the method of valuation prescribed under section 145A, and the effect thereof on the profit or loss as mentioned in Tax Audit report for MVAT effect on sales and purchases.” NEW

37 37 PART 2 General Information Contains New disclosures, lets check them,,,

38 38 Part II- 1. General Information.. 1.A. b) Specify the divisions or units under same constitution for which separate books of accounts are maintained. Check that such division/ units and address is covered in RC. For e.g., any branch, etc. Check whether single return is filed for all places or any permission under section 20(2) for filing separate returns has been obtained by the dealer. NEW

39 39 Part II- 1. General Information.. 1.B) Name and version of accounting software in use. Obtain a copy of Purchase Invoice or License copy of Software to check the name and version of accounting software. What if pirated versions are used of tally? Still mention it. For Corporate clients, been a technical matter auditor can check the same with the Information Technology Dept of dealer and obtain a certificate for the same. NEW

40 40 Part II- 1. General Information. (This information was covered in Part 1 in old 704) 1.C: The following are the major changes made during the period of review - Short description of change iii) Changes in the accounting software. Obtain a certificate from dealer for change in accounting software i.e, Version, New Company, etc. Materiality concept may be followed to disclose the change. iv) Change in Product line. Check the major products line change. Materiality concept may be followed to disclose the change. v) New business activity. Earlier it was Changes in Business model. vi) Other changes, if any [ Please specify] If there are any other changes then materiality concept may be adopted for disclosure. NEW

41 41 Part II- 2. Business related information. 2A: Nature of business (Please tick one or more appropriate boxes, as applicable). Refined and Wholesalers, Retailers, Mandap Decorator, 2 nd Hand Motor Vehicle dealers, PSI Units newly added. NEW

42 42 Part II- 2. Business related information. 2C: Class of goods sold Earlier “Product” word replaced by “Goods”. 2D: Address of Place of Business where the books of accounts are normally kept. 2D: Address of Place of Business where the books of accounts are normally kept. Usually books of account are to be maintained at principal palace of business. If maintained at separate place, check whether permission has been obtained by the dealer from commissioner U/s 20(2) Management Representation Letter to include this new information. NEW

43 43 Part II- 2. Business related information. 2F:Working capital employed (Difference between current assets and current liabilities) - as on the last day of the period under audit. Clarification of last date position of books i.e., 31 st March newly added. Refer Tax Audit Report- Annexure A for figures Current assets and liabilities and refer Guidance note on terms used in financial statement issued by ICAI for clarification on terms like Current assets, liabilities. NEW

44 44 Part II- 2. Business related information. Profession Tax Disclosure 2G(1): R.C. No. and date of effect under Profession Tax Act, if any. (2) Profession Tax Returns filed and payments as per returns made during the period of Audit (Please tick the appropriate box.) Yes/ No (2) Profession Tax Returns filed and payments as per returns made during the period of Audit (Please tick the appropriate box.) Yes/ No Section G deals with Deduction by Employer of Employees. Management Representation and Working Notes to be extended to secure auditor against this material disclosure. A person (Employer) liable to deduct tax shall get registration certificate (RC) and every person liable to pay tax shall get a certificate of Enrollment certificate (EC). Lets see in brief the provision of Profession Tax: NEW

45 45 Part II- 2. Business related information. Profession Tax Disclosure The Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975 ( Profession Tax Act) is enacted by State Government under the powers of Articles 276 of Constitution, for levy and collection of Profession Tax in State of Maharashtra. Profession Tax Act is administered by the Local Sales Tax Department. It is a separate enactment, which have no co- relation with Maharashtra Value Added Tax Act. Profession Tax is applicable to State of Maharashtra and contains 30 Sections, 33 Rules and Schedules of Rate of Tax. There are numbers of Circulars, Notification issued time to time by the Sales Tax Department for the governance of the Act. NEW

46 46 Part II- 2. Business related information. Profession Tax Disclosure As per Section 5 (1) of Profession Tax Act such every employer, who is liable to pay Tax U/s 4, has to obtain certificate of Registration from the prescribed authority within the prescribed time. Every Employer is liable to pay tax under this tax, on payment of salary or wages to his Employee in excess of Rs.2500 per Month as per specified in Schedule, has to get himself registered under this Act. Registration is to be obtained within 30 days form the date he becomes liable to pay the tax. As per section 2(ba) Employees means a person employed on salary or wages and includes government servants, etc. NEW

47 47 Part II- 2. Business related information. Profession Tax Disclosure When to deduct the Profession Tax by Employer from the Salary or wages of employee: From Onwards: NEW Sr.No.Amount of Salary or wages per month (Rs.) Amount of profession tax to be deducted per month (Rs.) 1Upto Rs.2500Nil 2From 2501 to From 3501 to From 5001 to From onwards200 per month, except for Feb Rs.300.

48 48 Part II- 2. Business related information. Profession Tax Disclosure 1.6) Returns and Payment of Tax by Employers: Section 6(1) deals with the period, time and form of Return in which the employers has to file the return. (1) Every Employer registered under the Act, shall pay the amount of tax due from him according to the return on or before the date prescribed for filing of such return. (2) The return shall be in Form III. The registered employer shall furnish the same, duly filled in and signed by him or by a person authorized by him in this behalf NEW

49 49 Part II- 2. Business related information. Profession Tax Disclosure Every registered employer whose tax liability during the previous year or a part thereof— Annual Return (a) (a) is less than Rs. 5,000 shall furnish an annual return on or before the 31st of March, of the year to which the return relates. such return shall contain the details of the amount of tax deducted by him in respect of the twelve months comprising of the month of March of the immediately preceding year and the eleven months from April to February of the year to which the return relates. NEW

50 50 Part II- 2. Business related information. Profession Tax Disclosure Quarterly Return (b) (b) Tax Liability is Rs. 5,000 or more but less than Rs. 20,000 shall furnish quarterly return on or before the last date in respect of the quarter to which the return relates. Applicable also in case of First year. Such return shall contain the details of the amount of tax deducted by him in respect of the three months immediately preceding that last month of the quarter to which the return relates as shown in the table below., NEW

51 51 Part II- 2. Business related information. Profession Tax Disclosure Quarterly Return NEW Quarter ending on. Months in respect of which Salary/Wages, etc. are paid and the amount of tax deducted. Due date for filing the return and payment of tax. 30th JuneMarch to May30th June 30th September June to August30th September 31st December September to November31st December 31st MarchDecember to February31st March

52 52 Part II- 2. Business related information. Profession Tax Disclosure Monthly Return Tax liability is Rs. 20,000 or more, shall furnish a monthly return on or before the last date of the month to which the return relates. Such return shall contain the details of the salaries and wages and the arrears, if any, paid and the amount of tax deducted by him in respect of the month immediately preceding the month to which the return relates and the arrears, if any, for any period preceding such month. NEW

53 53 Part II- 2. Business related information. Profession Tax Disclosure Issue In case of a dealer who have not taken registration although tax liability of EC arises, then what shall be disclose by the Auditor? “Not Applicable” on G1. “No” in G2 subject to Notes to Audit Report. Common note to Audit Report: “Information is provided on the basis of explanation and records of registration and returns of The Maharashtra State Tax On Professions, Trades, Callings and Employments Act, 1975 provided by the dealer with specific reference to the Information asked in Part II-2G(2).” NEW

54 54 Part II- 2. Business related information. Profession Tax Disclosure Issue In case the dealer has taken registration and some returns are not filed? “Yes” & Subject to Note No.___ in G2. Notes to Audit: “With specific reference to the Information asked in Part II-2G(2) and on the basis of returns filed by the dealer under The Maharashtra State Tax On Professions, Trades, Callings and Employments Act, 1975, the returns for the months of _____,_____ are not filed and tax deducted by the dealer from employees is payable” NEW

55 55 Part II- 2. Business related information. Profession Tax Disclosure 2.H (1): E.C. No. and date of effect under Profession Tax Act, if any, 2.H.(2) The due profession tax has been paid for the period under audit (Please tick the appropriate box) Yes/No. 2.H.(2) The due profession tax has been paid for the period under audit (Please tick the appropriate box) Yes/No. Section H deals with payment by Personal liability of Dealer himself. 2. Details of Provision relating to Person: 2.1) Registration as an Person (Certificate of Enrolment) : As per Section 5(2) Every Person liable to pay tax under this Act (other than Employee) shall obtain a certificate of Enrolment form the prescribed authority within the prescribed time. NEW

56 56 Part II- 2. Business related information. Profession Tax Disclosure 2.2) Tax Payable: Under Section 3(2), every Person and HUF (excluding Partnership Firms) engaged in any profession, trade, calling or employment under one or the other of the classes mentioned in the second column of Schedule I, shall be liable to pay to the State Government the tax at the rate mentioned against the classes of such persons in the third column of the said schedule enclosed below. The tax payable in respect of any one person shall not exceed Two Thousand and Five Hundred Rupees in any year. Due date of payment of tax by Enrollment Certificate holder is on or before 30th June of each year. NEW

57 57 Part II- 2. Business related information. Profession Tax Disclosure Issue In case of a dealer who have not taken registration although tax liability of RC arises, then what shall be disclose by the Auditor? “Not Applicable” on G1. “No” in G2 subject to Notes to Audit Report. Common note to Audit Report: “Information is provided on the basis of explanation and records of registration and returns of The Maharashtra State Tax On Professions, Trades, Callings and Employments Act, 1975 provided by the dealer with specific reference to the Information asked in Part II-2H(2).” NEW

58 58 Part II- 2. Business related information. Profession Tax Disclosure Issue In case the dealer has taken registration and No returns is filed? “NO” & Subject to Note No.___ in H2. Notes to Audit: “With specific reference to the Information asked in Part II-2H(2) and on the basis of explanation given by the dealer for tax liability under The Maharashtra State Tax On Professions, Trades, Callings and Employments Act, 1975, the returns for the year under audit _____,_____ is not filed and tax is payable” NEW

59 59 New look of MVAT Auditor, Due to New 704, paper work will increase to such extend. Like this…,

60 60 Part II- 2. Business related information. Ratios- 2M. 2M) Financial Ratios for the year under audit (Indicate the percentage). 1) 1.Gross Profit to Net Turnover 1) 1.Gross Profit to Net Turnover Current Year Current Year Previous Year Previous Year Reasons for change Reasons for change Ratios cognizance may be taken by Sales Tax Dept for scrutiny, as electronic data will be available once the e-filing Audit Report is activated. Financial ratios for the year are required to be mentioned on the basis of financial statements prepared for that year. Refer the ratios as per clause 32 of Tax Audit Form No 3CD. Include the Reasons for change in MR and Supporting in Working Notes. NEW

61 61 Part II- 2. Business related information. Ratios-2M 2. Net Profit to Net Sales Turnover 2. Net Profit to Net Sales Turnover Current Year Current Year Previous Year Previous Year Reasons for change Reasons for change ISSUE ISSUE Reference of net sales turnover is mentioned for calculation of net profit ratio instead of net turnover as mentioned for gross profit ratio. It seems to be topographical mistake. Suggested notes to Audit Report; “Financial ratios mentioned in Part II-2M are taken from the Audited Books and Audit Report filed under Income Tax Act, 1961 by the dealer for the period mentioned” NEW

62 62 Part II- 2. Business related information. Ratios- 2N 1. Net Sales in Maharashtra State (Rs) Mention Net Sales within Maharashtra (excluding Tax) in Rupees only.. 2. Cross verity the Net Sales in Maharashtra with respective Schedules attached.. ISSUE Actually this should be the Net Turnover including (MVAT and CST) as it serves the larger purpose or is unrealistic in some ratios required below. Or the Intention of Sales Tax Department is to compare all figures with Net sales within Maharashtra, but the revenue is also generated form OMS Sales to Govt. of Maharashtra. In case of Manual Accounting it is very difficult to calculate the ratios mentioned below, even accounting software do not support. Being a first year of New 704, cumbersome to give ratios of Previous year. NEW

63 63 Part II- 2. Business related information. Ratios- 2N ISSUE Figures for ratios in column N are to be taken from returns or audited figures under MVAT or Books of Accounts? Being a part of MVAT Audit Report, the responsibility is on Auditor to provide the information and certify it, thus better to give figures from MVAT audited figures based on returns filed (Revised returns as the case may be). NEW

64 64 Part II- 2. Business related information. Ratios- 2N Suggested common Note to Audit Report to Column N: “ The ratios disclosed in the Part II-2N, are based on the audited figures of returns filed under MVAT and CST Act by the dealer during the current year. Further dealer feels that the reasons to changes are reasonable and suggestive in nature and we have relied on the same. The previous year figures are taken from the returns and MVAT report filed by the dealer. (Previous year figures are not provided being first year of Audit under MVAT Act). Previous year figures are regrouped wherever necessary.” Common note to audit for VAT Accounting: “Dealer has followed exclusive method of VAT Accounting as per Guidance Note on “Accounting for State Level VAT” issued by ICAI and AS-2 “ Valuation on Inventories” were “ Cost of Purchases” includes only those taxes, which are not subsequently recoverable by the enterprise form the taxing authorities.” NEW

65 65 Part II- 2. Business related information. Ratios- 2N Suggested common Note to Audit Report to Column N: “ Common note to audit for VAT Accounting on Fixed Assets: Dealer has followed AS-10 “Accounting of Fixed Assets”, which provides “The Cost of an item of fixed assets comprises its purchase price, including import duties and other non-refundable taxes or levies and directly attributable cost of bringing the assets to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price…” NEW

66 66 Part II- 2. Business related information. Ratios- 2N ISSUE Mathematical Principal of Matching Concept of Formula of Ratio i.e, Denominator and Numerator should match,has to be kept in mind while calculating ratios. i.e, both figures of division (above and below figures) should be either net of tax or gross of tax as specifically mentioned in each ratio. So wording of each ratio are to be taken care, other wise it will be misleading exercise Same basis of formula should be followed for comparatives years. A suitable clarification is required from department on Table of ratio. NEW

67 67 Part II- 2. Business related information. Ratios- 2N : 2. Cash Sales to Total Sales : CASH SALES; CASH SALES; What is mean by cash sales? Whether cash receipt on same day of sales is cash sales? Hence forth it will be beneficial to maintain separate invoice series for cash and credit sales. What record should be preserve to show cash sales, i.e, Cash Invoices, Cash Books or Cash Sales Register? Cash Sales figure is not reflected in returns, thus proper working papers are to be maintained. TOTAL SALES: TOTAL SALES: Obtain the figure of total sales from Sales Register and respective Schedules (i.e. Gross Sales minus Tax Element.) (MS Sales + OMS Sales) If Total Sales is taken gross then cash sales should also be gross, or otherwise. NEW

68 68 Part II- 2. Business related information. Ratios- 2N 3. Cash Purchases to Total Purchases. Cash Purchases figure is not reflected in returns, thus proper working papers are to be maintained. Obtain Cash Purchase figure from Cash Book of the dealer. Obtain the figure of total purchase from Purchase Register or respective Schedules. i.e Gross Purchase minus Tax Element. (MS+OMS). It may so happen in composition dealers that setoff is not available, so purchases are booked gross. Thus ratio should be in gross. If some Cash purchases are Net on which setoff is available and some are gross, then it will be better to have ratio in Gross figures. NEW

69 69 Part II- 2. Business related information. Ratios- 2N 4. Percentage of Local Sales to net sales from row N in Maharashtra. ISSUES Further the word “Local Sales” is mentioned, whether it should be Net or Gross? As ‘Net Sales from row N’ is mentioned, thus to match the formula the local sales should be net. Even if the ratio is calculated on the basis provided that it will be simply Total MS sales (including tax) divided by Net MS sales (excluding tax). For e.g. Local Sales is 104 and Net MS sales 100 then ratio will be 104%. The Ratio determined may not larger serve the purpose, being the numerator local sales and denominator net sales in Maharashtra is same in the eyes of MVAT Law. The denominator may be as mentioned earlier i.e. row N should be total net sales (MS+OMS). NEW

70 70 Part II- 2. Business related information. Ratios- 2N. 5. Percentage of net Interstate Sales excluding Export to net sales from row N. ISSUES Even if the ratio is calculated on the basis provided then simply it will be Net OMS (excluding Export) to Net MS sales. Cross verity the net Interstate Sales and export sales with Schedule VI attached. The Ratio determined may not serve the larger purpose being the denominator net sales from row N is not realistic. It should be the Net Total Sales. NEW

71 71 Part II- 2. Business related information. Ratios- 2N. 6. Percentage of Export sales to net sales from row N. Its simple ratio, but in case of big corporate, exports may be more and Net sales in Maharashtra will be less. Cross verity the Export Sales with Schedule VI attached. The Ratio determined may not serve the larger purpose being the denominator net sales from row N is not realistic. It should be Net Total Sales. NEW

72 72 Part II- 2. Business related information. Ratios- 2N 7. Percentage of Set Off claimed to turnover of net sales from row N Setoff claimed means the setoff after retention and non admissibility. Cross verity the Set-Off claimed with respective Schedules attached. This ratio may serve the purpose of how much setoff is utilized for Net sales within Maharashtra. The ratio determined may not serve the larger purpose being the denominator net sale from row N is not realistic. It should be Net Total Sales. As setoff claimed may also be utilized against OMS sales. NEW

73 73 Part II- 2. Business related information. Ratios- 2N 8. Tax to turnover of net sales from row N ISSUES What is mean by Tax, MVAT or CST or Total Tax payable? Even if ratio is to be calculated, than as per formula for matching concept,tax should be MVAT only, being it is divided by Net Sales in Maharashtra. If total tax i.e., MVAT and CST is taken than it may not serve the purpose or ratio is not according the Mathematical principal of matching concept. The Ratio determined may not serve the larger purpose being the denominator net sales from row N is not realistic. It should be Net total sales. Cross verity the tax amount with respective Schedules attached. NEW

74 74 Part II- 2. Business related information. Ratios- 2N 9. Opening stock including WIP (in Maharashtra ) 10. Closing stock including WIP (in Maharashtra ) 10. Closing stock including WIP (in Maharashtra ) 11. Closing Stock to Net Sales Turnover. 11. Closing Stock to Net Sales Turnover. Obtain the Opening & Closing Stock Statement showing stock within Maharashtra duly certified by dealer and cross check the same with financial statements. Mention this figure in Rupees in 9 & 10 being no ratio asked. Number of dealers may have places of business in various states and the information in this regard may not be available. To determine the figure accounting of Stock and related information may not be available readily with the dealer. Calculate the ratio based on clause (10) divided by (11) Net turnover. Please note that here word “Net Sales Turnover” is used, which means Net Total sales (MS and OMS) has to be considered. NEW

75 75 Part II- 2. Business related information. Ratios- 2N Points to Remember: In multi-state activities cases Instruction No. 7 has to be followed and consolidated ratio is to be given. Most of the assessee now do not prepare trading a/c and determine the gross profit under Companies Act it is not necessary to determined the gross profit. Similarly there are no standard by which the gross profit can be determined. May be one auditor may consider particular expenses forming a part of gross profit and other may not. Thus, lot of subjectivity is involved. NEW

76 76 Part II- 2. Business related information. Ratios- 2N Points to Remember: The compilation between the current year and previous year and the reasons for changes given should be specific and approved by dealer. If One or more type of Returns are filed by dealer and One or More Schedule are required to be attached with Form 704, then consolidated ratio are to be given. Effects the Audit Programme under New Form of Audit. NEW

77 77 Part II- 2. Business related information. has to be disclosed now. 2.O) Branch BSR No has to be disclosed now. 3) On the basis of the activity of the dealer please specify the activity code number of the dealer. 3) On the basis of the activity of the dealer please specify the activity code number of the dealer. The table is incomplete and how activity code of the dealer is to be find out? The table is incomplete and how activity code of the dealer is to be find out? NEW

78 78 Part II- 2. Business related information. Rs. 5 lakhs and more purchases from new dealer 4. Details of purchases exceeding Rs. five lakh from new local supplier on which set-off has been claimed during the year. New local supplier means a supplier from whom no purchases were effected in the immediately preceding year. NEW Sr.N o. Name and address of the new local supplier. TIN Number Total purchase Amount (net) Rs. Vat on Purchases Rs. Newly inserted disclosure. The earlier disclosure in Section Q i.e. Details of URD Purchases of Rs 10,000/- or more has been dispensed with in new form. Obtain the list of Vendors from the dealer for current year and previous year. The Turnover of Rs. Five lakhs whether to be calculated on the basis of Gross or net has not been clarified.

79 79 Part II- 2. Business related information. Rs. 5 lakhs and more purchases from new dealer Only Within Maharashtra Purchases are to be reported, No OMS purchases. Report only those purchases on which set-off has been claimed. It will be practically not possible to find new dealer from whom no purchases are made, even a small purchases in last year will make him old. Accounting software's help will be required in manual accounting it will be more difficult. In case of Newly registered dealer all purchases above Rs.5 lakhs are required to be mentioned. It may so happen that we have to provide list of local supplier from whom Rs.5 lakhs and more purchases are made irrespective of reference to P.Y. As it will be easy. Effects the Audit Programme under New Form of Audit. NEW

80 80 This is New look of 704..,

81 81 Part III Schedules Refer No.10 Instructions to Audit Report NEW Sr.No. Type of Return filed Relevant Schedule Remarks1 Form 231 Schedule I For Normal Dealer. 2 Form 232 Schedule II For Composition Dealer. 3 Form 233 Schedule III For Works Contractor Dealer. 4 Form 234 Schedule IV For PSI dealer 5 Form 235 Schedule V For Petroleum Co. 6 Form III E (CST) Schedule VI For Central Sales Tax Returns. 7 Dealer filing different types of returns (as mentioned in Sr. No.1 to 5 above) Different combinations of Schedules as applicable depending upon the type of returns filed.

82 82 Summing Up New 6 Points of certification. New 6 Points of certification. Stock Accounting & Records. Stock Accounting & Records. Profession Tax Compliance. Profession Tax Compliance. Ratios. Ratios. Rs. 5 Lakhs Purchases. Rs. 5 Lakhs Purchases. Interest Computation. Interest Computation. Reconciliation Statements. Reconciliation Statements. New Return wise Schedules. New Return wise Schedules. Now 704 is really an Assessment Order. Now 704 is really an Assessment Order.

83 83 A small attempt is made be me to update over self in MVAT Audit.., please support me this Thanks for your support


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