Value Added Tax S 6R.T.I.Jammu 1 Introduction to Value Added Tax Audit

Value Added Tax S 6R.T.I.Jammu 2 Session Overview In the previous session we discussed  the Attributes and the implementation of Value Added Tax (VAT), and  we also discussed in detail the relevant provisions of the Himachal Pradesh Value Added Tax (Act of 2005) and relevant Rules.

Value Added Tax S 6R.T.I.Jammu 3 Session Overview In this session and in subsequent session we will discuss  the mandate for auditing State-Level Value Added Tax,  Audit Objective,  Audit Approach, and all the instruction on audit of receipts issued by the Office of the Comptroller and Auditor General of India and detailed steps for the audit of State-Level Value Added Tax.

Value Added Tax S 6R.T.I.Jammu 4 Session Overview In this session we will cover:  Mandate for audit of receipts;  Indian Audit and Accounts Department’s Auditing Standards in so far as they are relevant to audit of VAT;  Orders issued by the Comptroller and Auditor General of India on the audit of receipts.

Value Added Tax S 6R.T.I.Jammu 5 Learning Objective At the end of the session, the trainee will be able to state the mandate for taking up audit of State-level VAT, IAAD’s Auditing Standards applicable to audit of receipts and Orders issued by the Comptroller and Auditor General of India on audit of receipts.

Value Added Tax S 6R.T.I.Jammu 6 Audit of Value Added Tax Receipts Audit of Value Added Tax Receipts is conducted by two agencies, viz.: Audit by Tax Administration ; Audit by Indian Audit and Accounts Department

Value Added Tax S 6R.T.I.Jammu 7 Audit by Tax Administration Provided in VAT Acts; Conducted by Tax Administration in the office, branch, warehouse of the dealer; provided in the various Acts to give statutory backing to the audit/inspections conducted by Tax Administration to detect any tax avoidance practice employed by delinquent dealers.

Value Added Tax S 6R.T.I.Jammu 8 Audit by Tax Administration Such an audit provides an assurance to the Tax Administration that the Tax Laws have been followed by taxpayers while filing the ‘Self-Assessment Tax Returns’ under Value Added Tax. Such an audit by Tax Administration is on the accounts, records and stocks of the taxpayers.

Value Added Tax S 6R.T.I.Jammu 9 Audit by Indian Audit and Accounts Department Audit of records of the Tax Administration is conducted by the IAAD under the mandate granted to the CAG in the Constitution, read with the CAG’s (DPC) Act, 1971, as amended from time-to-time. The audit by the IAAD is mainly concentrated on the records of the Tax Administration to see that they have performed their duties and exercised their powers properly as prescribed in the relevant VAT Act and Rules made there under.

Value Added Tax S 6R.T.I.Jammu 10 Audit by Indian Audit and Accounts Department The objective of audit by IAAD is to see that rules and procedures are designed in a manner and also implemented in a manner to secure an effective check on the assessment, collection and allocation of revenue.

Value Added Tax S 6R.T.I.Jammu 11 Audit by Indian Audit and Accounts Department Audit by IAAD provides an assurance to the legislature and the citizen that the requirements of VAT law as enacted by legislature contained in the concerned VAT Act has been followed by Tax Administration and tax has been collected and credited to public revenue properly and correctly.

Value Added Tax S 6R.T.I.Jammu 12 Mandate for audit of receipts by CAG Section 16 of the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service)Act,1971authorises the C&AG of India,  To audit all receipts payable into the Consolidated fund of Union or of States or of a Union Territory having a legislative Assembly.

Value Added Tax S 6R.T.I.Jammu 13 Mandate for audit of receipts  to satisfy himself that rules and the procedures to secure an effective check on the assessment, collection and proper allocation of revenue have been designed and are being duly observed.  to make for this purpose such examination of the accounts as he may think and report upon.

Value Added Tax S 6R.T.I.Jammu 14 Mandate for audit of receipts  State-level Value Added Tax (an indirect tax on sale and purchase of goods and commodities and an alternative to the State Sales Tax) is an important source of State revenues, which is credited to the Consolidated Fund of the concerned State.

Value Added Tax S 6R.T.I.Jammu 15 Mandate for audit of receipts  By virtue of the statutory duty, the Comptroller and Auditor General is duty bound to audit the tax collections under the State-level Value Added Tax.

Value Added Tax S 6R.T.I.Jammu 16 Mandate for audit of receipts Section 18 of the Act, authorizes the Comptroller and Auditor General, in connection with the performance of his duties :  to inspect any office of accounts, including treasuries and such offices responsible for the keeping of initial and subsidiary accounts as submit accounts to him;

Value Added Tax S 6R.T.I.Jammu 17 Mandate for audit of receipts  to require that any accounts, books, paper and other documents which deal with or form the basis of or otherwise are relevant to the transactions to which his duties in respect of audit extend, shall be sent to such place as he may appoint for his inspection; and

Value Added Tax S 6R.T.I.Jammu 18 Mandate for audit of receipts  to pose such questions or make such observations as he may consider necessary to the person in charge of the office and to call for such information as he may require for the preparation of any accounts or report which it is his duty to prepare.

Value Added Tax S 6R.T.I.Jammu 19 Mandate for audit of receipts Section 21 of the Act authorizes the Comptroller and Auditor General to delegate any power exercisable by him to any other officer of his department by general or special order. Section 23 of the Act authorize him to make regulations for carrying into effect the provisions of the Act, in so far as they relate to the scope and extent of audit, and the broad principles in regard to audit of receipts and expenditure.

Value Added Tax S 6R.T.I.Jammu 20 Audit Reports Article 151 of the Constitution requires the Comptroller and Auditor General to submit reports relating to the accounts of the Union / State/ Union territory having a legislative Assembly to the President or the Governor of the State or the Administrator of the U.T. as the case may be, for being placed before Parliament / Legislature of a State/ U.T.

Value Added Tax S 6R.T.I.Jammu 21 Audit Reports  The Constitutional provisions are thus clear and state in unambiguous terms that the Comptroller and Auditor General is authorized to audit all receipts (including State-level VAT), report on them, lay down detailed regulations for such audit, determine the scope and extent of such audit and also decide on the quantum of audit.

Value Added Tax S 6R.T.I.Jammu 22 Audit Reports  He is as such authorized to inspect any office keeping the accounts and records relating to VAT, or to direct that the accounts, records or documents be sent to such place as may be determined by him.

Value Added Tax S 6R.T.I.Jammu 23 Auditing Standards Comptroller and Auditor General issued the ‘Auditing Standards' applicable to the Indian Audit and Accounts Department in the year  These standards prescribe the norms of basic principles and practices which government auditors are expected to follow.

Value Added Tax S 6R.T.I.Jammu 24 Auditing Standards  The standards have to be supplemented by guidelines contained in the Manuals of Standing Orders and other Manuals governing the work in the Indian Audit and Accounts Department.

Value Added Tax S 6R.T.I.Jammu 25 The standards applicable to audit of receipts Audit Objective The broad aim of audit is to safeguard the financial interests of the State and to uphold and promote public accountability and sound and economical financial management principles.

Value Added Tax S 6R.T.I.Jammu 26 Audit Objective Audit assists the legislature in the exercise of financial control over the executive Government The executive Government is responsible for enforcing economy and efficiency in expenditure of public money It is the duty of Audit to bring to light wastefulness, failures, system weaknesses, deficiencies and the circumstances leading to infructuous expenditure (or system failures in collection of tax revenues).

Value Added Tax S 6R.T.I.Jammu 27 Scope of Audit The term audit includes both Financial Audit and Performance Audit. The Comptroller and Auditor General is empowered to decide the nature, scope, extent and quantum, including the form and content of audit reports in respect of audit to be conducted by him or on his behalf.

Value Added Tax S 6R.T.I.Jammu 28 Basic postulates Auditing Standards prescribe the norms of principles and practices which the Auditor is expected to follow in his conduct of audit.  The Auditor must exercise due care and concern in complying with the Auditing

Value Added Tax S 6R.T.I.Jammu 29 Basic postulates  Auditor must exercise his judgment in determining the auditing procedure necessary, in the circumstances, to afford a reasonable basis for his opinion and the content of his report. The Auditor should exercise due professional care and caution in

Value Added Tax S 6R.T.I.Jammu 30 Basic postulates  Auditor should exercise due professional care and caution in extending the audit steps and the enquiries related to illegal acts so as not to interfere with the potential future investigations or legal proceedings.

Value Added Tax S 6R.T.I.Jammu 31 Basic postulates  The Auditor should maintain independent attitude which ensures that audit findings are impartial and viewed as such.  Auditors should not allow any situation that might lead to questioning of their independence.  The right of independent evaluation is inherent in the audit function.

Value Added Tax S 6R.T.I.Jammu 32 General Audit Standards The audit personnel assigned to conduct an audit should collectively possess adequate proficiency and competence for the task.  The audit organization should have; appropriate manuals and other written guidance and instructions concerning the conduct of audit which should be periodically updated.

Value Added Tax S 6R.T.I.Jammu 33 General Audit Standards  an appropriate internal control system, and  should adopt policies and procedures to review the efficiency and effectiveness of its own internal control system and procedures.

Value Added Tax S 6R.T.I.Jammu 34 Operational Audit Standards  The audit organization and the Auditor should plan the audit work to ensure high quality audit in a timely and economic, efficient and effective way.  Audit should be properly guided, directed and supervised.  Sufficient understanding of the internal control system should be obtained to express an opinion on the reliability, fidelity and integrity of the systems and procedures of the entity to determine the extent of audit tests to be performed.

Value Added Tax S 6R.T.I.Jammu 35 Operational Audit Standards  In the audit of Government revenue receipts such as taxes, duties and other levies including the VAT the Auditor should satisfy himself that the rules and procedures are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed

Value Added Tax S 6R.T.I.Jammu 36 Operational Audit Standards  Interpretation of law is a judicial function; the Auditor does not review a judicial decision. Audit may, however, point out cases where there is an apparent lacuna or loophole in law  The Auditor should see that the internal procedures adequately secure correct and regular accounting of demands, collection and refunds, that no amounts due to the Government are left outstanding.

Value Added Tax S 6R.T.I.Jammu 37 Operational Audit Standards  Due professional care should be exercised during audit. in specifying, gathering and evaluating sufficient, competent and relevant evidence to support the audit conclusions regarding the organization

Value Added Tax S 6R.T.I.Jammu 38 Reporting Standards On the completion of each audit assignment, the Auditor should prepare a written report setting out the observations and conclusions in an appropriate form ; its content should be easy to understand and free from vagueness or ambiguity

Value Added Tax S 6R.T.I.Jammu 39 Reporting Standards  The report should be independent, objective, fair, complete and concise as the subject matter permits, and should include only information which is relevant and supported by sufficient and competent audit evidence

Value Added Tax S 6R.T.I.Jammu 40 Instruction from Headquarters Office on audit of receipts Audit Approach Audit of major tax receipts is taken up separately. Audit approach should be to see that effective systems for assessment, collection and proper allocation are in place and are being followed.

Value Added Tax S 6R.T.I.Jammu 41 Instruction from Headquarters Office on audit of receipts Audit of regulations and procedures for assessment, collection and refunds Audit should make such examination as it thinks fit with respect to correctness of sums brought to account.

Value Added Tax S 6R.T.I.Jammu 42 Instruction from Headquarters Office on audit of receipts Audit should ascertain that adequate arrangements for detection or prevention of frauds exist. Audit of effectiveness of rules and orders governing collection of receipts requires detection of any defects, lacuna or loopholes in the provisions, rules or orders, and drawing department’s attention to it for suitable amendment.

Value Added Tax S 6R.T.I.Jammu 43 Examination of outstanding dues Audit has to ensure that, there are adequate internal procedures providing for,  collection and utilization of data necessary for the computation of the demands or refunds under law;  the prompt raising of demands on tax payers in the manner required by law;

Value Added Tax S 6R.T.I.Jammu 44 Examination of outstanding dues  the regular accounting of demands, collection and refunds;  that the relevant and requisite records are being maintained properly;  that adequate control and monitoring mechanism have been devised to prevent loss or leakage of revenue;

Value Added Tax S 6R.T.I.Jammu 45 Examination of outstanding dues  that double refunds, fraudulent or forged refund orders or other losses of revenue through fraud, default or errors are properly brought to light and investigated;  that the estimates of revenue have been realized at the end of the financial year.

Value Added Tax S 6R.T.I.Jammu 46 Cross verification Returns themselves may not always reveal under declaration of sale or income, in such cases, a unit based approach may not suffice instead an interdisciplinary approach may be called for,e.g. VAT assessments of dealers who are also manufacturers, the data furnished in their returns should be verified with the corresponding data furnished by them in their Central Excise/Income tax returns