Final mvat idt assignment

S.P. MANDALI’S

R. A PODAR COLLEGE OF COMMERCE AND ECONOMICS

MATUNGA, MUMBAI-400 019.

A PROJECT REPORT ON

Definitions u/s. 3, 4, 5, 6, 7, 8; and Penalty and Interest under

MVAT Act, 2002.

SUBMITTED BY

Rutuja Deepak Chudnaik

M.COM (SEM. IV): Indirect Taxes

SUBMITTED TO

UNIVERSITY OF MUMBAI

2015-2016

PROJECT GUIDE

Prof. Dr. (CA) Pradeep Kamthekar

S.P. MANDALI’S

R. A PODAR COLLEGE OF COMMERCE AND ECONOMICS

MATUNGA, MUMBAI-400 019.

CERTIFICATEThis is to certify that Mr/Ms. Rutuja Deepak Chudnaik of M.Com ( Business Management/

Accountancy) Semester IV (2015-2016) has successfully completed the project on Definitions

u/s. 3, 4, 5, 6, 7, 8; and Penalty and Interest under MVAT Act, 2002.

under the guidance of Prof. Dr. (CA) Pradeep Kamthekar

Project Guide/Internal Examiner External ExaminerProf. _______________________ Prof. ________________________

Dr. (Mrs) Vinita Pimpale Dr.(Mrs) Shobana Vasudevan Course Co-ordinator Principal

Date Seal of the College

ACKNOWLEDGEMENT

I acknowledge the valuable assistance provided by S. P Mandali’s R. A. Podar College of Commerce & Economics, for two year degree course in M.Com.I specially thank the Principal Dr.(Mrs) Shobana Vasudevan for allowing us to use the facilities such as Library, Computer Laboratory, internet etc.I sincerely thank the M.Com Co-ordinator for guiding us in the right direction to prepare the project.

I thank my guide Prof. Dr. (CA) Pradeep Kamthekar who has given his/her

valuable time, knowledge and guidance to complete the project successfully in

time.

My family and peers were great source of inspiration throughout my project, their support is deeply acknowledged.

Signature of the Student

DECLARATION

I, Rutuja Deepak Chudnaik of R. A. PODAR COLLEGE OF

COMMERCE & ECONOMICS of M.Com SEMESTER I, hereby

declare that I have completed the project Definitions u/s. 3, 4, 5, 6, 7, 8; and

Penalty and Interest under MVAT Act, 2002. in the academic year 2015-

2016 for the subject Indirect Taxes .

The information submitted is true and original to the best of my

knowledge.

Signature of the Student

IndexVAT - INTRODUCTION:..............................................................................................................6

SCOPE OF VAT..........................................................................................................................6MVAT..........................................................................................................................................7

REGISTRATION [Sec. 16, R 8]:............................................................................................8Incidence of Tax - Dealers liable to pay Tax: – [Sec. 3].....................................................8

Charging Provisions...............................................................................................................14Levy of Tax Payable..........................................................................................................15

Tax Payable - Section 4.................................................................................................15Tax not leviable on certain goods in Maharashtra VAT....................................................16

Tax not leviable on certain goods – section 5................................................................16Levy of Sales Tax on the goods specified in the Schedules in Maharashtra VAT............16

Levy of Sales Tax on the goods specified in the Schedules – section 6........................16Rate of tax on packing materials in Maharashtra VAT.....................................................16

Rate of tax on packing materials – Section 7................................................................16Schedules and Rate of Tax........................................................................................17

Certain sales and purchases not to be liable to tax in Maharashtra VAT..........................18Sales transactions exempt from payment of tax under MVAT Act - Section 8............18

Business Audit, Recovery, Offence And Penalty Under MVAT:.........................................20Objectives of Business Audit.........................................................................................20The Business Audit Process...........................................................................................20Results of the audit........................................................................................................21Time limit for audit.....................................................................................................21Investigation..................................................................................................................21

Recovery, Offences and Penalties:.................................................................................21Recovery of unpaid tax...............................................................................................21Offences.........................................................................................................................22Financial penalties or fines.........................................................................................23

Tax related................................................................................................................23Non Tax Related Penalties......................................................................................24

Payment of Penalty or Fine........................................................................................24Offences And Penalties......................................................................................................25

Conclusion.............................................................................................................................27Biblography:..........................................................................................................................28

VAT - INTRODUCTION:

VAT is introduced in India. VAT Council of States, the body of State Finance Ministers

and Standing Council Of Commissioners have agreed that the VAT should be implemented

all over India From 1-4-2001. However, subsequently, after taking into consideration the

fact that the groundwork is still in progress, the date has been extended to 1-4-2002.One

thing is certain that the word ‘VAT’ [Value Added Tax] is a symbol of Globalization and

Liberalization, which is a universal phenomenon for the current age, is bond to be

implemented in India.

VAT (Value Added Tax) is a multistage tax system for collection of sales tax. The system

envisages levy of tax on the sale at each stage and contemplates allowing of set off of tax paid on

purchases. Thus, tax is getting paid on the value addition in the hands of each intermediately

vendor. The process covers whole chain of distribution i.e. from manufacturers till retailers.

Prior to 1-4-2005, the system for levy of tax in Maharashtra was, in general, single point tax

system. As a consequence to national consensus for introduction VAT, the earlier Bombay Sales

Tax Act, 1959 is replaced by Maharashtra Value Added Tax Act, 2002. The Act has come into

force with effect from 01/04/2005. Thus, from 1-4-2005, sales tax is being collected under VAT

system in Maharashtra.

SCOPE OF VATThe purpose of VAT is to generate tax revenues to the government similar to the corporate

income tax or the personal income tax.

The value added to a product by or with a business is the sale price charged to its customer,

minus the cost of materials and other taxable inputs. A VAT is like a sales tax in that ultimately

only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is

collected and remitted to the government only once, at the point of purchase by the end

consumer. With the VAT, collections, remittances to the government, and credits for taxes

already paid occur each time a business in the supply chain purchases products.

MVATThe system of Value Added Tax (VAT) has been implemented, in the State of

Maharashtra, i.e. 1st April, 2005. As per the provisions of MVAT, a dealer is liable to

pay tax on the basis of turnover of sales within the State. The term dealer has been

defined u/s. 2(8) of the Act. It includes all person or persons who buys or sells goods in

the State whether for commission, remuneration or otherwise in the course of their

business or in connection with or incidental to or consequential to engagement in such

business. The term includes a Broker, Commission Agent, Auctioneer, Public Charitable

Trusts, Clubs, Association of Persons, Departments of Union Government and State

Government, Customs, Port Trusts, Railways, Insurance & Financial Corporations,

Transport Corporations, Local authorities, Shipping and Construction Companies, Airlines,

Advertising Agencies and also any corporation, company, body or authority, which is

owned, constituted or subject to administrative control of the Central Government, any

State Government or any local authority.

However an agriculturist, educational institution and transporters shall not be deemed to

be a dealer (subject to fulfillment of conditions).

REGISTRATION [Sec. 16, R 8]:

Incidence of Tax - Dealers liable to pay Tax: – [Sec. 3]The dealers, holding a valid registration certificate under the earlier laws, whose turnover of

either of sales or purchases exceeds the specified limits during the financial year 2004-05, shall

be deemed to be registered dealer under MVAT Act and shall, therefore be liable to pay tax i.e.

1st April, 2005.

The dealers, holding a valid registration certificate under the earlier laws, whose turnover of

either of sales or purchases has not exceeded the specified limits during the financial year 2004-

05, but who have opted to continue their registration certificate (by applying to assessing officer

in specified format), shall also be deemed to be registered dealer under MVAT Act and shall,

therefore be liable to pay tax i.e. 1st April, 2005.New dealers, whose turnover of sales exceeds

the prescribed limits during any year, commencing on or after 1st April, 2005, are liable to pay

tax from the date on which such limit exceeds. A successor in business of any dealer shall

become liable to pay tax on and from the date of succession. A dealer, applying for voluntary

registration, shall be liable to pay tax from the date of registration.

Every dealer, who becomes liable to pay tax under the provisions of MVAT, shall apply

electronically for registration to the prescribed authority, in Form 101, within 30 days from the

date of such liability.

Section 3 of the Act provides for turnover limits for liability to pay tax as well as for registration.

The registration number, which used to be referred to as Registration Certification No. (R.C.No.)

has been changed to TIN (Tax Payers’ Identification Number) and hence the R.C.No. is now

referred to as VAT TIN (Tax Payers’ Identification Number). This change is effective from

1.4.2006. The limits for registration are as under.

Turnover limits for the purpose of Liability/Registration [Sec. 3(4)]

Category of dealer Total turnover of sales Turnover of taxable goods purchased or sold

Importer Rs. 1,00,000 Rs. 10,000Others Rs. 5,00,000 Rs. 10,000

It may be noted that while the total turnover of Rs. 1,00,000/- and Rs. 5,00,000/- is in respect of

Turnover of Sales (which includes all sales whether tax free or taxable), the turnover limit of Rs.

10,000/- is in respect of taxable goods whether purchased or sold. Both the conditions have to be

satisfied for the purposes of liability/registration under this category. [Sec. 3(4)]

i. Reference of turnover of Rs.1,00,000 or Rs.5,00,000 is with respect to sales only. Sales will

include sales of both, tax-free goods as well as taxable goods.

ii. No turnover limit for import is specified for importer. Even an import of Re. 1 is sufficient

to treat the dealer as an importer.

Conditions For Registration

Steps

I Conditions:

Importer

(a) Taxable Sales/ Purchases at least Rs. 10000(b) Sales Turnover exceeds Rs. 100000Any Other Person

(a) Taxable Sales/ Purchases at least Rs. 10000(b) Sales Turnover exceeds Rs. 1000000

II Compute Total/ Culmulative Turnover

1

2.

3.

Compute Taxable Turnover

1.1. Local Purchases2.2. SalesCompute Tax-Free Sales Turnover (Sch. A)

Compute Total Sales Turnover (2.2 +2)

III Check Conditions Yes/No

(1)

(2)

Taxable Turnover (1.1 or 1.2 > 9,999?

Importer

Total Sales Turnover (3) > 100000?Liable As Importer?Not Liable, if Conditions (1) or (2) = NO

Yes/No

Yes/NoYes/No

(3)

Liable. If both Conditions (1) or (2) = YES

Non-Importer

Total Sales Turnover (3) > 100000?Liable As Non-Importer?Not Liable, if Conditions (1) or (2) = NOLiable. If both Conditions (1) or (2) = YES

Yes/NoYes/No

Documents required for the purposes of Registration

The Commissioner of Sales Tax, Maharashtra, has issued a circular dated 4th May, 2005,

whereby a dealer is required to submit following documents along with the application for

registration in Form 101: –

Documents to be submitted along with the application for registration:

(Note: Copies of documents must be self-attested and are subject to verification from the

original)

IN CASE OF FRESH REGISTRATION:

Proof of constitution of business (as appropriate):

I. In case of proprietary firm: No proof required.

ii. In case of partnership firm:

(Registered or unregistered)

Copy of partnership deed.

iii

.

In case of company: Copy of Memorandum of Association and Articles of

Association.

iv. In case of other constitution: Copy of relevant documents.

Proof of permanent residential address* (please provide at least 2 documents out of the

following documents):

1. Copy of passport.

2. Copy of driving license.

3. Copy of election photo identity card.

4. Copy of property card or latest receipt of property tax of Municipal

Corporation/Council/Gram Panchayat as the case may be.

5. Copy of latest paid electricity bill in the name of the applicant.

Proof of place of business

1. In case of owner: Proof of ownership of premises; viz., copy of property card or

ownership deed or agreement with the builder or any other relevant documents.

2. In case of tenant/sub-tenant: Proof of tenancy/sub-tenancy like copy of tenancy

agreement or rent receipt or leave and license or consent letter, etc.

3. Copy of Electricity Bill

4. Two latest passport size photographs of the applicant **

5. Copy of Income Tax PAN Card

6. Challan in original showing payment of registration fee

REGISTRATION IN CASE OF CHANGE IN CONSTITUTION OF THE

DEALER:

1. Proof of change in constitution (e.g., if proprietary dealer converted to partnership

firm then copy of Partnership deed, etc.).

2. Copy of latest return-cum-challan.

3. Pay order for payment of fees.

4. PAN of new firm.

5. Proof of permanent residential address.

REGISTRATION IN CASE OF TRANSFER OF BUSINESS

1. All documents from 1 to 6 given in 'A'.

2. Copy of transfer deed.

3. Copy of latest return-cum-challan of the original dealer.

ILLUSTRATION 1 :

From the following information regarding the turnover of purchases and sales transactions

submitted by M/s Castalinos, who was not liable to be registered till 1st April, 2011, find out

whether he is liable for registration as per the provisions of MVAT Act, 2002, Give reasons

for your answer.

PURCHASES SALES

MONTH Taxable Goods Rs. Taxable Goods Rs. Tax Free Goods Rs.

April 1000 2000 200000May 2500 3000 250000June 3500 4000 300000July 4500 5000 110000

Solution:

MONTH Purchases Sales Cum Taxable PurchaseTaxable

Goods Rs.Taxable Goods Rs.

Tax Free Goods Rs.

Total Sales Rs.

Cum. Sales Rs

Cum Taxable Sales Rs.

April 1000 2000 200000 202000 202000 2000 1000

May 2500 3000 250000 253000 455000 5000 3500

June 3500 4000 300000 304000 759000 9000 7000

July 4500 5000 110000 115000 874000 14000 11500

Since, Castalinos is not an importer, following limits are applicable:

(a) Total Turnover of sales exceeds Rs. 5,00,000.

(b) Taxable sales/purchases are of Rs. 10,000 or more. .

From the above working it is clear that Castalinos crosses the turnover limit of Rs. 5, 00,000 in

June, 2011, but his turnover of purchase as well as sales exceeded the limit of Rs. 10,000 only in

the month of July, 2011.

He will be liable to registration in July, 2011, when he fulfills both the conditions.

ILLUSTRATION 2:

The following information regarding the turnover of purchases and sales transactions is

submitted by Allen, who started Business on 1st March 2011. Find out whether as per the

provision of the MVAT Act 2002, it is liable for registration and payment.

PURCHASES SALESWithin State Outside State

MONTH Tax Free Goods Rs.

Tax Free Goods Rs.

Taxable Goods Rs.

Tax Free Goods Rs.

Taxable Goods Rs.

March 30000 2000 3500 40000 3500April 20000 3000 2500 10000 3000May 40000 4000 4500 80000 1500June 70000 5000 6500 50000 3000July 25000 6000 3000 20000 3500

Solution

Given data is for two financial years 2009-10 and 2010-11. Hence limits will have to be

computed separately for both the years.

Month Purchases SalesCum Taxable Purchase Rs.

Within State

Outside State Tax Free Goods Rs.

Taxable Goods Rs.

Total Sales T/O Rs.

Cum. Total T/O. Sales Rs

Cum Taxable Sales Rs.

Tax Free Goods Rs.

Tax Free Goods Rs.

Taxable Goods Rs

2009-2010March 30000 2000 3500 40000 3500 43500 43500 3500 3500 2010-2011April 20000 3000 2500 10000 3000 13000 13000 3000 2500May 70000 4000 4500 80000 1500 81500 94500 4500 7000June 40000 5000 6500 50000 3000 53000 147500 7500 13500July 25000 6000 3000 20000 3500 23500 171000 11000 16500Allen is an Importer covered by the following turnover limits

i) Turnover of sales of in excess of Rs. 1,00,000 and

ii) Taxable sales/purchases of Rs. 10,000 or more

During the financial year 2010-11, Allen starts his business in the month of March, 2011, during

the year he has total turnover of sales of Rs 43,500 and also his turnover of taxable purchase as

well as sales is Rs. 3,500 each. He does not satisfy both the limits; hence he is not liable to

registration during the year 2010-11.

During the next financial year, 2011-12 it is clear from the information given, that Allen has

crossed the turnover limit of sales in the month of June 2011, when his sales is Rs. 1,47,500 and

his taxable Purchase turnover exceeds Rs, 10000 in June, 2011

Allen is liable for Registration in July 2011, that is the earliest date on which he fulfills both the

conditions.

Charging Provisions

Section 4, 5, 6 and 7 are charging Sections.

As per Section 5, no tax is to be levied on sale of goods covered by Schedule A.

Section 6 provides for levy of tax on turnover of goods covered by schedule B, C, D and E.

Section 7 specifies the rate of tax on packing material. Where any goods are sold and such

goods are packed in any material, then the tax on such sale of packing material shall be at the

same rate of tax, if any, at which tax payable on the goods is so packed, whether the packing

material is charged separately or not.

Levy of Tax Payable

Tax Payable - Section 4Under MVAT Act, 2002, Sales Tax is payable on all sale of goods effected from the State,

whether such goods are manufactured or resold or imported from out of the State of Maharashtra

or purchased from registered or unregistered dealers in Maharashtra. Unlike Bombay Sales Tax

Act, there is no concept of ‘resale’ or ‘second sale’ under the MVAT Act, 2002.

Under MVAT Act, 2002, Purchase Tax is payable on purchases of specified goods from

Unregistered Dealers and the goods so purchased are Branch Transferred or sent to consignment

agent outside the State to any place within India or the goods so purchased are used in

manufacturing of taxfree or taxable goods and the goods so manufactured are branch transferred

or sent to consignment agent outside the State to any place within India.

Every Dealer or every person who is liable to pay tax under MVAT Act, shall pay the taxes

leviable under the Act, subject to the provisions of the Act and Rules. It can be said that the

liability to MVAT depends on the following factors:

Nature of Transaction Location of sale

Nature of Goods

Dealer

Consideration

Tax not leviable on certain goods in Maharashtra VAT

Tax not leviable on certain goods – section 5 Subject to the other provisions of this Act, and the conditions or exceptions, if any, set out

against each of the goods specified in column (3) of Schedule A, no tax shall be payable on the

sales of any goods specified in column (2) of that schedule

Levy of Sales Tax on the goods specified in the Schedules in Maharashtra

VAT

Levy of Sales Tax on the goods specified in the Schedules – section 6There shall be levied a sales tax on the turnover of sales of goods specified in column (2) in the

schedules B, C, D or, as the case may be, E at the rates set out against each of them in column (3)

of the respective Schedule.

Section 6 provides for levy of sales tax on turnover of goods covered by Schedules B, C, D and

E.

Section 6A (w.e.f. Date to be notified) provides for levy of purchase tax on turnover of

purchases of cotton subject to conditions mentioned therein.

Section 6B (w.e.f. 1-5-2012) provides for levy of purchase tax on turnover of purchases of Oil

Seeds covered by Schedule C subject to conditions mentioned therein.

Rate of tax on packing materials in Maharashtra VAT

Rate of tax on packing materials – Section 7

Where any goods are sold and such goods are packed in any material, the tax shall be leviable

under section 6 on the sales of such packing material, whether such materials are separately

charged for or not, at the same rate of tax, if any, at which tax is payable on the sales of the

goods so packed.

Schedules and Rate of Tax

All the goods are classified under Schedule A to E.

Schedule A covers goods, which are generally necessities of life. Goods covered by

Schedule A are free from tax. Some of the items covered by Schedule A are agricultural

implements, cattle feed, books, bread, fresh vegetables, milk, sugar, fabrics, plain water etc.

Schedule B covers jewellery, diamonds, precious stones and imitation jewellery. Goods

covered by Schedule B are subject to tax at 1%. (1.10% for the year 2013-14)

Goods covered by Schedule C are subject to tax 5%. With effect from 1st May, 2011

declared goods are also subject to tax @ 5%. Schedule C covers items of daily use or raw

material items like drugs, readymade garments, edible oil, utensils, iron and steel, non

ferrous metal, IT products, oil seeds, paper, ink, chemicals, sweetmeats, farsan, industrial

inputs, packing materials etc.

Schedule D covers different types of liquors. Wine is subject to tax @ 20%. With effect

from 1st May, 2011, other liquors are subject to tax @ 50%. It also covers various types of

motor spirits that are subject to tax from 4% to 34%.

All items which are not covered in any of the above Schedules are automatically covered in

residuary Schedule E. Goods covered by Schedule E are subject to tax at 12.5%

Rate Of Tax: [Secs. 5 & 6] As Per Schedules

Schedule ‘A’ – Essential Commodities (Tax free) Nil

Schedule ‘B’ – Gold, Silver, Precious Stones, Pearls etc. 1%

Schedule ‘C' – Declared Goods and other specified goods 4%

Other goods i.e. 1/5/10 5%

Schedule ‘D’ – Foreign Liquor, Country Liquor, Motor Spirits, etc. At specified rates

Schedule ‘E’ – All other goods (not covered by A to D) 12.5%

Certain sales and purchases not to be liable to tax in Maharashtra VAT

Sales transactions exempt from payment of tax under MVAT Act - Section 8

Following sales transactions are exempt from payment of tax under MVAT Act:

Interstate sale is exempt from payment of sales tax and it may be liable to tax under C.S.T

Act. [Section 8(1)]

Sales taking place outside the state as determined under Section 4 of the C.S.T Act. [Section

8(1)]

Sales in the course of import or export. [Section 8(1)]

Sales of fuels and lubricants to foreign aircrafts. [Section 8 (2)]

Inter-se sales between Special Economic Zones, developers of SEZ, 100% EOU, Software

Technology Parks and Electronic Hardware Technology Park Units subject to certain

conditions. [Section 8 (3)]

Sales to any class of dealers specified in the Import and Export Policy notified by the

Government of India [8(3A)]. This is subject to issue of notification by State Government

under this Section. However, no such notification is issued till today.

As per Section 8(3B), the State Government may, by general or special order, exempt fully or

partially sales to the Canteen Stores Department or the Indian Naval Canteen Services.

Under power granted u/s. 8(3C), the State Government, by general order, has exempted fully

the tax on works contract of processing of textiles covered in column 3 of the first schedule

to the Additional Duties of Excise (Goods of Special Importance) Act, 1957. By amendment

in Additional Duties of Excise (Goods of Special Importance) Act, 1957 the textiles are

removed from above Act with effect from 8th April, 2011. However, corresponding change

is not made in the above notification under the MVAT Act. Therefore, operation of the above

exemption Notification after 8th April, 2011 is subject to renewal of this Notification as per

above amended position.

Sales effected by manufacturing units covered by Package Scheme of Incentives and under

exemption mode are exempt from payment of tax u/s. 8(4).

As per Section 8(5), the State Government may, by general or special order, exempt fully or

partially sales to specific category of dealers mentioned in this sub Section. By Notification

dated 19.4.2007 concessional rate of tax @ 5% (4% upto 30th April, 2011) is provided for

sale to specified Electric Power Generating and Distribution Companies, MTNL, BSNL,

other specified telephone service providers and telecom infrastructure providers.

One more notification dated 29th June, 2009 is issued by the State Government u/s. 8(5) by

which sale of certain specific goods for satellite launch system to the Department of Space,

Government of India is exempted from payment of tax with effect from 1st July, 2009.

The State Government may issue the notification to grant refund of any tax levied on and

collected from any class or classes of dealers or persons or as the case may be, charged on

the purchases or sales made by such class or classes of dealers or persons (Section 41). At

present this notification is issued for grant of refund in case of Consulate and Diplomat

authorities.

As per Section 41(4)(b) read with Notification dated 30.11.2008 issued under the said

section, the sale of motor spirit at retail outlets is exempted from tax, if the retail outlet

purchases the same from registered dealer.

Section 41(5) is introduced with effect from 1st May, 2011. As per this Section, the State

Government is empowered to provide exemption from the payment of full or part of the taxes

payable on any class or classes of sales of liquors by any class or classes of dealers. Using

the powers granted u/s. 41(5), the State Government has issued a notification, which is

discussed subsequently.

Business Audit, Recovery, Offence And Penalty Under MVAT:

Business Audit is a new function of the Sales Tax Department. This will be conducted

by the Sales tax officials ordinarily at the dealer's place of business. This audit is

independent from the audit by a Chartered Accountant. Business Audit is however, not

an activity of enforcement for search and seizure at dealers' business premises.

Objectives of Business AuditThe objective of a Business audit is to close any possible gap between the tax declared

by' a dealer and the tax legally due. It aims to ensure optimum revenue collection and

voluntary compliance. The aim of Business audit is to encourage the highest possible

level of voluntary compliance in a system of self-assessment.

The Business Audit ProcessIf any of the dealers business is selected for an audit, then Sales Tax Office will inform

them and then fix a suitable date.

The audit officer will inspect the books of accounts and supporting documents. At that

time dealer should make available any information or documents that he may require to

enable him to carry out the audit effectively and speedily. The audit officer may like to

understand dealer’s business process and examine their stocks of goods. He may also

like to interview the person or its employees for this.

The audit officer cannot remove any books of accounts or documents from their

premises. However, audit officer can request for copies.

Results of the auditIf the audit shows that the returns filed do not reflect the true picture of the dealers

business, then the auditor may discuss the matter with the dealer and will give guidance

to them to prevent recurrence and will also explain them about what action should be

followed. The audit may result in additional tax demand or a refund.

Time limit for auditThere is no time limit prescribed for conducting Business Audit. Normally, they may

carry out an audit within two years of filing the return. They may follow the timelines

as prescribed for completion of assessments under the MVAT Act and MVAT Rules.

InvestigationNormally, the Sales Tax Department will make Business Audit visits by appointment.

However, if the department suspects any tax evasion, it may conduct investigation of the

business including search and seizure operations at any time without giving notice. Such

investigation will be carried out by a duly authorized investigation officer (not audit

officer).

Recovery, Offences and Penalties:

Recovery of unpaid taxVAT is a self-assessed tax. In order to operate effectively, the self -assessment system

relies on the expectation that every dealer will deal with his tax matters promptly and

honestly. But there will be occasions when a dealer does not pay the tax that is due.

And so, there is a system designed to recover unpaid tax and to deter dealers from

trying to avoid paying tax.

The self-assessment return requires the dealer to pay the tax due at the time of

submission of the return. If this dealer does not pay the tax that he has declared, or if

only pays a part of the tax due, interest is payable in addition to the tax due.

OffencesThe principal offences, each of which has been referred to in the text of this guide, are

as follows: -

If a person -

poses as a registered dealer when they not registered.

files a false return.

keeps false account of the value of goods bought or sold.

produces false accounts, registers or documents or provides false information.

issues any document (including bills, cash memoranda, vouchers or any other

certificate or declaration) which the dealer knows or has reason to believe is

false.

He may be liable for criminal proceedings including imposition of fine.

In addition, dealer is committing an offence and if he fails to -

register when his turnover exceeds the, threshold.

provides information about changes to his business.

declares the name of the manager.

provides to Sales Tax Department the PAN allotted to the business.

files a return.

get his accounts audited, when required.

keeps proper accounts, when required to do so by the Sales Tax authorities

because the existing records are inadequate.

produce his accounts for inspection, when required

issues a tax invoice, bill or cash memorandum.

In these circumstances, the dealer may be prosecuted and a fine may also be imposed.

There are two other events that may also give rise to a penalty. If the dealer:

transfers any assets of his business with the intention of not paying tax, or

fails to respond to a notice requiring him to provide statistical information.

Dealer will be liable to a fine and may also face prosecution.

Financial penalties or finesThere are various financial penalties, each depending on the nature of the offence:

Tax relatedSome offences attract a maximum penalty in proportion to the amount of tax due.

If the dealer: -

conceals or misclassifies any transaction or provides inaccurate information or

claims a set off in excess of the amount due or,

issues or produces a documents, including tax invoice, bill or cash memorandum,

that results in a person or dealer not paying the correct amount of tax

The penalty is an amount equal to the tax due. If the dealer avoids paying the correct

amount of tax as a result of issuing bogus, false tax invoices, the maximum penalty is

an amount equal to half of the tax under assessed or Rs.100/-, whichever is higher.

Non Tax Related PenaltiesIf the dealer fails to file a return, within the time allowed, the penalty is Rs.2,000/-. If

dealer files the return late but before any penalty proceedings have started, the penalty

will be reduced to Rs1,000/-.

If the dealer’s return is not correct, complete and self-consistent, the penalty is Rs1,000/,

but this is without prejudice to any other penalties that may be imposed.

If, after the issue of summons, the dealer fails to attend any proceedings or to produce

books of account, registers or documents, the Tribunal or the Sales Tax authorities may

impose a fine, not exceeding Rs.5,000/-.

Most other offences attract a penalty of Rs.1,000/- although there is also a provision for

some offences to attract a penalty of Rs.2,000/- plus a continuing daily penalty of

Rs.100/-

Payment of Penalty or FineAs a result of proceedings, such as audit, investigation, assessment etc., Sales Tax

Authority may issue a demand notice containing details of tax, interest and penalties, if

any, that are imposed. The dealer should pay the amount due within 30 days of the date

of the order. Dealer should make the payment using Form 210 through the bank where

he normally files his return.

Offences And Penalties

The penalties under MVAT Act, 2002 are prescribed in section 74, which are as follows:

Section 74(1)(a) Rigorous imprisonment for minimum one month and maximum one year and with fine for

following offences:—

1. If a dealer represents himself as a Registered Dealer at the time of sale or purchase

74(1)(a)

2. If he filed false returns 74(1)(b)

3. If he produces a false bill, cash memorandum, voucher, declaration, certificate or other document referred to in sub-section (29)(4)

74(1)(c)

4. If he produces false accounts of the value of goods bought or sold by him in contravention of section (63)(1)

74(1)(d)

5. If he produces false accounts registers or documents or knowingly furnishes false information, or

74(1)(e)

6. If a dealer issues to any person any false certificate, declaration under the Act, rules or notifications or a Bill, cash memorandum, voucher, delivery challan, lorry receipt or other documents which he knows or has reason to believe to be false.

74(1)(f)

7. If a dealer represents him wrongly that he is authorised under section 82 appears before any authority in any proceeding

74(1)(g)

Section 74(1A)

Rigorous imprisonment for minimum of one year and maximum up to two years and with fine for the following offences:—

1. Knowingly with the intention to defraud revenue, issues or produces a false Tax Invoice and thereby makes a false claim in respect of the set off or the refund, or claims any other deduction that results into reduced tax liability or enhanced refund

74(1A)

2. Abets any of the aforesaid offences 74(1A)

Section 74(2)

Rigorous imprisonment for minimum of three months and maximum up to one year and with

fine for the following offences:—

1. If the dealer wilfully evading tax or payments of tax, penalty and interest leviable under this Act

74(2)

Section 74(3)

Simple imprisonment, which may extend to six months and with fine for the following offences,

if the dealer:—

1. Fails, without sufficient cause to comply with the requirements of sub-section (14)(3)

74(3)(a)

2. Engaged in business as dealer without being registered under Section 16, or 74(3)(b)

3. Failure to get the new registration certificates in lieu of existing certificate, when required to do so, as per the provision of section (17)(1)

74(3)(c)

4. Fails without sufficient cause, in furnishing any information as required by section 18

74(3)(d)

5. Fails without sufficient cause, to furnish a declaration/revised as provided in section (19)(1)

74(3)(e)

6. Fails, without sufficient cause, to furnish any return or complete and self-consistent return by section 20 by date and in the manner prescribed, or

74(3)(f)

7. Fails, without sufficient cause, in paying TDS by the employer, in deducting TDS or to file TDS Return as required under the provision of section 31, or

74(3)(g)

8. Fails, without sufficient cause, to comply with the requirements of section (33)(1) or

74(3)(h)

9. Fails, without sufficient cause, to comply with the requirements of any order issued under the section (35)(1),or

74(3)(i)

10.

Fails, without sufficient cause, to comply with the requirements of any order issued under Section (38)(3)

74(3)(j)

11.

Fails, without sufficient cause, to comply with the requirements of section 42

74(3)(k)

12.

Without reasonable cause, contravenes any of the provisions of section 60, or

74(3)(l)

13.

Fails, without sufficient cause to get his accounts audited or furnish the audit report, as required under section 61,or

74(3)(m)

14.

Fails, without sufficient cause, to comply with the requirements of section 63, or

74(3)(n)

15.

Fails, without sufficient cause, to comply with the requirements of section 64

74(3)(o)

16.

Fails, without sufficient cause, to comply with the requirements of section 65, or

74(3)(p)

17.

Fails, without sufficient cause, to furnish any information or return required by section 70 as prescribed manner, or

74(3)(q)

18.

Fails, without sufficient cause, to issue a tax invoice, bill or cash memorandum as required under section 86

74(3)(r)

19.

Fails, without reasonable cause, any of the conditions, subject to which the Certificate of Entitlement is granted, or

74(3)(s)

20.

Fails, without sufficient cause, to comply with any notice in respect of any proceedings

74(3)(t)

ConclusionVAT, a globally recognized sales tax system, has been introduced in more than 130 countries

VAT in Maharashtra is levied under a legislation known as the Maharashtra Value Added Tax

Act (MVAT Act), 2002, supported by Maharashtra Value Added Tax Rules (MVAT Rules).

VAT is levied on sale of goods including intangible goods.

Biblography:

Internet

www.mahavat.gov.in

www.caclubindia.com

www.indiataxes.com/Information/VAT/Introduction.htm

www.business-standard.com/.../penalty-waived-for-late-mvat-audit-repor...

www.revenue.com

http://www.rushabhinfosoft.com/webpages/All%20India%20VAT/VATACT/

MAHARASHTRA.htm

Text Book

Indirect Taxes M.Com Part II: Semester IV Ainapure

Manan Prakashan

All India Taxes (A Ready Referencer) CA Alok Kr Agarwal & CA Shailendra Mishra

All India VAT Manual (Covering All States VAT

Acts, Rules, Rates and Notifications) (in 4 Vols.)

Balram Sangal & Jagdish Rai Goel

http://www.revenue.com/

http://www.business-standard.com/.../penalty-waived-for-late-mvat-audit-repor

Final mvat idt assignment

Education

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