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MALAD GOREGAONCPE STUDY CIRCLE

MVAT AUDIT FORM 704AUDIT REPORT AND PART 2 GENERAL

INFORMATIONOn 20.12.2009

BYCA HITEN SHAH

PARTNERS.S.Jhunjhunwala & Co.

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AUDIT REPORTSEC 61 & RULE 65 OFMVAT ACT

Amendment in VAT Rules,2005 vide Notification No. VAT/1508/CR-69/Taxation Dated 23.10.2008

Form 704 substituted by the above Notification wef 1.11.2008

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CONTINUE… Notification No: VAT/ AMD-1009 /IB

/Adm-6, Dated 26/08/2009 prescribing amended Form 704

Notification No: VAT/ AMD-1009 /IB /Adm-6, Dated 21/08/2009 which provides to file VAT Audit Report electronically in respect of the period starting on or after 1st April 2008 in New Form 704 W.E.F. 01/10/2009.

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MVAT AUDIT Due Date for submission of VAT Audit

Report for F.Y. 2008-09 is 31-01-2010.

“Statement of submission of Audit Report in Form 704” required to be filed by 10th February 2010 along with – Duly signed copy of the acknowledgement I.T. Tax Audit report, Statutory report, etc. Trial Balance for Maharashtra operations Part 1 of Audit Report

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Statement of submission of Audit Report in Form 704

I, _____ Partner/Prop/Director of _____ certify that accounts of _____ is audited by ______ and have received the report in Form 704 certified by _____ . It is further acknowledge that said report has been uploaded.

………………….(signed)

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MVAT AUDIT

R. 17A(2) – Permits modification of Forms only to facilitate E-filing

Modified Form 704 provides for additional certifications, information and annexures

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MVAT AUDIT 704■ 37 Instructions-for filling up Report Form 704

■ Report is divided in to Three Parts.

■ Part I relates to audit and certification and determination of the additional or reduced tax liability by the dealer or additional or reduced refund due to the dealer on the basis of audit conducted and reporting on the non-compliances, short comings and deficiencies.

■ Part II relates to General Information of the dealer and business related information to be provided.

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MVAT AUDIT 704

Part III consists of Schedules I, II, III, IV, V, VI, which becomes applicable to the dealer on the basis of return forms filed i.e. Form 231, 232, 233, 234, 235 under MVAT Rules and Form III (E) under CST Rules. These schedules provide for computation of sales and tax payable thereof, computation of turnover of purchases, availability of setoff and the resultant liability or refund.

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MVAT AUDIT 704

Annexures A to K – Tax credit –Set off, Ratios, Details of Tax Deducted at Source, Details of Declarations Received/ Not received under CST Act, Customer wise Details of Sales, Supplier wise Details of Purchases etc.

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Part 1-Audit Report &Certification Firstly, let us understand the meaning of

Audit, Report and Certification. Audit: An official inspection of

organization’s documents. Report: It is a formal statement usually

made after an enquiry, examination or review of specified matters under the report and includes the reporting auditor’s opinion thereon.

Certificates: “A certificate is a written confirmation of the accuracy of the facts stated therein and does not involve any estimate or the opinion”.

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Part 1-Audit Report &Certification

.1- Name of the company, TIN No. under VAT & CST Act.

1(A). Tax Audit conducted under Income Tax Act – Name of the Auditor & Date of the Report.

Where accounts are audited under I.T. Act Report u/s. 44AB of I.T. Act to be attached

with enclosures Enclosures include statutory report, if any Special reports not required to be attached

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Part 1-Audit Report &Certification

1(B). Audit conducted under Other Laws. Where accounts are only audited under any

other Act – Companies Act, Bombay Trust Act, Maharashtra Societies Act, etc.

or1(C). If Accounts not audited under Other

Law, report as such. (Instr.# 6) Where accounts are not audited

Obtain certified Balance Sheet and Profit & Loss / Income & Expenditure A/c. from dealer

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Part 1-Audit Report &Certification Management’s Responsibility: Accounting Record Keeping & Financial

Statement preparation. Sales Tax related records.

Auditor’s Responsibility : Verification of VAT & CST Returns. Verification of relevant record based on

Auditing Standards. Vouching on Test-Check basis. Relying on work of Statutory Auditor Express opinion on Sales Tax related record.

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Part 1-Audit Report &Certification

Auditor’s Responsibility (Contd….): The audit has been conducted in

accordance with Generally Accepted Auditing Practices

Auditor has obtained reasonable assurance that the financial statements and sales tax related records are free from material mis-statements

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Part 1-Audit Report &Certification

Scope of auditScope of the audit is to verify the correctness of the “tax liability” in respect of the returns filed. Earlier

it was on Correctness and Completeness of Returns.

The auditor is required to determine the tax liability from the books of account of the dealer

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2(A). Verified tax liability of Dealer in respect of Sales Tax Returns filed.

2(A) Table1 –1. Periodicity of returns to be filed? M / Q / H / A

2. Returns periodicity proper? …….. Yes or No

3. Stock Register maintained? ………. Yes or No

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4. Verification of the Returns for the period under Audit

FROM TO

5. Returns verified (Please tick the appropriate box)

(a) (i) Returns under the Maharashtra Value Added Tax Act, 2002

(ii) Return in Form 405

(b) Returns under the Central Sales Tax Act, 1956. (i) The dealer has filed returns only

for the period in which there is interstate sales or sales u/s 5(2) or 5(3). (Reference u/s 5(1) is also required)

(ii) Since there are no interstate sales or sales u/s 5(2) or 5(3) in other periods, the dealer has/has not filed returns for such periods. (Reference u/s 5(1) is also required)

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Part 1-Audit Report &Certification

Where to report non-filing of returns or Wrong filing of Returns ?

It is advisable to give Remarks in Para -5 though this para is pertains to transactions which will have an impact on Tax liabilities.

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2(B): Auditor’s Certification w.r.t.:

Subject to *my / our remarks about non-compliance, shortcomings and deficiencies in the returns filed and tax liability computed and presented in respective schedules and Para-4 of this report, I/We certify that,-

a. Obtained all information & explanations which were necessary for the purpose of the Audit.

b. The vat auditor has read and followed the instructions for preparing Audit Report

Applicable Schedule in Part 3 is as per the periodicity of the returns required to be filed

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2(B): Auditor’s Certification w.r.t.:

b.(Contd….) Auditor to report in correct Schedule

irrespective of Form of returns filed by the dealer

Also to furnish details required under Relevant Schedule & Annexure given.

If any instruction cannot be followed, auditor to qualify / give negative certification at Para 3

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2(B): Auditor’s Certification w.r.t.:

c. Books of Account, ST Records, Invoices, Documents, maintained are sufficient for computation of VAT & CST.

The books and sales tax related records are sufficient

Include books prescribed u/s. 63(2) Include Form 404, Set-off register and CST

Form 1(B) and 1A(B) Report if Maharashtra trial balance not

available

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2(B): Auditor’s Certification w.r.t.:

d. Sales & Purchases T.O. determined includes all transactions of Sales & Purchases concluded during period under Audit.

e. Adjustments like Goods Return, Discount etc. related to Sales & Purchase T.O. are supported by Documents & effected through passing an Entries in the Books of Accounts.

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2(B): Auditor’s Certification w.r.t.:

Deductions from GTO of Sales. Debit/Credit notes issued/received Goods Return, Discounts WCT deduction Rule (58), deduction in WCT deduction Rule (58), deduction in

residential hotel Rule (59), backward area residential hotel Rule (59), backward area (PSI unit) purchase deduction Rule 57 (2) (PSI unit) purchase deduction Rule 57 (2) etc.etc.

Supported by necessary documents

g. Classification of T.O. of Sales based on Schedule Entry qua Vat Rates, Computation of Tax/ Composition Tax is correct.

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2(B): Auditor’s Certification w.r.t.:

. Purchases supported by Tax Invoice. Effect of goods return & other deductions made are supported by documents. Computation of Setoff is proper.

Computation of set-off and adjustments Verification of tax invoices and adjustments for

goods returns, debit/credit notes, etc. Dr/Cr Note for Tax difference due to Rate of Tax

Variation has to relate back in the month of Original Sales/Purchase made and not in the month in which Dr/Cr note issued as it does not covers U/S 63(5)/(6)

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2(B): Auditor’s Certification w.r.t.:

i. Sales against the declarations / certificates: ALL Such Forms are produced before me, Verified by me & are in conformity of the provisions related thereto? Pending Forms to be reported in Annexure -H & Annexure -I.

All the details in declarations/certificates have been filled in otherwise to be treated as defective.

Forms 406 to 409 not covered for reporting

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2(B): Auditor’s Certification w.r.t.:

j. CQB computed as per Law. CQB covers only Exemption Scheme

k. Record of Receipts & Dispatches of goods are correct & maintained properly.

GRN/Delivery notes to be verified Consider reply for Stock Register in

Table 1, Sr.3 if stock record maintained for receipt and issue of materials

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2(B): Auditor’s Certification w.r.t.:

l. Tax Invoices issued for Sales are as per Law.

Tax Invoices for sales conform to provisions of law

Not required for Bill or Cash Memo

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2(B): Auditor’s Certification w.r.t.:

m. Bank Statements examined & are fully reflected in Books.

‘‘The bank statements have been The bank statements have been examined by *me/us and they are examined by *me/us and they are fully reflected in the books of fully reflected in the books of accounts.’accounts.’

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2(B): Auditor’s Certification w.r.t.:

Impractical proposition - Impractical proposition - Practically it is very difficult to reconcile the payment received/paid against Sales/Purchases. Say for eg. Goods sold by Branch at Surat and payment received by H.O. at Maharashtra or Vice Versa or Say Invoice amount is of Rs.10 lacs and payment received in installments

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2(B): Auditor’s Certification w.r.t.:

m. Bank Statements examined & are fully reflected in Books.(contd….)

There may be possibility say dealer has removed entry of similar amount of Receipt and Payment pertains to Sales and Purchase in Books of Account –How to find ?

Numerous bank a/c’s , numerous transactions, Numerous bank a/c’s , numerous transactions, anywhere banking, e-banking….anywhere banking, e-banking….

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2(B): Auditor’s Certification w.r.t.:

N. Visited Principal POB / Main POB of Dealer & Dealer conducts business from declared POBs. (Inst # 18)

POB includes warehouse and where accounts are kept

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2(B): Auditor’s Certification w.r.t.:

Make disclosure for non-resident dealer

If place is out of State no need to visit but if warehouse is in the Maharashtra State then it is required to visit

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2(B): Auditor’s Certification w.r.t.:

O. Exercised due professional care in Auditing Business. Based on observations of Business Processes and Practices, Stock of Inventory and Books of A/c Maintained, I fairly conclude that –

Dealer deals in commodities shown in Part-2.

ST Records reflects True & Fair view of Volume & Size of Business.

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2(B): Auditor’s Certification w.r.t.:

Very onerous Task on VAT Auditor-

that Auditor should observe that looking at number of employees on payroll what should have been the Turnover or looking at the electricity bill what should have been the production and accordingly the sales etc.

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2(B): Auditor’s Certification w.r.t.:

p. Goods purchased by SEZ unit is used in the said unit.

Purchases in SEZ unit are used in that Unit

Report transfers, destruction, etc. Purchases may be local, inter-State

or imports Not required for SEZ developer

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2(B): Auditor’s Certification w.r.t.:

3.Report reasons for Negative Certification if aforesaid points are not Certified :

Instruction # 7: Certification in Para 2(B) cannot be modified. If auditor has to give Material remarks, qualifications & negative certification having impact on Tax Liability it should be given under this para corresponding to the relevant certificate and along with the reasons for the same.

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2(B): Auditor’s Certification w.r.t.:

Vat auditor may also give in Para 3

Qualificatory statement Disclaimer statement Drawing attention statement like dealer has charged 4%

whereas department has charged 12.50% and the matter is in appeal

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2(B): Auditor’s Certification w.r.t.:

or Say all the bank statements are not available

or Say POB for Non-Residence dealer being out of State hence not visited

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2(B): Auditor’s Certification w.r.t.:

To reduce remarks for To reduce remarks for difference under this Para, difference under this Para, we should advise our client we should advise our client to revise respective returns to revise respective returns before conducting actual before conducting actual VAT Audit and before VAT Audit and before preparing VAT Audit report preparing VAT Audit report in Form- 704.in Form- 704.

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Audit Report - Part 2 – General Information of Dealer & Business Related information under other Acts:

1 & 2 Profession Tax RC No., effective date &

a/b. Whether tax paid as per Returns?3. Profession Tax EC No.4. Effective date of PT EC5. Whether Tax Paid for PT EC?6. Luxury Tax R.C. No.7. Returns filed under Luxury Tax Act? Payment as per Returns?

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Audit Report - Part 2 – General Information

8. Entry Tax RC No.9. Sugarcane Purchase Tax RC No10. Eligibility Certificate Number for PSI

Unit.11. Entitlement Certificate Number for PSI

Unit.12. Excise & Customs Code Number (ECC)13. Import Export Code Number. (IEC)14. Service Tax Registration No.

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Audit Report - Part 2 – General Information

2. Business Related information:

a. Whether Separate Books maintained for divisions?

b. Business Activity c. Commodities dealt in – 5 Major

commoditiesd. Address where account books are kepte. Name & Version of Accounting

Software used.• Change in Accounting software?

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Audit Report - Part 2 – General Information

f. Major Changes & its description for:- Stock Valuation method?- Accounting System?- Product line?- New Business Activity?- Other changes?

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Audit Report - Part 2 – General Information

g. Nature of business: Mfg / Importer / Restaurant / …

h. Constitution of business : Prop. / Firm / Co. / …

i. Working Capital ……. Rs.……(Current Assets-Current Liabilities)

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Audit Report - Part 2 – General Information

Activity Code Activity Description Sales Turn Over Tax Rate (NOW THIS COLUMN IS

FREEZED) Tax (Rs.)  Instruction 16: To classify commodities

on the lines of economic activities based on International Standard Industries Classification refer www.mahavat.gov.in                       

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Audit Report - Part 2 – General Information

Name of Banker, Branch BSR No./Address, Account no. – for all bank accounts maintained during the Year.

Cooperative Bank BSR ???

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