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  • ISSUES ON VAT AUDIT KOLHAPUR BRANCH OFWIRC OF ICAI ON 24th November 2013 CA DILIP PHADKE B.COM.,LL.B.,F.C.A. CHARTERED ACCOUNTANT email: phadke1952@gmail.com Tel: 9322231414 C.A. DILIP PHADKE FCA 1
  • ISSUES UNDER MVAT AUDIT Q.1 One dealer had opted for composition scheme for retailer for financial year 2011-12. For financial year 2012-13, if he wants to change to normal VAT system, whether he is supposed to declare stock on 31-03-12 for claiming VAT input for 1-04-2012 onwards? Ans. There is no need to declare stock as on 31-03-2012 for a dealer opting out of composition for the year 2011-12. On the purchase held in stock as on 31-03-2012 he is not eligible to input tax credit. For purchases after 1-4-2012 only, he will get the input tax credit. As it is presumed that on total purchases of 11-12 setoff already claimed during the year 11-12 only. C.A. DILIP PHADKE FCA 2
  • Q.2 Ans. A works contractor opting composition scheme. Whether he is entitled for standard deduction u/r 58 before levy of tax? A works contractor opting for composition scheme is not eligible for standard deduction before levy of tax. The only deduction available from the contract price is the amount quantified as per section 42(3) i.e. sub contract value. C.A. DILIP PHADKE FCA 3
  • Q.3 Composition scheme opted by a retailer. In one six monthly period purchases are more than the sales. Can the excess purchase be adjusted in subsequent periods ? Ans. No, there is no such provision to carry forward & adjust the excess purchases of previous period in the subsequent period. Q.4 Contractor covered under MVAT, purchased material for use in execution of works contract from out of Maharashtra & use it for construction purpose in Maharashtra. Can he issue From “C”? Ans. Yes, The sale includes works contract, if other conditions for issuing C forms are fulfilled. C.A. DILIP PHADKE FCA 4
  • Q.5 – a) CST RC does not contain “Capital assets” which is purchased from Delhi (Inter-state). The capital asset/spare part of that machinery were purchased against C From. Can C Form be issued? Or it is necessary to modify CST RC to include aforesaid capital asset & then only issue C form? 5-b) A dealer registered under C.S.T on 1-8-2012. He had purchased machinery on 25th July 2012. Can he issue C form? If not what will be the effect of it on taxation & set off? Ans. 5-a) Yes it will be necessary to modify the R.C. 5-b) The dealer will not be able to issue C form for transaction of 25/7/12. The seller will charge local rate of tax of that state to dealer as CST & the purchaser will not be able to get set off. C.A. DILIP PHADKE FCA 5
  • Q.6 A specific order was placed with the branch. Accordingly, the goods were transferred from Head Office situated in other State. Whether claim of branch transfer be allowed or not. If not, Whether the issuance of “C” Form by the branch instead of Form “F” will be sufficient for such a ‘sales’? Ans No, the good transferred against specific order placed with the branch will be treated as inter-state sales in the hand of H.O. . In such case ‘F’ Form issued by branch will not be of any use. In order to avail benefit of concessional rate of tax ; i.e., @ 2%, ‘C’ Form from the purchaser (not from branch) will be necessary. C.A. DILIP PHADKE FCA 6
  • Q.7 A dealer in Mumbai SEEPZ sends the goods to duty free shop at Airport at Mumbai, Chennai & Delhi. After a month, the shop send the unsold goods back to the dealer & the dealer raises the invoice on shop for the goods sold from shops. However, no VAT is charged. The duty free shop maintain the details regarding passengers & their flight numbers to whom the goods are sold. Whether VAT/CST is to be charged for the sales to such shop? If yes, whether shop can issue “H” Form as sale is made only when a passenger buys it from duty free shop & treated as export by the shop? Ans. 1) The duty free shop are not consignment agent of the unit. Therefore, sale by a dealers in Mumbai SEEPZ to duty free shop at Mumbai will be local sale & will be covered by MVAT Act,2002. Attention is invited to Notification No. VAT/1505/CR-126/TAXATION-1 dt. 1-4-2005. The liability of VAT to be determined in accordance with this notification otherwise VAT is payable. C.A. DILIP PHADKE FCA 7
  • 2) 3) Sale by a dealer in Mumbai SEEPZ to duty free shop Kolkata & Chennai will be inter-state sale & will be governed by CST Act,1956. Duty free shops cannot issue Form ‘H’ to the dealer in SEEPZ as there was no advance order with such shops. Thus purchases by duty free shop will not be covered by Section 5(3) of the CST Act, 1956. C.A. DILIP PHADKE FCA 8
  • Q.8 Dealer has opted for Composition scheme in the year 2009-10. On 01-12-2009 he has contravened one of the conditions of Composition scheme. Whether benefit of Composition scheme be withdrawn and from what Date? Ans. According to me , for the first six months he will be eligible for Composition scheme and from 1/10/2009, it will be withdrawn and liable to discharge the liability under normal provisions of VAT. C.A. DILIP PHADKE FCA 9
  • Q.9 When OMS sales goods are returned, it has to be claimed in the same year of sale. Whereas under VAT regime the dealer can claim the goods returned in the months when he passes the entry in the books of account on the base of Dr. /Cr. Note received. What will be the stand taken by the auditor while finalizing the audit report.? Ans. As per BASF case the goods return are to reverted back to the month in which they were sold. As per circular 26 T of 2006 pt. 20 of Commissioner the same has to treated as per the provisions of M.V.A.T. act. Sec. 63. (goods returned within six months in the period in which dr. or cr. Note is entered in books.) C.A. DILIP PHADKE FCA 10
  • Q.10 Can Refund at the end of the year be adjusted in the subsequent year? Ans : Yes if refund is below five lacks Q.11 Whether the composition sum paid under works contracts is eligible for set off? Ans. Yes the definition tax is changed & it includes wct composition. C.A. DILIP PHADKE FCA 11
  • Q.12 Gold/Bullion purchase-VAT paid @ 1%.Part of the Jewellery made is transferred against “F” Form. How much retention is to be done out of 1% VAT (Input Credit) for such transfers? Ans. As per Rule 53 of MVAT Act, When goods are being transferred to the branch retention would be 4%, but however the rate of tax of items which is being transferred is less than 4% it will such rate which is less. In the given case tax rate is 1% then the retention would be 1% only. C.A. DILIP PHADKE FCA 12
  • Q.13 Set-off is already claimed on purchase of raw material in the return for the month of December 2009. Subsequently, the material is destroyed. Thereafter, in the month of February 2010, insurance claim is admitted. Whether the amount of insurance claim received is taxable? Whether the set-off already claimed needs to be reversed and paid to the Government? Ans. The set off is available on date of purchase. The goods are not sold if they destroyed and claim is received therefore there will not be any tax payable. There is no provision for reversal of set off u/r 53 or 54 if goods are destroyed and business is continued. C.A. DILIP PHADKE FCA 13
  • Q.14 In on going contract, where dealer’s liability under the old Works Contract Tax Act is nil, If in the current year liability under MVAT is also nil in such case, can a dealer claim set-off on purchases made during current year? Ans. Yes the set off will be available on purchases not used in on going contract. C.A. DILIP PHADKE FCA 14
  • Q.15 No set-off is available on Stock of discontinued business. What will happen if dealer change commodity of business by discontinuing old commodity business under same name & constitution? Ans. The set-off will be available on stock of commodity because business is continued under same name & Vat no. Further if stock will be sold it will be liable for VAT. If business is totally discontinued then on stock (on the date of closure of business) set-off is to be reversed as per provisions of rule 53(5). C.A. DILIP PHADKE FCA 15
  • Q.16 A company having business of development of Computer Software. Whether set-off on computer is available or not ? Ans.. Set-off on computer can be claimed if it is capitalized as Office Equipment subject to reduction of 3% u/r 53(7A). However, in computer software development business, computers are plant & machinery for production/ development of software . Therefore ,the set-off can be claimed. C.A. DILIP PHADKE FCA 16
  • Q.17 A dealer took registration late after he crossed the required turnover. What will be the set-of position for the period when he actually crossed the required turnover and the date he got registration (URD Period)? What is the remedy to the dealer? What are the chances that he will get administrative relief? Ans. If the dealer has got the registration in the same accounting year and the goods are unsold at time of registration he will get the set off of goods/capital asset. If dealer has already sold the goods he will have to apply for administrative relief for charging tax on sale and set off on the goods sold. C.A. DILIP PHADKE FCA 17
  • Q.18 The dealer sells an item “X”. Subsequent to the sale , the goods are not found as per specification .The dealer has agreed to take back goods partially after six months & offer some discount on the goods retained by the customer .For goods returned & reduction in price credit note is issued showing value of goods returned & additional discount offered .Can dealer claim the discount offered by reducing it from the sales turnover in the period in which the discount is offered? Ans. Since part of goods are rejected & received back by the dealer, there is no sale by dealer qua that quantity ,thus provisions for claiming goods returned are not applicable and rule 63(4) will not be applicable & dealer will not be liable to pay VAT on that part of goods received back. For rebate/discount offered on quantity retained, this is a case of re- determination of sales value .Therefore, the amount would be deductible in the month in which such credit note is issued as per provisions of rule 63(6). C.A. DILIP PHADKE FCA 18
  • Q.19 In case of Works Contract if Contractor has purchased machinery in the year 2009-10 and used for On Going Contract as well new Contracts undertaken during the year 2009-10,Whether Set off on VAT paid on such Machinery be denied since it is used for On Going contract? Ans. Set off will be available irrespective of where the machinery is used. In case of material s/o is available on material used in contracts other than on going contracts. C.A. DILIP PHADKE FCA 19
  • Q.20 What are the provisions o MVAT Act vis-à-vis Freight Charges charged to customers either by way of Separate Debit Note or shown separately in Bill. Whether it forms part of Sales Price for VAT? Ans. Yes, it is part of Sale Price. u/s 2(25) sales price include amount charged for anything done before delivery of the material is complete. Since in most of such cases freight is charged before delivery. However, if delivery of goods is already given then it may not be includable in sale price. C.A. DILIP PHADKE FCA 20
  • Q.21 How to give effect for Debit Note/Credit Note for tax difference i.e. where the dealer has charged 12.5% instead of 4% & subsequently given CN for 8.5%? What if CN was given in subsequent financial year? Ans. Section 63(6) provides that if credit notes (CN) & debit notes (DN) are issued for variation in sales price or purchase price that the effect for such variation & tax thereon should be given in the return in the period in which the appropriate entries for debit notes & credit notes are taken in books of accounts. In the present case sales price or purchase price is not varied but amount of tax is varied therefore effect of such DN & CN should be given by revising the returns for the period in which sales was made for which such DN & CN are issued .If such DN & CN are issued in subsequent financial year then also effect need to be given in the month in which sale was made .The VAT Auditor may make appropriate observations at para 5 in form 704 Part 1. C.A. DILIP PHADKE FCA 21
  • Q.22 Under old Works Contract Tax Act provisions there was a deduction/exemption provided for in respect of state Government Contracts. What are the provision in respect of such state Government Contracts under MVAT Act, 2002 of new contracts & existing old contracts? Ans. For on going contract deduction is continued. For new contract there is no such deduction. Q23 What are the contractee obligations to deduct TDS on contract? Ans. : The contractee shall a) If the contract value exceeds five lacks deduct tax @ 2% from amount payable to reg. contractors & 5% from unreg. Contractors. No T.D.S to be made on payment to sub contractors. b) pay tds. amount online before 21st of next month in treasury by chalan MTR-6 c) Issue certificate in form No. 402 to the contractor for T.D.S. d) keep record of tds & cert. in form No. 404 e) file return of tds. in form No. 424 ELECTRONICALLY within three months from end of the year. C.A. DILIP PHADKE FCA 22
  • Q.24 If Private Ltd Co. Registered dealer in Mumbai having additional place of business in Nashik gives a construction contract to the contractor for consideration of more than 5 lakhs. The contract is awarded in 2010-11. The work is completed in two years 2011-12 & 201213. In each year amount payable is less than five lacks. Whether T.D.S. on W.C. IS APPLICABLE? Ans. The liability for TDS is to be determined on the basis of amount payable in the year .If amount payable to the contractor for all contracts in a year is Rs.5 Lacs or more then only provisions of WCT TDS are applicable .Since in the given case the amount paid and payable to the contractor exceeds Rs. 5 Lacs, TDS provision will be attracted. C.A. DILIP PHADKE FCA 23
  • Q.25 A dealer is a Hotelier. He is holding liquor license & also entitlement certificate for food manufactured. Liquor sales Rs.10 Lacs. Food sales Rs.20 Lacs. Is he liable to audit? Ans. If for one business provisions of Sec 61 are attracted then audit is required for all businesses of the dealer. Hence dealer is liable for VAT audit of food sales also. Q.26 Can VAT auditor revise audit report? Ans. There is no such provision but in following cases it might be necessary to revise the audit report : 1) Revision of final a/c after submission of vat audit report. 2) Change of law with retrospective effect. 3) Change in interpretation because of notification or C.A. DILIP 24 judicial pronouncement PHADKE FCA
  • Q.27 Jewelers registered under M.V.A.T. He has export turnover in crores. His total purchases mainly in cash in small amounts but may be more than Rs. 10,000/- vendors identity not known. How to report? Ans. As there is no set off available it is not necessary to report in para 3, In Annex J - Sec.2. It will be shown as purchase from non tin holders. Q.28 Total turnover of sales Rs. 50 lacks and purchases 48 lacks in a year. Survey under I.T. act conducted. Excess stock of 15 lacks admitted by dealer. Whether liable for M.V.A.T. audit? Ans. Yes C.A. DILIP PHADKE FCA 25
  • Q.29 How to find out reduction of set off under rule 53 – 2) Tax free goods. 3) Branch trf. Ans. You have to refer to rule 53 sub rule 9 (a) for definition of corresponding goods used in tax free goods and branch transfer Q. 30 work is to be done in SEZ in Gujarat by work contractor in Mumbai. He appoints subcontractor from Surat. What will be the tax to be charged and forms to be exchanged? Ans. If the Surat contractor is labour contractor and material is sent from Maharashtra ‘I’ form can be given and there will not be any tax. If Surat contractor purchases material from Gujrat and uses it in contract there will be no interstate movement and ‘I’ from cannot be issued. C.A. DILIP PHADKE FCA 26
  • Q.31 Failure to get audit done u/s 61 of MVAT - sales 250 crores Purchases 300 crores. What is quantum of penalty? Ans. As per the new amendment ,where a dealer has not furnished a copy of audit report or knowingly furnish incomplete report within a specified time , then after hearing the dealer the Commissioner may impose on him , in addition to any tax payable , a sum by way of penalty equals to 1/10 % of total sales . The penalty is levied at 10 paise per 100 rupees of sales . The maximum limit of 1 lack is removed. On turnover of 250 crores sales where the report is not filed in time the penalty works out to Rs. 25 lacks. The levy of penalty is never mandatory . Refer to Supreme Court in case of Hindustan Steels Ltd .25 STC 211 (SC) & Supertron Ltd. (B.H.C.) decided on 13-12-2012. The grace period of one month provided in provision to sub-section (2) continues. C.A. DILIP PHADKE FCA 27
  • Q.32 Supply is to be made by Mumbai Dealer to SEZ in Maharashtra. The dealer sends the material to his consignee at Indore to supply the material. Can this be treated as 6(2) TRANSACTIONS under C.S.T? Can consignee supply the material against I form? Ans.. For 6(2) transaction form is C & EI. As there is pre existing order it can not be done. The I form can not be issued as the order is placed on dealer of Maharashtra from SEZ of same state. C.A. DILIP PHADKE FCA 28
  • Q. 33. How the entry is made in Annexure A & B when payment for whole yr or period more than applicable return period is made in single challan? Ans: Tax paid with challan is to be co related with return period. Split the challan amount to different return periods in applicable cases. The notice in form No. 213 will be received for mismatch of amt. as per return & Chalan. Q. 34. Is interest on late payment is calculated automatically in Annexure A & B? Ans: Yes, it calculated automatically after pressing “ Validate” button of these annexure. Int. is automatically calculated for revised returns also & if amt. payable in revised return is reduced still interest will be calculated on amt. paid. C.A. DILIP PHADKE FCA 29
  • Q. 35. Where to show sales on which no tax is collected separately & sale to non tin holders in Annexure J-1? Ans: It should be entered in Row 5002 in Annexure J_Sec 1 where space is provided for sales where tax is not collected separately. Q. 36. What is the treatment to the dealer having multi-state activities? Ans: If the dealer has multi state activities then Trial Balance in relation to the business Activities in Maharashtra is not required to be attached. as per instruction no.27 dealer is required to submit i) A statement of submission of audit report duly signed by the Dealer. ii) A duly signed copy of Acknowledgement generated after uploading of audit report in form 704. C.A. DILIP PHADKE FCA 30
  • Q. 37. Is it necessary to fill entire row in applicable Schedules and Annexure? Ans: In all the Schedules and Annexure it is mandatory to fill applicable rows completely i. e. if one cell in a row is filled then it is mandatory to fill all the cells in that row Q. 38. What is last date of tax payment required to be filled in column d of Annexure A & B especially when due date is public holiday? Ans: Due date of tax payment is 21/30 days from the end of the return period (excepting the due dates those fall on holidays). As provision of electronic payment is there now you can make payment on holidays also. C.A. DILIP PHADKE FCA 31
  • Q. 39. What is to be written in Sr. No. a to p, in Para 3 of Part I? Ans: Negative certification by the Auditor, if any is to be incorporated with reasons, at Sr. No. a to p, in Para 3 of Part 1 and should correspond to the relevant certificates which are mentioned at 2(B)(a) to 2(B)(p) of Part 1. Further only 500 characters can be written in one row. Further, the auditor’s remarks are to be included at Para 5 of Part 1 and qualification having the impact on the tax liability, wherever applicable, shall be stated in brief. C.A. DILIP PHADKE FCA 32
  • Q. 40. How to show taxable turnover of sales in Sch. II for retailers having composition ,if Turnover of sales during one return period is less than Turnover of purchases? Ans.: In such a case, in Row 14 ,the dealer should enter total of sales of the Return period where Turnover of sales is less than Turnover of purchase + purchase of other Return period where Turnover purchase are less than turnover of sales Eg. Sale Purchase In first six months 100000 90000 Second six month 120000 150000 In such case enter : GTO of sales 220000 Amount in line 14 210000 ( sales of the Return period where Turnover of sales is less than Turnover of purchase i.e.120000/- + purchases of other Return period where Turnover purchases is less than turnover of sales i.e. 90000/-) Net on which composition is payable 10000 C.A. DILIP PHADKE FCA 33
  • Q. 41. In transaction u/s 6(2) under the CST Act , declaration in Form-C is received but Form-E1/ E2 for the same transaction not received. In Annexure I, which details are to be written ? Ans: In this situation, select Form-E1/E2 in column 4, write details pertaining to purchases in columns 1 to 3, write details of sales in the column no. 5, 6, 7 & 8 and write rate of tax as applicable in column 9. Q. 42. In transaction u/s 6(2) under the CST Act, declaration in Form-E1/E2 received but declaration in Form-C for the same transaction not received. In Annexure I, which details are to be written? Ans: In this situation, write details of sales in the entire row after selecting Form C in column 4 and write rate of tax as applicable in column 9. C.A. DILIP PHADKE FCA 34
  • Q. 43. In transaction u/s 6(2) under the CST Act, I have not received declaration in Form – C & E1/E2 of the transaction. In Annexure I, which details are to be written? Ans. Enter transaction related to Form E1/E2 in one row and corresponding transaction related to Form ‘C’ in the next row below. Select Form-C in column 4, enter details of sales in the entire row and in column 9, write rate of tax as applicable. In the next row, enter details of form E1/E2. Select Form-E1/E2 in column 4, write details pertaining to purchases in column 1 to 3, write details of sales in column 5 & 6, and put zero in column 7 to 9. C.A. DILIP PHADKE FCA 35
  • Q44 Sales promotional items are purchased on C form Whether there is any contravention? Ans.: If the goods purchased are used as per Sec. 8(3)of C.S.T. then there is no contravention. If these items are given free it needs to be established that the price of these items given free was included in the sale price of goods sold. Further if any sale price is realized from these items the tax at rate applicable to these items will be payable. Q 45 : How to treat the O.M.S. purchase/ sales & returns while issuing C forms and shown in audit report? Ans.: The C form should be issued for net amount. In sec. G of form 704 it is clearly stated that the amt. should be net of returns C.A. DILIP PHADKE FCA 36
  • Q46: Diamond Dealer HO in MH, Factory in Guj, rough diamond purc and polished in Guj and sent to HO with proper delivery notes, what should be the treatment? Ans.: 1. HO should issue Form F to Guj Branch. 2. Include the value of such diamonds in GTO of purchases 3. Show the amount at deduction under clause 3(h) of Schedule 1 and in Annexure J-Sec 6. 4. Show it reconciliation of purchases in Annexure K. 5. The value of the goods will be sale value at branch reducing the local taxes, transportation & c & f charges. 6. The auditor should disclose the method adopted and qualify if not consistent. C.A. DILIP PHADKE FCA 37
  • Q47 : Mumbai H.O. purchases diamonds and send it to Gujrat Br. For processing and receives them back within 60 days and sales the same. What should be the procedure followed? Ans.: The H.O. as well as Gujrat branch will have to issue F form (Ref. Trade cir. No. 2 T dt. 11-1-2010). If the diamonds sent are purchased locally the reduction of set off will not be applicable as they are received back in 60days as per proviso. to rule 53 (3) Q48: Dealer in Nerul dispatches goods to Delhi as per the specifications of Nagpur Dealer. Can this transaction be 6(2) transaction in the hands of Nagpur dealer? Ans: After the judgment of SC in A & G Project in 2009 such transaction can not be treated as Sales in Transit Tr. Falling u/s 6(2) of CST Act. C.A. DILIP PHADKE FCA 38
  • Q49 : What are provisions for filing of Revised Returns? Ans: 1. Dealer can file revised returns upto 9 months from the end of relevant F.Y. 2. The dealer can file revised return within 30 days from the end of due date of filing of Audit Report if any discrepancies found by the Auditor. Q.50 Computer purchased for Jewellery designing. Can set off be claim? Ans: It is necessary that it should not be treated as office eq. in books of accounts but should be treated as machinery then it can be claimed. C.A. DILIP PHADKE FCA 39
  • Q 51 : An item of 12.5% is purchased from trader. The bill shows Rs. 1,00,000/- Net plus Tax of Rs. 3,750/-. How to show Set off in Sch I of Audit Report? Ans: In clause 4 where the rate wise tax break up to be given show Rs. 30,000/- as net and Rs. 3,750/- as Tax amount. The Diff of Rs. 70,000/- should be shown in clause 3 k(computation of purchases not eligible for set off) as deduction as other allowable deduction. Q52 : Material of 12.5% rate is purchased for Rs. 1,00,000/- + Rs. 3,750/- now is to be sold for Rs. 1,20,000/- how much tax to be charged? Ans: It is purch of material mfg by PSI. The original tax free amount will be Rs. 70,000/- now tax should be charged on Rs. 50,000/- The bill will be Rs. 1,20,000/- + Rs. 6,250/C.A. DILIP PHADKE FCA 40
  • Q53 : Invoice of March 2010 recd in May 2010 after filing return for March, What should be treatment? Ans: If the purchase is recognized in March, the return filed for March will have to be revised by claiming refund. But if it is recognized as per chronological method in May then set off can be claimed in May. Q54: What will be the rate of Tax if JCB is given on lease locally / OMS? Ans: Tax rate will be 12.5% applicable to JCB. In case of OMS Transaction it will be depend of availability of C Form i.e. 2% or 12.5% C.A. DILIP PHADKE FCA 41
  • Q 55: The purchaser has paid to the selling dealer amount of Tax Invoice but it is established that the seller has not deposited the amount into Govt. Treasury, can set off be claim? Ans: No. As per Section 48 (5) no set off is available if the same is not received by the Govt. Q56. How to treat WCT TDS certificates received / not received? Ans: Details of TDS Certificate to be entered in Annexure C of Form 704. But while claiming credit in Schedule III Total Amount of TDS whether certificate recd or not to be shown in clause 9A(f) Row 125 any other credits – please specify. C.A. DILIP PHADKE FCA 42
  • Q 57 : Gas / Oil Co. purchases pipes for moment of gas/oil which are embedded into ground / building for transmission, Whether set off will be allowed? Ans:If pipe lines becomes plant and machinery, the set off will be available on such purchases. But if It is treated as immovable property, then no set off will available as per Rule 54. The same is the case for Electricity Distribution Co. / Telephone Transmission Co. etc. Q 58 : If in the Balance Sheet while the asset was being constructed was shown as Capital WIP, Whether set off will be available? Ans: As per Section 2(5) capital assets means as defined in Sec 2(14) of IT Act means property of any kind held by the assessee. Hence Set off is allowed. C.A. DILIP PHADKE FCA 43
  • Q 59: Whether Service Tax and VAT both are chargeable for a sale transaction, How is the VAT Liability Determined in Following Case? Sales Value Before Tax Rs. 100/-, Service Tax 10%, VAT @ 12.5%. On Which Amount VAT is to be calculated? Ans : The Supreme Court in case of M/s. Bharat Sanchar Nigam Ltd. (145 STC 91) held that the State can levy tax on the sale Element only, if there is a discernible sale and only to extent relatable to such sale. Thus, it appears that issue needs to be decided on facts of each case after applying principles laid down by the Supreme Court. The Definition of sale price in Section 2(25) does not include Service Tax. Hence, VAT in the Above example will be chargeable on the amount excluding service Tax. C.A. DILIP PHADKE FCA 44
  • Q 60: Main Contractor Got a Contract of Rs. 1 Crore. The Same Contract was Sub-Contracted @95%, whether Main Contractor is Liable to undertake MVAT Audit? Ans: Yes. The amount payable to sub-contractor is to be deducted from the sale price as per Rule 58. Thus, Turnover of Sale will be only 5 Lakhs for the payment of tax & not for calculating t/o. Q 61: Computer is Installed in a office and used by the two Associated Concerns. Both are Registered Dealers.The Concern owning the Computer raises debit note on other concern for some charges at the year end. Whether the same is liable to tax? Ans: It will have to be decided as to whether there is transfer of right to use the computer, if the control, custody & possession of computer is transferred to associate concern, then there would be a transfer of right to use and the consideration will be liable to tax. C.A. DILIP PHADKE FCA 45
  • Q 62: Purchases are made from outside Maharashtra and delivered outside Maharashtra. The Sale bill is made in Maharashtra; Whether Such Turnover is to be included in Turnover? Ans: Such Turnover need not be Included in Maharashtra, except when the goods are purchased against ‘C’ Form which was obtained from the Sales Tax authority of Maharashtra. Q 63: Whether pure art work or design charges as per the specification of the Customer without written agreement and passed on to the customer on CD media is Liable to VAT on Not? What will be position if designs are being passed on by E-mail? Ans: Since in the transaction there is no sale of goods it will not attract VAT irrespective of media by which the same is transferred; (i.e., on C.D. or by e-mail). However if the design is registered under the Design Act 1911, then it would be sale of C.A. will be liable 46 goods under Entry C-39 andDILIP PHADKE FCA to Tax.
  • Q 64: Dealer engaged in manufacturing & sale of diamonds. If the Dealer sells scrap of old machinery etc. Does the Dealer have to charge VAT on such Sale and at what Rate? Ans: Yes, at the rate of 5% being scrap of iron and steel Q 65: In case of work Contract whether work done by unregistered sub-contractor will be available as deduction? Please explain the calculation of Tax Liability in the case of work contractor under Regular Method? Ans: Work done by unregistered sub-contractor is not available as deduction. (ii) To work out the liability for tax under regular method, from the total contract price, admissible deductions u/r 58 be claimed to determine taxable turnover. By applying the applicable rate to taxable turnover, the tax liability can be worked out. C.A. DILIP PHADKE FCA 47
  • Q 66: Is TDS under MVAT different than what is deducted under the Income Tax Act? Who is Liable to deduct the Tax and in which circumstances? Ans: TDS under MVAT is different and is in addition to tax deducted under the Income Tax Act 1961. Under the MVAT Act, Notified Employers [Ref: Notifications VAT – 1505/CR123/taxation 1 dt. 1-4-2005 and JC(HQ)1/VAT/2005-97 dt. 29-82005) have to deduct the tax. In case the amount payable in a year exceeds Rs. 5 lakhs, then only provision of TDS is applicable. C.A. DILIP PHADKE FCA 48
  • Q 67: In Works Contracts like construction of road, R.A. bills are raised at the end of the month. These bills are certified by an independent agency which may take 15 days or even 2 months in some cases. Thereafter, the payment is released, which may take further time and usually tax is deducted at the time of payment and paid in the subsequent month. Suppose bill is raised in March, gets certified and in April,Tax deducted and paid in May. What Turnover figures are to be given and in which month? When Credit for TDS is to be Taken? Ans: It depends upon the method followed for revenue recognition in the books of the contractor. If he records the sales as and when the R.A. Bill is raised say in the month of March, Sale is to be offered for taxation. Any adjustment in such value, as and when recorded, will be reflected in the tax period in which such adjustment is made in books. However, where revenue is recorded only based on passing of bill, it will be sale of the month in which such sale is booked. A stand can be taken by the contractor that till the time work is not certified sale is not concluded. Receipts of Payment are immaterial for determining concluded sale. The credit of TDS may be taken in the period in which the corresponding sale is recorded as per section 31(9). After amendment of section 31(4) w.e.f. 1-4-2005, it is possible to take the credit for TDS in the period in which the certificate for payment is furnished. In that case credit of TDS will have to be taken in the month PHADKE FCA C.A. DILIP in which employer had issued 49 certificate.
  • Q 68: How does turnover discount (TOD) affect purchases for the purposes of audit? For example, sales 59,50,000, Purchases 60,10,000 TOD 2% = Rs. 1,20,000. Net Purchase as per profit and loss A/c is 58,90,000. As TOD is known at the year end, it is not deducted in regular return filed. Ans: The Definition of the terms ‘turnover of sales’ and ‘turnover of purchases’ are discussed as per the MVAT Act. The TOD is deductible from purchases. GTO of Purchases will be determined as Rs. 58,90,000. Thus the dealer is not liable to VAT Audit. However, care be taken to include other purchases like purchases debited to P&L A/c, Assets etc, and then GTO of purchases be determined. If such GTO exceeds Rs. 60 Lakhs, then dealer is liable to VAT Audit. C.A. DILIP PHADKE FCA 50
  • Q 69: M/s. X is a metal testing lab. For this, it purchases films, chemicals, etc. The Turnover of such purchases exceeds 60 Lakhs. Whether M/s. X is required to get registration & the accounts audited under the MVAT Act? Ans: M/s. X is not liable to get registered under the MVAT Act. Under the MVAT Act Liability is required to be determined with reference to sales. Since, M/s. X is not ‘a dealer liable to pay tax’ Section 61 is not attracted. However, if ‘X’ is already registered the he will have to get his accounts audited. Q 70: During the year 2012-13, Sale is Rs. 59,06,000. Car Sale Rs. 1,00,000/- Is it necessary to carry out MVAT Audit? Ans: Gross Turnover of sales includes sale of car. Thus GTO of Sales exceeds Rs. 60 Lakhs. Hence, it is necessary to carry out MVAT Audit. C.A. DILIP PHADKE FCA 51
  • Q 71: Dealer is a Government Works Contractor. No Bills issued by the Dealer. Work Measurement and value entered by the Government engineer in measurement book (MB), which is in the custody of the Government Dealer. No copy of MB is available with the Dealer. Dealer gets Cheque (Net Amount after retention money, IT – TDS, WCT – TDS) or ECS. Dealer works out the turnover on the basis of the terms of payment particulars and TDS certificates (IT & WCT) at year end. How to verify turnover? What Observations or remarks to be mentioned? Ans: The facts mentioned above are to be disclosed in the audit report. The Turnover can be verified based on the payment Particulars, TDS Certificates and Payments Received, Terms of Contract etc., and the basis of computation of turnover be mentioned in the audit report in Cl. d & e of para 3 & para 5 of part 1. C.A. DILIP PHADKE FCA 52
  • Q 72: Dealer has no sales but done only construction of building & installation of machinery in a particular year. The Value of Purchases of all such capital WIP exceeds 60 Lakhs. Whether liable to get his accounts audited to submit report? If so to which authority the audit report should be submitted. Please Elaborate. Ans: Since the dealer is not liable to pay tax , Section 61 of the MVAT Act is not applicable. If he wants set off he shall take registration & file audit report. Q 73: A Works Contractor opting for composition scheme paying tax on entire contract amount which exceeds Rs. 60 Lakhs. Whether Liable to audit? Ans: Yes. The Turnover of Sales for the purpose of VAT Audit is 60 lacks. The taxable t/o to be determined after applying the deductions prescribed in rule 58(1). C.A. DILIP PHADKE FCA 53
  • Q74: How an employer of a contractor not reg. under MVAT, but liable to deduct and pay the T.D.S. do the same? Ans: The Categories of Employers liable to deduct the tax are: 1) Central & State Government 2) All Industrial, Commercial or Trading Undertakings 3) Registered Companies 4) Local authorities 5) Co-operative Societies Incl. Housing Soc. 6) Registered Dealers of MVAT. 7) Insurance, Finance & Banks 8) Trusts No TDS shall be made from Sub- contractor Payment. The TDS shall be made if the amount paid or payable exceeds Rs. 5 Lakhs per Annum. In Case of a Co-op Society, if the value of Contracts awarded is Rs. 10 lakhs or more in the previous year. The rate of TDS is 2% in case of a contractor C.A. DILIP PHADKE FCA 54 who is registered & 5% in other cases.
  • Out of above, many employers will be unregistered & have to pay the TDS and file return in Form No. 405. They have to approach the Dy. Comm. Of S.T., Business Audit (2) for Mumbai & STO, Returns Branch, in Other Places with D.D. for the Full Amount of TDS & Photocopy of PAN Card. The D.D. should be in favour of “ Bk of Mah.” and in other Places “SBI A/c MVAT’. The said officer will give a duly signed and serially numbered receipt for receiving the amount & ack. For having received return in Form 405/424. The D.D. will be deposited by the designated officer in Challans in form 6 & after the payments are Realised, send a copy of the challan to the Employer. The Date of Submission shall be the date of filing the return & making the payment. C.A. DILIP PHADKE FCA 55
  • Q.75: What are the changes made in new audit report version 2.0.0? 1a) In letter of submission Dealer is expected to give details of VAT/CST paid based on his acceptance of VAT Auditor’s Recommendations. 1b) Now there is no necessity for any “Enclosures” in Letter of Submission as well as in Part-I. As per instruction no.27 dealer is required to submit i) A statement of submission of audit report duly signed by the Dealer. ii) A duly signed copy of Acknowledgement generated after uploading of audit report in form 704. 2) Now the auditor has not to attach financial statements with annexure with tax audit report but has to certify at Sr.No.1A that he has taken them on record. C.A. DILIP PHADKE FCA 56
  • 3) In serial no. 1(B) & 1(c) the words “And annexed here with” are removed. 4) In table-1, serial no.5(a)(ii) return in form 424 is inserted along with form 405. 5) In table-1, serial no. 2(B)(b) the selection of schedules and annex. as applicable to the dealer, annexure J-3 and j-4 have been removed. 6) In table-1, certificates at serial no.2(B) clause (c) & (d) are clubbed as cl. (c). 7) Clause (d) newly introduced as “on the basis of an information available on the website of department the period under audit involves no issue in case of this dealer in which a decision against the State Government or the Commissioner was delivered by the Tribunal and the Reference and/or Appeal therein is pending before appropriate forum except detailed in table 7 herein below, if applicable. C.A. DILIP PHADKE FCA 57
  • 8) Under clause 7 below Table-5 a table has also been inserted wherein details of references/appeals have been filed by the State Government or the Commissioner in case of similar issue is involved in the case of dealer under Audit where a decision against State Government or the Commissioner was given by the Tribunal and the references/appeals are pending before the appropriate forum as listed on MAHAVAT Website have to be furnished in the said clause. 9) Certain changes are made in schedule I, III,IV & V because of insertion of sec. 6A & 6B w.e.f. 1/5/2012 for charging & set off of purchase tax on cotton or oil seeds. The provision is made for calculation of purchase tax & its set off. Now set off will be available on urd purchases also on which purchase tax is paid hence in wording change is made where ever necessary. e.g. In Sr. no. 3 cl.-O,& Sr. No – 5 cl. (a) the words “from C.A. DILIP PHADKE FCA 58 registered dealer” are removed.
  • In annex. E instead of heading “Computation of Set-off claim on the basis of tax paid Purchases effected from Registered Dealers” it has been replaced with “Computation of Set-off claim on the basis of Tax Paid Purchases”. 10) In annex E sec.-2 New row No.12 has been inserted to incorporate purchase of taxable goods from registered dealer on which set-off is not claimed. 11) In annex E sec.-4 for calculating reduction u/r-53 additional rows are provided for natural gas & D schedule goods. 12) In annex E sec.-5 New row has been provided for details of total tax paid purchases effected from reg. dealers on which s/o is calculated and allowed u/r. 52A and 55B along with Rule 52. 13) Annex. G(cert. recd), I (Cert. not recd), J-1(Sales) & J-2 (Purchases): Rows are inserted up to 5000 in place of 1000 14) Annexure J3 & J4: Both the annexure have been removed in new form 704 C.A. DILIP PHADKE FCA 59
  • Q.76: Precautions for preparing Annexures of new audit report? Ans: 1) Put Due Date as 21 or 30 as applicable in Annexure A & B. 2) Annex E – Sec 1 Qty. in liters of petroleum products in col. C to be given only in respect of Rs.1/- per liter paid on purchases by Mfg. co. and not any other product purchased by petrol pumps. 3) In Annex. G you have to enter descending order amount of declaration recd. and not invoice value as given in the heading. 4) In all the annexure the amt.s are to be given in descending orders Vat amount. Prepare annex. in excel sheet and paste it at the end after all entries are arranged in descending order. It is difficult to make changes after trf. of data. 5) Sales & purchase returns should be shown either by – sign in annex. J-1 & J-2 resp. or show net fig. of sale or purchase. C.A. DILIP PHADKE FCA 60
  • Precaution for clause D Para - 3 clause d has been inserted by virtue of sec. 23(8). If ref./appeals are filed by the State Govt. or the Comm. before appropriate forum it is the Assessing officer who must be aware about the same. The VAT Auditor is supposed to certify of ref./appeals filed by the State Govt. or Comm. in respect of similar matter pertaining to dealer. Nearly 900 ref./appeals have been filed before appropriate forum as listed on MAHAVAT Website. VAT Auditor must go through all these before certification which is practically not possible and feasible. The said list of ref./appeals is also updated on regular basis, which auditor will keep track of the same while signing VAT Audit Report. Govt. should require Auditor to certify only if ref./appeals filed in respect of auditee only and not in general. C.A. DILIP PHADKE FCA 61
  • Q. 77: What should be given in Para 3 when it starts with Out of the aforesaid certificates; the following certificates are negative for the reasons given hereunder:Ans.: Though the wording used is ‘negative’, in my opinion, any reservation / limiting responsibility statement (which although may not necessarily mean total negation) that auditor desires to make in respect of any part of report upto Para 3 should be made under Para 3. In case of clause d as the web site is up dated every day it will be necessary to mention that ref./appeals up to …. Date are taken in to consideration. C.A. DILIP PHADKE FCA 62
  • Q. 78: What should be given in Para 5 when it starts with Qualifications or remarks having impact on the tax liability Ans.: Only those qualifications / remarks that are sure to have impact on tax liability should be given here. Limiting responsibility statements should not be given under Para 5. The question is wherever the auditor has already computed and reported differential in schedules and report; whether the same again needs to be reported here. In my opinion single liner in Para 5 should cover the issue effectively. There will be many cases where qualifications will warrant reporting both under Para 3 and Para 5. C.A. DILIP PHADKE FCA 63
  • As per instruction No. 10. Where dealer is  required to maintain the records about the sales,  purchases, Imports and Exports under Central  Excise Act, 1944, the Customs Act, 1962 or under  the State Excise Act in such cases  the Auditor  should invariably correlate the details of sales,  purchases, Imports and Exports disclosed under  the said Acts and disclosed under MVAT Act,  2002. Any material difference noticed should be  reported at Para 5 of Part-1 accordingly. C.A. DILIP PHADKE FCA 64
  • Q. 79 A main contractor has accepted contract of Rs.10 lacs. Out of which he has subcontracted contract of Rs.4 lacs. Main contractor has opted to pay composition sum on whole contract value. Whether sub contractor can claim set off on materials purchased and used in the execution of works contract? If yes, whether the assessing officer can apply retention on set-off if the main contractor has paid by way of composition tax? Yes, sub contractor can very well claim setoff on materials purchased.As per the amendment in MVAT Rules W.E.F.01-11-08 the retention has to be made as provided U/R 53(4). C.A. DILIP PHADKE FCA 65
  • Q.80 A civil contractor prepares concrete mix by using sand, cement, steel etc. The said concrete mix is applied in construction contract. Based on the1986 judgment of N. L. Mehta – Mixing of cement, metal, sand etc does not amount to Manufacturing. At what rate VAT to be paid? – Whether at individual rate for cement, sand etc. or at the rate of concrete. Ans : In WCT for charging tax it has to be seen in what form the property is transferred. Whether in same form or in any other form. What is transferred here is concrete mix which is a separate commodity. So mixture will be taxable at 12.5%. Compare this with a grill. In one case you fix a Iron Patti and make a grill at site and in other case a grill is made at factory & then fixed at place of work, than in first situation Iron Patti will be taxable whereas in other situation grill will be taxable & not iron patti. C.A. DILIP PHADKE FCA 66
  • Q.81 A dealer having sales receipts which is less than 50% of total receipts, has purchase office equipments, whether retention would apply as per the provisions of the rule 53(6) or rule 53(7A)? Ans. Even though there is specific rule for retention in case of office equipment u/r 53(7A), but when there is another rule i.e. 53(6) which restrict the set off to NIL has to be applied first for retention. Hence, no set off will be available on office equipment in the given sit Q.82 Biscuit manufacturer having GTO of 5.00 Cr comprising 4.50 Cr Job work + 0.50 Cr own Sale. Machineries purchased – used for both the purposes. Also there are expenses debited to P & L a/c which has suffered VAT, What is the position of input credit ? C.A. DILIP PHADKE FCA 67
  • Ans : As per Rule 53(6) , If out of Gross Receipts of a dealer in any year, receipts on account of sale are less than 50%of the total receipts, then the dealer shall be entitled to claim set-off on any of the purchases of P& M, If the dealer has treated the P&M as Capital Assets or on those purchases effected in that year corresponding to the goods sold. Hence set-off on the Purchases of the corresponding goods sold are only available for set-off. Set off on vat paid on other expenses of P & L will not be allowed. However for P & M the set-off will be available w.e.f. 8/9/2006 by virtue of amendments in Rules made in October 2007. Q.83 Dealer M of Mumbai effects OMS Purchase from G of Gujarat. Instructs G of Gujarat to dispatch goods directly to V of Vapi in Gujarat on his behalf by way of endorsing L/R. [Section 6(2)- EI/EII TRANSACTION) Whether the sale shall qualify for Sale in Transit for M of Mumbai ? C.A. DILIP PHADKE FCA 68
  • For claiming the transaction to be covered u/s 6(2) of the CST Act, there has to be movement of goods from one state to another, Wherein in the given case there is no movement of goods from one state to another. ence it will not be covered u/s 6(2) of the CST Act. It will be treated as local sales in Gujarat. Q.84 Whether a works contractor who transfers property in goods worth less than 50% of the contract value shall be hit by the provisions of rule 53(3)? C.A. DILIP PHADKE FCA 69
  • Ans. In definition of the term ‘Sale’ under section 2(24) includes sales by way of transfer of property in goods involved in execution of works contract. The term ‘Sales Price’ under section 2(25) means of valuable consideration paid or payable to a dealer for any sale made. In my view the turnover of sale means the whole value of the contract and the sale price is price of the whole contract and since the tax cannot be levied on the whole contract, rule 58 provides for determination of sale price on which tax shall be levied. It is further argued that the labour is a part of the same transaction and it is not a different transaction that there would be comparison of sale and receipts other than sale. The law intends to cover in this rule situations, where there are more than two activities of business on sale and other something else or there is no sale activity and other activities are there. Again in works contract the labour portion is the part of the same sale transaction and so one cannot split the same transaction in to two activities and compare sales and other receipts. C.A. DILIP PHADKE FCA 70
  • Q.85 A tyre manufacturer sold the car against replacement warranty for one year. Car user comes to Manufacturer for replacement of tyres within the warranty period as well as after the warranty period. In the Sale bill the value of old tyre are deducted from Sale price under the head “Claim Loss” and VAT charged on net amount, whether practice is correct? Ans. Since Warranty is given for one year there can not be any charges to be charged by the tyre manu. Hence no vat liability and he cannot issue the bill as Tax Invoice, as no sales price is to be received. Whereas after warranty period when he records as sales, then he shall be liable to tax on total sales value and no deduction is available from sales price. It is merely an accounting trick which should not be allowed. It is nothing but purchase of old tyre in the hands of tyre manufacturer. C.A. DILIP PHADKE FCA 71
  • Q.86 A company purchase wood, fittings, fixtures, hardware etc. and fabricates furniture for its use within its office. Whether the company will be entitled to claim set off of the tax paid on Purchases of wood, fittings, hardware etc? Ans. Rule 53 (7A) provides retention at 3% of tax paid on purchases of furniture & fixture which are being treated as capital assets. In the given case a company has purchased materials required for making furniture & fixtures and hence rules 53 (7A) for retention would not apply. C.A. DILIP PHADKE FCA 72
  • Q.87 A firm had two partners and two cars. There was change in constitution and one more partner joined. At that time they decided to transfer the cars to personal account of each of the partners. Necessary journal entry was passed in the books of the firm. Whether such transfer is sale of goods liable to Tax or not? After transfer one of the partner sold his car. Whether such sale is liable to Tax or not? Ans: The taking of car by the partner is withdrawal, & hence not liable for VAT. In case of sale of car by a partner it would be taxable hands of individual partner if sales price is more than 5 lakhs. C.A. DILIP PHADKE FCA 73
  • Q.88 In clause 2(a) of rule 53 retention is made applicable on the Purchase Price of corresponding goods used in the manufacture of tax free goods whether “Machine Oil” which is used to keep the machine in condition which is used for manufacturing goods can be said to be corresponding goods purchased and hence retention would apply? Ans: The goods which are used in the manufactured goods or are contained in the manufactured goods can be said to be corresponding goods. Thus raw materials, consumables used in the process of manufactured goods can be covered as “Corresponding Goods” but machine oil cannot be said to be corresponding goods and hence retention would not apply. C.A. DILIP PHADKE FCA 74
  • Q.89 A company is doing software development. For developing any software they have to purchase some of the modules in the form of software out rightly being a part of the main software and then after they sale the whole software. Whether set off be available for purchase of software (Modules)? Ans. According to me, u/r 54(f) set off on purchase of software is denied except in the case if a dealer is a trader in software. In a given situation the company is not a trader in respect of purchase of software (Modules) and hence, set off will not be available. C.A. DILIP PHADKE FCA 75
  • Q. 90 A Firm is a trader in Furniture has opted for Retailer Composition scheme and discharging the liability of VAT @8%. During the year they have sold the car. At what rate they should discharge the liability of vat on sale of car. Whether @8% or @12.5%? Ans. While looking at the Wording of the provisions of Retailer Composition scheme it has mentioned that all the Sales are to be considered for discharging liability @8%.Hence sale of car will also be liable to tax @8% and not @12.5%. C.A. DILIP PHADKE FCA 76
  • C.A. DILIP PHADKE FCA 77