Q (1)

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.


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.


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.


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.


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.


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.

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.


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.


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.)


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.

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.


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.


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.


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).


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.


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.


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).

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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.


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.


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.

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.

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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.


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


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.

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.

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.


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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.

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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.

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.

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.

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

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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.

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.


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

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.

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.

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.

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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%


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.


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.

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.

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.

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.

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.


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.


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.

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.

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).

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
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.

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.

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.

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
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
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.

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.

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.


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.


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.


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).

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.

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 ?

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 ?

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)?


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.

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.

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.

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.

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.

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.

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%.

76

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