Internal Audit Project

1. SUMMER INTERNSHIP PROGRAMME
2014
PROJECT PRESENTATION
Submitted by:
Madhu Bala
1014
Kirloskar Institute of Advanced Management
Studies
ACADEMIC YEAR 2013-2015

2. DOCUMENTATION and
PROCEDURE of SALES
TAX(MVAT) in KPCL
Under Supervision of:
 Mr. Ogale S S, DGM
 Mr. Kanade R H, AGM

3. ACKNOWLEDGEMENTS
Faculty Guide Prof. Dr. V.S Pai
Alumuni Guide: Mr. Sunil Kumar Kataria
SIP Coordinator: Prof. Chetan G K

4. Objective of the Study
• To study and understand the procedure and
documentation of sales tax with respect to
state of Maharashtra.
• To understand its acts, rules and regulations
and then see whether the same set of rules
and procedures are followed in KPCL or not.
Primary
Objective
• To know reasons why sales tax was replaced
by VAT.
• Comparison between CST 1956, VAT and
SALES Tax act.
Secondary
Objective

5. Introduction to the Concept
TAX
VAT
MVAT
• Taxes in India.
• Types of taxes.
• Meaning And Concept.
• Advantages of VAT.
• limitation/criticism of VAT.
• Under Government Of
Maharashtra.
• Concept, Acts And Rules.
• Rates and schedules.

6. TAXES in INDIA
DIRECT
TAX
INCOME
TAX
WEALTH
TAX
INDIRECT TAX
CUSTOMS
SERVICE
TAX
EXCISE
SALES
TAX
CENTRAL
SALES TAX
STATE
TAX

7. VALUE ADDED TAX (VAT)
VAT is a broad-based commodity tax that is
levied at multiple stages of production.
 Indirect tax on the consumption of the goods,
paid by its original producers upon the change
in goods or upon the transfer of the goods to
its ultimate consumers.
Based on the value of the goods, added by the
transferor. It is the tax in relation to the
difference of the value added by the
transferor and not just a profit.

8. All over the world, VAT is payable on the goods and services
as they form a part of national GDP. It means every seller of
goods and service provider charges the tax after availing the
input tax credit
It is the form of collecting sales tax under which tax is
collected in each stage on the value added of the goods.
VAT will replace the existing system of inspection by a system
of built-in self-assessment by traders and manufacturers.
The tax structure will become simple and more transparent
and tax compliance will improve significantly
Under VAT revenue is collected throughout the production
process without distorting any production decisions

9. ADVANTAGES
of VAT
• Simplification
• Transparency
• Fair and equitable
• Computerization.
• procedure of simplification.
• Adjustment of tax paid on
purchased goods.
• Greater reliance on self
assessment and voluntary
compliance by dealers.

10. LIMITATIONS
of VAT
• Burden on personal end
consumer products.
• Revenue are lower.
• Accounting expenses.
• Increased tax passed to
consumer.
• Vat avoidance.
• Vat fraud.

11. VAT applies to all types of businesses
IMPORTERS MANUFACTURERS DISTRIBUTORS WHOLESALERS
RETAILERS WORKS
CONTRACTORS
LESSERS

12. How VAT works
• When a dealer sell goods, the sale price is
made up of two elements; the selling price of
the goods and the tax on the sale.
• The tax is payable to the State Government.
The tax payable on sales is to be calculated on
the selling price.
• The tax paid on purchases supported by a,
valid tax invoice is generally available as set-
off (input, tax credit) while discharging the tax
liability on sales.

13. EXAMPLE
Company A buys iron
ore and other
consumables and
manufactures stainless
steel utensils
Partnership firm B buys
the utensils in bulk from
Company A and polishes
them
shopkeeper C buys
some of the utensils and
purchases packing,
material from vendor D
Vendor D packages
them and sells the
packed utensils for the
public.

15.  Maharashtra is one of the 21 States which have
introduced the Value Added Tax (VAT) system of
taxation from 1st April 2005.
 The design of Maharashtra State VAT is generally
guided by the best international practices with
regard to legal framework, as well as operating
procedures.
 The consensus has been arrived at through
the discussions in the Empowered Committee
of State Finance Ministers on implementation
of State level VAT.
 On 1st April 2005, VAT replaced the single
point sales tax.

16. MVAT replaced 4 existing taxes
1. The Bombay Sales Tax Act, 1959.
2. The Maharashtra Sales Tax on the Transfer of
Right to Use Any Goods For Any Purpose Act,
1985·
3. The Maharashtra Sales Tax on the Transfer of
Property in Goods Involved in the Execution
of Works Contract (re-enacted) Act, 1989·
4. The Bombay Sales of Motor Spirit Taxation
Act, 1958.

17. Important things in MVAT
TIN
Schedule Rates
Forms Returns
Tax invoice
Audit

18. TIN
TIN stands for Tax-Payer Identification
Number.
Is unique number allotted by Commercial tax
department of respective State.
 It’s an eleven digit number to be mentioned
in all VAT transactions and correspondence.
Tin registration is must for
Manufacture/Traders /Exporters/Dealers.
Can be done by online.

19. Schedule Rates in MVAT 2002
SCHEDULE DESCRIPTION RATE
SCHEDULE A Essential Commodities (Tax free) NIL
SCHEDULE B Gold, Silver, Precious Stones, Pearls etc. 1 %
SCHEDULE C Declared Goods and other specified goods 5 %
SCHEDULE D Foreign Liquor, Country Liquor, Motor
Spirits, etc.
SPECIFIED
RATE
SCHEDULE E All other goods (not covered by A to D) 12.5%

20. RETURNS under MVAT 2002
• Form 704
• Dealers having annual turnover of Rs. 80 lakhs
ANNUAL
RETURNS
• Dealer having tax liability of more than Rs. 10 Lacs in previous
year or
• Dealer having entitlement for refund of more than Rs. 1 Crore
during previous year and
• Retailer opting for Composition Scheme
MONTHLY
RETURNS
• Others to file Quarterly return i.e. Liability of Rs. 1
to 10 Lacs or refund from Rs. 10 Lacs to Rs. 100
Lacs
QUATERLY
RETURNS
• Dealer having tax liability of Rs. 1 Lacs or less in previous year or
• Entitlement for refund is Rs. 10 Lacs or less during previous year
SIX MONTHLY
RETURNS

21. Tax invoice
A tax invoice can be in any form to suit business requirements.
However, all tax invoices must show –
1. The words `Tax Invoice’ in bold letters either at the top or at a
prominent place
2. A serial number.
3. The date of the transaction/sale/issue.
4. Description of the goods.
5. The quantity or number of goods involved in the transaction.
6. The price of the goods.
7. the amount of VAT charged on the goods (this must be shown
separately)
8. A declaration certificate.
9. Supplier’s name, address and Registration Certificate number.
10. Name and address of buyer.

23. Business Audit
• Business Audit is a new function of the Sales
Tax Department.
• Conducted by the Sales tax officials ordinarily
at the dealer's place of business.
• Independent from the audit by a Chartered
Accountant.

24. Business Audit Process
If any of the dealers
business is selected for
an audit, then Sales Tax
Office will inform them
and then fix a suitable
date.
The audit officer will inspect
the books of accounts and
supporting documents.
At that time dealer should
make available any
information or documents
that he may require
tenable him to carry out
the audit effectively and
speedily.
The audit officer may like
to understand dealer’s
business process and
examine their stocks of
goods.
He may also like to
interview the person or its
employees for this.
The audit officer cannot remove
any books of accounts or
documents from their premises.
However, audit officer can
request for copies

25. RETURN FORMS
• For dealers, other than Composition dealers
executing works contract, engaged in right to use any
goods and under Package scheme of incentive.
FORM NO 231
• Dealers opting for composition scheme excluding
works contractors / dealers opting composition for
part business
FORM NO 232
•Dealers under composition for part business
•Works contractors
•Dealers engaged in activity of transfer of right to use goods
FORM NO 233
• Dealers under Package Scheme of
IncentiveFORM NO 234
• Notified oil companies .FORM NO 235

26. ABOUT the COMPANY
KIRLOSKAR PNEUMATIC COMPANY LIMITED
Hadapsar Industrial Estate
Hadapsar, Pune 411013

27.  KPCL is one of the core group companies.
 Incorporated in 1958 under the chairmanship
of Late Shri Shantanurao Kirloskar.
Certified for Integrated Management System
(IMS) Certifications of ISO 9001:2008, ISO
14001:2004, OHSAS 18001:2007, by TUV
NORD.
 Started its operations with the manufacture
of Air Compressors and Pneumatic Tools. New
product lines were then added, including Air
Conditioning and Refrigeration systems,
Marine HVACR, Process Gas systems and
Hydraulic Power Transmission machinery.

28. MISSION
To demonstrate an
edge to our
stakeholders in our
offerings for
converting/transm
itting energy. We
will strive to make
our company an
employer of choice
VALUES
CUSTOMERS FOCUS:- Our activities / actions
will be focused on enhancing internal /
external customer's satisfaction
COMMITMENT: - We commit to achieve our
targets / goals. We will be responsible /
accountable for our commitment
CONTINUAL IMPROVEMENT:- We will
consciously work to improve our procedures,
processes and systems with an objective to
improve our business processes
ETHICAL BUSINESS PRACTICES: - We will be
fair in our dealings with all our stakeholders.
It will be based on integrity , honesty and
transparency

29. PRODUCT DIVISION at KPCL
Air
conditioning,
refrigeration
& process
gas division
(ACR & PG)
Transmission
division
(TRM)
Air
compressor
division
(ACD)

30. Competitors of KPCL
Vs

31. VAT paid by KPCL in last 5 years
12,79,53,657
04,11,06,653
11,99,51,996
10,64,32,349
0
20000000
40000000
60000000
80000000
100000000
120000000
140000000
2009-10 2010-11 2011-12 2012-13

32. Methodology followed
PERSONAL INTERVIEW
• observe things like how soon after delivery of inventory from various
divisions and subdivisions , invoices are generated, how each and
every invoice is supported by valid tax FORM
DIRECT OBSERVATION
• personally used to ask how and why of things. Say for instance asking
company guide how and why excel I is used in updating sales invoices
and supplier and customer C forms at the end of every quarter
ON THE JOB TRAINING
• At KPCL I used to actually work to get the exposure and experience.
Daily I worked for sales tax department all the major works

33. Tabulation and Findings

34. Software's
used in
KPCL
Forms
used in
KPCL
Documents
prepared
in KPCL

35. Software/system used in KPCL
Microsoft EXCEL
• All forms are updated in excel.
• On daily basis.
ORACLE
• Replaced existing UNIX in 2006.
• When MVAT become electronic.
• Advantageous over UNIX as have ERP.

36. FORMS used in KPCL
C FORM
for
interstate
sales
E1 FROM
direct
dispatch to
customers
H FORM
for export
sales

37. 2. Documents Prepared in KPCL
 VAT Return
 CST Return
 Sales Tax Payment Position
 C Form Suppliers
 C Form Customers
 VAT Audit
 WCT TDS
 Rectification Of C/ E1
Forms
 C Form Mail Returns
 C Form Letters
 Sales Tax JVS
 ACK CST Application
 CA Certificate
 H Forms
 Covering Letters C Form
Suppliers
 Sales Tax Legal
 Debit Note And Credit Note
 C Form Forwarding Letters
 C FORM supplier forwarding
letters
 WCT TDS Purchases

38. a). Covering Letters C Form Suppliers
Every c form supplier is supported with a
covering letter containing all the details like
invoice no and value of each item in the c
form and the address and other details of the
suppliers.

40. b). ACK CST application
ACK stands for acknowledgement. An online
application of C FORM is filed in favour of
suppliers and in return KPCL gets an
acknowledgement copy of the same.

42. AREA OF RESEARCH
Why VAT is
preferred
over sales
tax?
Difference
between
VAT and CST.
VAT effect
on inflation.
VAT effect
on
economic
growth.

43. Why VAT is preferred over SALES TAX?
In sales tax, final sales are not covered by the tax
system e.g. due to difficulty of covering all the retailers,
particular commodities may not yield any tax whereas
with VAT some revenue would have been collected
through taxation of earlier transactions, or eliminates
the problem of tax cascading, which often occurs with
sales tax.
Sales tax is often applied again to the sales tax element
of the cost, thus there is a problem of tax on tax. This is
not the case with VAT, which makes it a neutral tax as it
provides the least disturbance to patterns of
production and the generation and use of income.
This is made possible by the fact that one person’s
output is another’s input. As with sales tax imports
are treated the same way as local goods while
exports are zero- rated to avoid anti-export bias.

44. Difference between VAT & CST
Under the CST Act, the tax is collected at one stage of
purchase or sale of goods. Therefore, the burden of the full
tax bond is borne by only one dealer, either the first or the last
dealer.
The VAT system, the tax burden would be shared by all the
dealers from first to last. Then, such tax would be passed
upon the final consumers.
Under the CST Act, the tax is levied at a single point. Under
the VAT system, the retailers are not subject to tax except for
the retail tax.
Under the CST law, concessional rates are provided on certain
taxes. The VAT regime will do away with such concessions as
it would provide the full credit on the tax that has been paid
earlier.

45. VAT effect on INFLATION
In considering the introduction of VAT, countries are often
concerned that it would cause an inflationary spiral.
However there is no evidence to suggest that this is true.
Survey of OECD countries that introduced VAT indicated
that VAT had little or no effect on prices.
In cases where there was an effect it was a onetime effect
that simply shifted the trend line of the consumer price
index (CPI).
To guard against any unforeseen price effects the
authorities may consider a tighter monetary policy stance
at the introduction of VAT

46. VAT effect on Economic Growth
Economic growth can be facilitated through investment by
both government and the private sector. Savings by both
parties are required in order to finance investment in anon-
inflationary manner.
Compared to other broadly based taxes such as income tax
VAT is neutral with respect to choices on whether to
consume now or save for future consumption.
Although VAT reduces the absolute return on saving it
does not reduce the net rate of return on saving.
Income tax reduces the net rate of return as both the
amount saved as well as the return on that saving are
subject to tax.

47. RECOMMENDATIONS
KPCL Finance Department particularly Sales Tax
Department is maintaining all the documents and
invoices as per the requirement of Department of
Sales Tax under government of Maharashtra.
After the study of Documentation and Procedure of
MVAT in KPCL.
No recommendations as KPCL is doing its work as
per the latest rule sand regulations of
department of sales tax.

48. Limitations of the study
The project DOCUMENTATION AND PROCEDURE
OF SALES TAX (MVAT)is a topic that revolves
around laws, rules and regulations of the
GOVERNMENT of MAHARASHTRA. Hence, there
was very less scope for practical implementation
and analysis.
It is a very vast domain and in a period of less
than 8 weeks it was not possible to cover all
aspects in details and study each and every law,
procedure or exemption in detail.

49. Scope for Future Improvement
KPCL Finance Department particularly Sales Tax
Department is maintaining all the documents
and invoices as per the requirement of
Department of Sales Tax under government of
Maharashtra.
All the invoices are updated on daily basis.
Hence no recommendations to KPCL on this
part.

50. BIBLIOGRAPHY
 http://en.wikipedia.org/wiki/Taxation_in_India
 http://www.archive.india.gov.in/citizen/taxes.php?id=5
 http://www.authorstream.com/Presentation/aSGuest8996
2-890545-mvat-basics/
 http://en.wikipedia.org/wiki/Sales_tax.
 http://kpcl.kirloskar.com/content/our-corporate-philosophy
 http://en.wikipedia.org/wiki/Sales_tax.
 http://mahavat.gov.in/Mahavat/MyFold/DOWNLOADS/FOR
MS/DOWNLOAD_FORMS_MVAT/DOWNLOAD_FORMS_MV
AT_06_03_11_3_46_16PM.pdf
 http://mahavat.gov.in/Mahavat/MyFold/DOWNLOADS/FOR
MS/DOWNLOAD_FORMS_MVAT/Downloads-MVAT.073.pdf