Business Audit under MVAT

- Ms. Dhwani Mainkar

 Objective of Business Audit
 Tax Audit means “A procedure undertaken by the Authority to inspect the commercial records or any
information or data related to a Person carrying on Business.”
 MVAT relies upon self-Compliance by the dealers. To promote, the self- compliance by the dealers,
concept of business audit is introduced vide Section 22.
 General procedure is prescribed under S. 22
 The primary object of business audit is to promote compliance with law.
 Business audit is a device with the Department to ascertain and ensure compliance of law.
 At a practical level, the object of Business Audit is to ascertain the correctness of returns and identify
inadequacies in returns, if any when checked against the books of accounts.
 If the returns are not filed then the Audit officer is empowered to quantify the liability of the dealer and
enforce recovery.
 As per the present procedure, the audit is carried out at the place of the dealer by the officers working in
the Business Audit Divisions.
 The cases for audit are selected by the Business Audit Criteria Committee on the basis of certain criteria.
 Normally, the audit is carried out with prior information of the date to the dealer, unless there is
deliberate decision to conduct surprise audit.
 The notice of information to the dealer shall also contain what information he should keep ready at
the time of visit.
 The Officer is authorized by the Joint Commissioner of Sales Tax of respective Business Audit
Division for this purpose.
 If, however, the officer is unable to keep the appointment then he will inform the dealer in advance.
 If the information sought for in the notice sent to the dealer is not readily kept available by the
dealer, the auditor has powers to even levy a penalty.
 VERIFICATION of  Sale Bills, Purchase Bills, Journals, Ledgers, Delivery Challans, Bank
Statements, Reconciliation with IT Returns, Verification of agreements or tender documents.
 The audit officer is authorized to make enquiry as to whether the dealer has filed returns and made
payments under other allied laws such as Professional Tax, Service Tax etc.
 Audit :- S. 22
 (1) With a view to promoting compliance with the provisions of this Act, the Commissioner
may arrange for audit of the business of any registered dealer.  For the purpose of this section,
the selection of dealers for audit shall be made from amongst the dealers,-
   (a)  who have not filed returns by the prescribed dates; or
   (b)  who have claimed refund of tax; or
   (c)  where the Commissioner is not, prima facie, satisfied with the correctness of any return
filed by a dealer or is not satisfied with any claim made, deduction claimed or turnover
disclosed in any return filed by the dealer; or
   (d) who are selected by the Commissioner on the basis of the application of any criteria or on
a random selection basis; or
   (e) where the Commissioner has reason to believe that detailed scrutiny of the case is
necessary.
 Procedure -- Contd
 (5)  (a) During the course of the audit, the officer may require the dealer,-
 (i)  to afford him the necessary facility to inspect such books of accounts or other documents
as he may require and which may be available at such place,
 (ii)   to afford him the necessary facility to check or verify the cash or stock which may be
found therein, and
 (iii) to furnish such information as he may require as to any matter which may be useful for or
relevant to any proceedings under this Act.
 (b)  The officer conducting the audit shall on no account remove or cause to be removed any
books of accounts, other documents or any cash or stock.
 General Points
 It is the dealer’s responsibility to give a true and correct account of the information during the course
of the Audit. On the Date of the Audit, the dealer should facilitate verification of various claims
including sales against declarations, exports, etc. The dealer is required to furnish self-certified copies,
extracts and details of documents as may be asked for by the Audit Officer.
 FAILURE TO COMPLY WITH THE REQUIREMENTS FOR AUDIT OF REFUND CLAIM MAY
RESULT IN FOLLOWING CONSEQUENCES:
 Assessment proceedings may be initiated, in which case refund will be processed through assessment
proceedings and not under S. 51 of the MVAT Act 2002.
 The Audit Officer is also authorized to take a physical stock of goods and ask for clarification, if any.
 In addition, the audit officer is empowered to account for cash and bank balance and check for a
reconciliation, if any
 If the dealer under audit does not co-operate or adopts a negative approach and avoids production of
books of accounts or any documents which have evidentiary value, or if the audit officer thinks that
critical pieces of evidence would not be produced by the dealer or where he apprehends the
disappearance or destruction of such documents or evidence, then the audit officer, with the prior
permission of the concerned Joint Commissioner of Sales Tax, can seek an intervention by the
investigation branch.
 AUDIT OF ACCOUNTS
 Section 61 of MVAT Act requires certain dealers/persons to get their accounts audited by an
accountant, within the prescribed period from the end of the year. The report of such audit is
required to be furnished in a prescribed format. The provisions contained in the Act and Rules in
this regard are reproduced below for the attention of members.
 Section 61 of the MVAT Act 2002, prescribes mandatory audit in the following cases:
 (a) If turnover, either of sales or purchases, of a dealer who is liable to pay tax , exceeds Rs. 60
lakhs during the financial year, or
 2) A dealer or person who holds prescribed licences or permits for liquor spirit, beer, country
liquor etc
 Such dealers are required to get their returns and accounts audited by Chartered Accountants or a
Cost Accountant and submit the report of the same in Form no. 704 to the department within a
period of eight months from the end of the year to which the report relates. i.e. audit report must
be submitted on or before 30 November each year to avoid penalty.
 The term ‘Turnover of Sales’ is defined in Sections 33(2) as the aggregate of the amount of the
sale price received and receivable by a dealer during the period, after deducting the sales price of
the goods and amount of refund deposited with in a period of six month If a person is carrying on
business at two or more places in same date under same R. C. No., the turnover of all such
business shall be taken into consideration while calculating the prescribed turnover limit.
 The Term ‘Turnover of Purchases’ is defined in 32(2) as the aggregate of the amount of the
purchase price paid or payable by a dealer in respect of any purchase of goods made by him
during the year after deducting the purchase price of the goods returned and amount of deposit
refunded within a period of six months.
 Turnover of all sale and /or purchase will include sale/ purchase of trading goods, scrap and
movable capital assets. Further turnover of purchase will also include purchase of goods,
which are debited to the profit and loss account.
 As per explanation, if the goods are delivered on hire purchase or any system of payment by
instalment or in respect of the transfer of the right to use any goods for any purpose, the
amount of purchase price paid or payable during a given period shall mean the aggregate of the
amount paid and payable, for this purpose, during the given period.
 If a dealer fails to get his accounts audited and furnish the “complete ‘report in form 704, he is
liable to penalty equivalent to 1/10% of the turnover. Complete audit report means that all the
items of Form 704, annexures, and schedules are filled up and consistent and arithmetically
accurate. Such penalty will be imposed after giving opportunity f being heard.
 Departments of Central and State governments, Railways and Local authorities are excluded
from the purview this section, hence audit is not applicable on them.