S. 61 of The Maharashtra Value Added Tax Act, 2002 (MVAT Act) requires certain dealers to get their books of account audited and submit Audit Report so obtained from the Auditor i.e. either from a practising chartered accountant or a practising cost accountant. This report is required to be submitted within 10 months from the end of the financial year. Non-filing or late filing of Audit Report may attract penalty at the rate of 0.1% of the turnover of sales. The prescribed form of Audit Report (i.e. Form 704) has been replaced recently vide notification dated 26-8-2009 issued under Rule 17A(2) of MVAT Rules, 2005. The revised form of audit report is applicable for financial years commencing on or after 1st April 2008. Thus, from 26th August 2009 onwards, the VAT Audit Reports for F.Y. 2008-09 have to be given in this amended Form 704 only. Further, the Commissioner of Sales Tax, vide Notification dated 1st October 2009, has notified electronic format of Form 704 to facilitate the dealer to file the Audit Report electronically. From 1st October 2009 onwards all such dealers shall file the Audit Report in electronic format only.
Some of the important distinguishing features of this new form may be noted as under :
1. Emphasis shifted from returns to tax liability.
In the earlier report the main thrust was to certify the correctness and completeness of the returns filed by the dealer. In the new Form, the thrust is on certification of tax liability of the dealer based on his books and records.
2. In the earlier report for almost each column and row, remarks from the Auditor were asked for. This was creating confusion and every Auditor followed different way of giving such remarks. Some of the publications even gave suggested remarks for each such column. The new Audit Form is designed in such a way that all remarks will get reported at one or two specified places only viz. para-3 or para-5 of Part-1. This will be helpful to the Auditor as well as the user.
3. Most important distinguishing feature is that this new Audit Report is to be filed electronically. The earlier Report was to be filed physically. The Commissioner of Sales Tax has issued Circular bearing No. 27T of 2009 dated 1-10-2009 by which the procedure for e-filing of this Report has been clarified. Though, Auditor will give his Report to the dealer, the dealer will upload the same. Therefore, the Auditor may be required to give Report in Electronic Format along with physical copy to facilitate the dealer to file new Report Form. After uploading the Report the dealer is also required to submit ‘statement of submission’, as explained in the above Circular.
4. The new VAT Audit Form has three parts. Part-1 is about certification, whereas Part-2 is about general information of the dealer and Part-3 is about calculation of tax liability.
In Part-1, at the beginning, there are certain instructions to be followed by the auditor. There are about 19 instructions. The rule making authority has given weightage to these instructions, in as much as in the Certification Part the Auditor has to certify that he has read and understood the instructions and followed the same while preparing the Report. Thus, the Auditor is expected to follow the instructions and in any case, if not in position to follow the same, he will be required to report in para-3 of Part-1.
5. As stated above, Part-1 is about certification. Para-2(B) of Part-1 starts as under :
“Subject to *my/our remarks about non-compliance, short comings and deficiencies in the returns filed and tax liability computed and presented in respective schedules and Para-4 of this Part, I/We certify that,. . . . .”
Thus, an impression arises that this is not a Report as such but certification. Report is generally an opinion based on the overall verification of the records, certification means certifying correctness of the facts so certified. For example, if a ‘debtors list’ is certified as per any records, then such certification is expected to be correct as per actual amounts, leaving no difference even of Rupee or Paisa. Therefore, an issue may arise whether the VAT Auditor is giving certification, so that the amounts/tax liability mentioned in the Audit Report are verified fully in all its respects, including 100% accuracy of various claims. In certification in para-2(B), there are certain items, mentioning that the Auditor has fully verified the facts stated therein. For example, in clause (i) the Auditor certifies that ‘all such declarations and certificates are produced before me. I have verified the same and they are in conformity with the provisions related thereto’.
Due to these kind of certification, question arises whether the Auditor is supposed to check each and every declaration form (like ‘C’ form), physically and that also with correctness of the details mentioned therein. There are certain more items of similar nature. Therefore, it is necessary to understand the scope of VAT Audit.
To our understanding, though above is the mode of reporting, Audit Report is still an expression of opinion only and it is not a certification as understood in that manner. This aspect is clear from the overall reading of the Form, particularly from the reading of the responsibility statement after para-1C in Part-1. The said statement is as under :
“Maintenance of books of accounts, sales tax related records and preparation of financial statements are the responsibilities of the entity’s management. Our responsibility is to express an opinion on their sales tax related records based on our audit. We have conducted our audit in accordance with the standard auditing principles generally accepted in India. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the sales tax related records and financial statements are free from material mis-statement(s). The audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates by management as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.”
Based on above responsibility statement, it can be said that the report is in the form of opinion and not a certificate as such. Therefore, the Auditor can give the specified certificates in para-2(B) of Part-1, based on his satisfaction from the verification, which may include test verification of the relevant records. However, it is expected that the Auditor will maintain his working papers meticulously.
In Part-1 of new Form 704, the VAT Auditor has also to give a summary of total tax liability in a tabular format. Unlike the old Form, in new Form the Auditor is not to give any recommendation for revising the returns, etc. He has to only report about additional liability or refunds etc. The dealer will take his own decision to revise the returns accordingly or not. [There is amendment in S. 20(4) of MVAT Act, 2002 which is about revised returns. S. 20(4)(b) is about revising the returns pursuant to Audit Report. From reading of said section, it transpires that the dealer will be required to revise each individual return, as per the changes required in the same. In relation to old Form, the then Commissioner of Sales Tax had issued Circular 26T of 2006 dated 18-9-2006 by which the dealer was able to revise only last return, to take care of all the changes during the audit period. Thus, the responsibility of the dealer has increased.]
In Part-2, general information is called for. As compared to old Form, certain new requirements have been added. Like details about filing of returns and payment under Profession Tax Act/Luxury Tax Act etc. Though, strictly speaking, in the VAT Audit Report, details about other enactments can not be asked for, but, it appears that since the other enactments are also administered by the sales tax department, these details are asked for. The other distinguishing feature in Part-2 is that the Activity Code is also required to be reported. These Activity Codes are made available on government website and the Auditor, after selecting applicable codes has to give bifurcation of turnover qua such codes.
Part-3 is about computation of liability. It has six schedules and eleven Annexures. Schedules I to V are for reporting transactions under MVAT Act, 2002, whereas Schedule-VI is about reporting trans-actions under CST Act, 1956. As clarified in the Instructions, the Schedules are as per return format. Under MVAT Act, 2002, there are different type of returns viz. From Nos. 231, 232, 233, 234 & 235. Schedule-I relates to Form No. 231 and so on. It is also possible that more then one Schedule may apply, depending upon the type of returns applicable to the said dealer.
In addition to the Schedules, there are also Annexures from ‘A’ to ‘K’. These are supplementary to Schedules. In the Electronic Format, if the information is first filled up in the Annexures, related fields in the Schedules and Tables will be auto calculated. Though, there can be various minute details about each item of the Schedules/Annexure, for sake of brevity, the same are not discussed here. However, some of the additional items in this new Form, as compared to old Form, can be mentioned as under:
i) List of new suppliers on the purchase of which set off is claimed. (Annexure ‘G’. However, this Annexure is dropped in E-template).
ii) List of TIN wise suppliers showing total purchases and taxes. (Annexure ‘J’).
iii) List of TIN wise purchasers showing total sales and taxes. (Annexure ‘J’). At present, there is no requirement for noting the TIN of the purchasers and hence, probably the dealer may not have these details available. Depending upon the availability of such information and verification thereof to his satisfaction, the Auditor may have to give suitable disclosures.
iv) List of credit notes, party wise, showing amounts and taxes. (Annexure ‘J’).
v) List of debit notes, party wise, showing amounts and taxes. (Annexure ‘J’).
vi) Ratio analysis. (Annexure ‘F).
vii) Bank statement examination, for certification as per para-2(B)(m) of Part-I.
viii) Stock records requirement for reporting at – various places.
ix) Reconciliation with Excise/Custom records. (Instruction-19).
x) Interest working as per (Annexure ‘A’ & ‘B’).
The new Audit Form-704 is more elaborate. It also requires more details than the old one. In the first year, it seems, it may be little difficult for some of the dealers to generate certain information required to be furnished in some of the annexures and in certain cases it may involve additional work. However/ in subsequent years, one may have to take care to get their accounting software suitably amended and also the procedure for maintaining primary records so as to generate the required information in the manner so required. It appears that in long run, the new Form will be much more dealer friendly.
