VAT Audit

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VAT Audit
Turnover less than 2 crores
Turnover between 3 to 5 Crores
Turnover between 5 to 10 Crores
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Documents Required for VAT Audit

Process Involved 20%

INTRODUCTION OF VAT AUDIT

In  India,  VAT  Audit is compulsory in all except  4  States, (subject  to Turnover  limits  for the dealers) 

Till recently, Delhi was  a part of this list. However, the  Delhi  Government has notified that a Dealer with  a  Turnover  of  over Rs.  10  crore has  to submit  a  VAT  Audit report. If, in respect of any particular year, the gross turnover of a dealer exceeds sixty lakh rupees or such other  amount  as may be prescribed, then, such dealer shall submit  a report  in such manner, form  and  period  as may  be notified by the Commissioner. 

WHO IS LIABLE FOR VAT AUDIT

S.N.Nature of the Dealer –Based upon TurnoverExemption , if any.

  • Dealers whose Gross Turnover does not exceed Rs.1 croreNot liable for VAT Audit
  • Dealers whose turnover exceeds Rs. 1 crore but is less than Rs. 10 croreForm of Audit Report and its time and manner yet to be notified by the Commissioner.
  • Dealers whose Gross Turnover is Rs. 10 crore or more
  1. Dealers exclusively dealing in Commodities listed in first schedule to the ACT 
  2. Dealers with 100 % export Turnover.

TIME LIMIT AND PENALTY

Audit Report in Form AR?1 to be submitted within  Seven  and  half  months  from  the date of the Financial year.?
As  per  section  86(18)  of  Delhi  VAT Amendment Act, 2013,  in  case the dealer fails to comply with the provision of audit, the dealer shall be liable to pay penalty, a sum equal to 1% of his Turnover or sum of one lakh rupee, whichever is less.

CALCULATION OF GROSS TURNOVER

  • Taxable Sales (including Central Sales)
  • Consignment Sales/ Stock Transfer
  •  Job Work Charges (In case of Works Contract, the full value of the contract is considered)
  •  Exempted Sales -
  •  Goods specified in the First Schedule
  •  Penultimate Exports u/s 5(3) of the CST Act
  • Labour & Service Charges involved in the execution of Works Contract
  • Sale of Capital Goods (Refer section 6(3) of DVAT)
  • Dealers specified in the Fifth Schedule Others 

How to Calculate Gross Turnover 

Particulars                                                                                                      Rs.
Sale within Delhi Taxable under DVAT ACT                                             XXX
Add:?Inter State Sale                                                                             XXX
Add:? Sale in Course of Import and export including penultimate export      XXX
Add:? Stock Transfer from Delhi to Branches/agents in Other State           XXX
Add:? Excise Duty (Local and Central) and Custom Duty                           XXX
Less:? DVAT/CST payable by the dealer .. ( If already included)                XXX
Less:? Cost of Freight or delivery separately  charged in the Invoice
provided that the ownership of the goods is not transferred at the buyer’s 
place                                                                                                     XXX
Less:? Cost of installation separately charged in the Invoice                      XXX

Gross Turnover                                                                                      XXXX

Points for Discussion –Gross Turnover ?

  • Turnover as per DVAT Return or P & L Account.
  • Turnover of Delhi office or Entire Entity
  • Turnover of 2011?12 and 2012?13?A criteria
  • Exemption  to  Dealers  exclusively  dealing  in  Exempted Goods.
  • Exemption to Dealers with 100 percent Export Turnover

FAQ

Gross Turnover of a dealer is the turnover of sales plus turnover of purchases under Section 12 of the VAT Act. Section 12 provides the circumstances where tax is leviable on purchase turnover. In those cases, instead of sale turnover of the goods, purchase turnover is taken into account while calculating the gross turnover..

Examination of the rules and procedures for survey and identification of potential assessees and persons from whom the receipts may become due. 2.2.2 Examination of the laws, notifications, rules and procedures for levy of VAT and individual cases with a view to ensure that the amounts legally due are demanded and are paid and credited to the Government account. 2.2.3 Examination of the accounts and individual cases relating to the receipt of payments and their incorporation in accounts, which is certified in audit and reported upon. 2.2.4 Examination of the rules and procedures for keeping subsidiary accounts of receipts, demands, collections, recoveries, refunds, compensation claims, set-o.

The opening and closing stock disclosed by the dealers and also determined by the assessing officers while finalising the assessments and while furnishing replies to the audit observations should be maintained in a database for future use in audit. For this, dealers having substantial turnover should be selected. .

These should be periodically reviewed to find out the age, frequency and the seriousness of irregularities noticed in the various units and abstracts prepared thereon. These abstracts should be particularly kept in view while selecting and conducting the audit of the units. Records not produced during past audits should also be taken note of and be specifically looked into by the auditor. .

With the introduction of VAT, the States may effect changes in the structure of the machinery for administration of the erstwhile sales tax. In some States, e.g. Maharashtra, the structural changes have already been effected. Audit will also have to make suitable concomitant changes relating to selection of a unit and the frequency, quantum and periodicity of its audit. As far as quantum of business audit is concerned, it would have to be determined on the basis of risk assessment specific to the branches of the VAT administration. The guiding factors for determination of the quantum would be the estimated propensity of tax errors (unintended mistakes in tax calculations on account of softwa.

 

VAT is the short form of Value Added Tax. VAT is the tax that has replaced the earlier levy of Sales Tax. Under the earlier first point system of levy of tax, the manufacturer or the importer of goods into the State was liable to sales tax. There was no levy of sales tax on the further distribution channel. VAT, in simple terms, is a multi point levy on each of the entities in the supply chain with the facility of set off of Input Tax i.e., the tax paid at the stage of purchase of goods by a trader and on purchase of raw materials by a manufacturer. i.e., only the value addition in the hands of each of the entities is subject to tax. .

The provision of set of tax paid on purchase/input tax credit will eliminate cascading and double taxation. This will promote production efficiency of investment. Investment decisions will not, therefore, be based on tax consideration, tax holidays..

Gross Turnover of a dealer is the turnover of sales plus turnover of purchases under Section 12 of the VAT Act. Section 12 provides the circumstances where tax is leviable on purchase turnover. In those cases, instead of sale turnover of the goods, purchase turnover is taken into account while calculating the gross turnover..

The Registration Certificate of a dealer will be suspended if a dealer contravenes the provisions of the Act or does not comply with the provisions of Act & Rules. Prior permission of the Commissioner is to be obtained before an officer suspends the registration certificate of a dealer. If the R.C. of a dealer is suspended, notice will be issued immediately and the dealer to produce the relevant documents to rebut suspension within 30 days from the date of suspension. If the dealer makes do the deficiency for which his R.C. was suspended, his R.C. will be restored..

The States are expected to make in due course of time, extensive use of IT to reliably capture the data relating to all aspects of VAT. It would then become incumbent upon the auditor to use Computer Aided Audit Techniques (CAATs) for the audit of VAT. When the VAT administration’s financial systems are computerised, the auditors must consider the impact of those systems on the audit plan. Specifically, they must: .