VAT Audit
Audit of receipts – Auditing standards
In verifying compliance with the applicable tax laws, audit of receipts is regulated with reference to the statutory provisions as judicially interpreted.
Evaluation of internal controls
Internal controls are intended to provide reasonable assurance of proper enforcement of laws, rules and departmental instructions. These also help in the prevention and detection of frauds and other irregularities.
Quantum of audit
Around 65 to 70 per cent of the VAT revenue is contributed by the top 100
dealers and the balance 30 per cent by the remaining dealers.
Preparation of working papers
It is necessary that the audit work is properly documented in the working papers
and maintained unit-wise.
Documents Required for VAT Audit
Process Involved
FAQ'S
- What is VAT ?
- 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.
- How does VAT help industry?
- 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.
- What is Gross Turnover?
- 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.
- What is Gross Turnover?
- 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.
- Will the provision of suspension of registration certificate be misused by the officers?
- 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.
- what is the Scope of audit
- 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
- Elaborate about Database of the stock position
- 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.
- how is the Review of the objection book, past IRs and ARs done?
- 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.
- what is the Use of Information Technology in VAT audit
- 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:
- what is the Audit approach ?
- 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
