Details of VAT Form 240

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ISSUES ON VAT AUDIT –KARNATAKA AND RECENT

AMENDMENTS MADE.

CA. Sanjay M Dhariwal

KVAT AUDIT

Total Turnover- Rs. 40 lakh for FY 2009-2010/60 lakh for 2010-2011

Form VAT 240- Amended

Time limit of filing- 31st December 2010 for Financial Year 2009-2010

File to LVO/VSO Jurisdiction where monthly returns are filed

Auditor- Chartered Accountant, Cost Accountant, Tax practitioner

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CONTENT OF FORM VAT 240

Form VAT 240 is divided into 4 parts

Certificate – issued by the CA / Cost Accountants / STP

Part I – General Information

Part II – Particulars of Turnover, Deductions and Payment of tax

Note to Part II

Part III – Particulars of declarations and certificates

AUDIT CERTIFICATE

The introductory Para of the certificate defines the status of the Auditor,

Details of the dealer with TIN and Year of Audit.

The comments, observations and shortcoming on the returns filed by the

dealer should be added to the report- Monthly returns

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CERTIFICATE- CLAUSE

1) The books of account and other related records and registers maintained by the

dealer are sufficient for the verification of the correctness and completeness of

the returns filed for the year.

Maintenance of Books of Accounts as per KVAT law

Accuracy and completeness of the data filed to dept

Variances of returns with books of Accounts

CERTIFICATE- CLAUSE

2) The total turnover of sales declared in the returns includes all the sales

affected during the year.

Total turnover as defined in Rule 3(2)

All sales are Accounted

Classification of sales – Rate wise/local-Interstate-/etc


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CERTIFICATE- CLAUSE

3) The total turnover of purchases declared in the returns includes all the purchases

made during the year.

- Accounting of all purchase invoices

All kinds of purchases like local purchases(RD/URD), interstate purchases, import,

etc


CERTIFICATE- CLAUSE

4)The adjustment to turnover of sales and purchases is based on the

entries made in the books of account maintained for the year.

Reasons for adjustment like

Adjustment of taxes or credits,

Cancellation of invoices,

- Reconciliation adjustments like difference between contract receipts and total

turnover

- Entries thorough debit /credit notes or journal entries,

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CERTIFICATE CLAUSE

5)The deductions from the total turnover including deduction on account of sales returns

claimed in the returns are in conformity with the provisions of the law.

- Conformity of deductions as per Rule 3(2) of KVAT Rules

- Evidence/Documentations for deductions

- Sales return- Time span with support of Credit notes, Debit notes,

- Exempted sale deductions- Sale of exempted goods

- Sub contractor deductions- registered sub contractor

- Actual labour- Labour bills

CERTIFICATE CLAUSE

6) The classification of goods sold, rate of tax applicable and computation of output

tax and net tax payable as shown in the return is correct;

- KVAT Schedules, Central Excise Tariff, Commissioner Clarifications, Notifications,

Circulars

- Computation of output tax and net tax payable as per KVAT law

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CERTIFICATE CLAUSE

7) The classification of goods purchased, the amount of input tax paid and deduction of

input tax credit claimed in the return is correct and in conformity with the

provisions of the law;

- KVAT Schedules, Central Excise Tariff, Commissioner Clarifications, Notifications,

Circulars

- Purchases invoices and taxes paid on purchases

- Whether goods are purchased are eligible or ineligible for claim of input tax paid.

CERTIFICATE CLAUSE

8) The utilization of statutory forms under the KVAT Act, 2003 and the CST Act,

1956 is for valid purposes;

- Obtained statutory forms from department

- Statutory forms with the Invoices, Registration certificates, usage, etc

- Co-relation of Acknowledged statutory forms with consolidated report

(Electronically)– difficult

- Valid purpose……?

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CERTIFICATE CLAUSE

9) Other information given in the returns is correct and complete.

- Verification of Entry tax

- Any adjustment of input tax credit against entry tax

- information other than the above clauses like excess tax collected, carry forward of

credit, etc

CERTIFICATE

Summarize the additional tax liability or additional refund due to the dealer in

his report.

The Summary sheet should disclose the difference between the monthly

returns and the audited figure pertaining to output tax payable, Eligible input

tax credit, Ineligible input tax credit, CST payable and other items.

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CERTIFICATE

Advice the dealer to file the revised return- 6 months

Tax liability with interest and penalty-

Refund

Input tax credit carry forward- Opening and closing

Revision of Returns along with VAT 240- ????

Tax payment along with VAT 240-????

PART 1 CLAUSE 12 Whether registered under the KTEG Act, 1979 and enrolled / registered under the

KTPTC & E Act, 1976

Refer VAT 1

Obtain PT registration certificate as both employer and employee

Check whether Professional Tax has been discharged or not for all the

branches.

Books of account maintained

Cash Book, General Ledger, Bank book, Sales Register, Purchase Register, , etc

which are generated from the computer system

Method of valuation of opening and closing stocks

How does one go about valuing the opening stocks

How does one go about valuing the closing stocks???????

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PART 2 - CLAUSE 1 Total and Taxable turnover

Refer Rule 3 for the purpose of both total and taxable turnover;

URD taxes shall not form part of total turnover

Stock transfer should be disclosed at prevailing market value or the amount for

which the goods are ordinarily sold by the dealer;

Stock transfer of capital goods ?

Advances received prior to commencement of the work in case of works

contractor- Not to be considered;

Sales return beyond six months generally considered as sales and offered to tax.

Tracking with Debit Note/Credit Note

VAT collected should be shown separately/ Forfeiture of VAT in case of excess

collection

CLAUSE 3

Details of taxable sales within the State

One needs to provide – description of goods, taxable turnover, rate of tax and

tax payable

Tax payable and tax collected is different

Sale of fixed assets which is not subject to tax – can the sale value is

considered as inclusive of taxes or one needs to charge on the whole sale value

VAT on Freight charges

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CLAUSE 4

Details of purchase and receipts

Imports

What value one needs to declare – landed cost or invoice value

Is foreign exchange fluctuation will form part of import value

Inter-state purchase

Inter-state stock transfer

Purchases from registered dealers within the State

Purchases from unregistered dealers within the State

Where does one reflects the exempted purchases

Non disclosure of interstate purchases, Imports , E-1 purchases and other

interstate purchases in the monthly return- comments

CLAUSE 5

Details of input tax paid on purchases

One needs to provide – description of goods, taxable turnover, rate of tax and

tax payable

All purchase which is covered within the definition of input needs to be

disclosed;

Input tax credit based on date of invoice or Accounting of Invoice in the books of

Accounts.

Can input tax credit be adjusted against the scrap sales where the goods are

exempted from tax?

Input credit based on original/Duplicate copies and not Xerox copies

Input tax credit on purchase invoices where the invoices does not bifurcate the tax

component.

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CLAUSE 6

Details of input tax paid on purchases eligible for deduction (give details of capital

goods separately and specify whether calculated on the basis of partial rebating

formula)

Here also one needs to provide – eligibility of input tax based on description of

goods as capital goods or inputs.

Computation of eligibility separately based on partial rebate /special rebate

formula if applicable

CLAUSE 7

Details of input tax paid on purchases ineligible for deduction (give details of capital

goods and special rebate separately and specify whether calculated on the basis of

partial rebating formula)

As per section 3(2), Whether Unregistered purchase tax is to be paid on

consumables, printing and stationery (Input tax restricted goods)?

Goods sent for job work

Restriction of input tax credit against the use of exempted goods? And also

Apportionment of input tax credit for sale to SEZ, EOU, E-1 sales, Form I Sales

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CLAUSE 8

Details of input tax deduction claimed on purchases relating to inter-State sales and

export sales (give details of capital goods and special rebate separately and specify

whether calculated on the basis of partial rebating formula)

Practically difficult to co relate the input tax claimed with interstate sale or export

for large scale/medium scale dealers

CLAUSE 9

Details of un-adjusted excess input tax credit carried over from the previous year

and to the next year

Opening unadjusted credit if disclosed in VAT Audit Report and also accounted in

books of accounts

Otherwise the opening balance of the excess credit as disclosed in books and

Returns

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CLAUSE 10, 11, 12

Total and taxable turnovers under the CST Act, 1956

Deductions claimed (specify in respect of each deduction its nature, whether it is in

order and supported by prescribed documents)

Details of taxable sales

CLAUSE 13

If the dealer has opted for composition indicate the type of composition scheme

opted and details of the composition amount paid its rate and the basis

Change in the scheme from regular to composition or vice versa

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CLAUSE 14 & 15 Details of returns filed along with revised return- change for 2009-2010 or 2010-

2011

Details of inspection of the business premises / books of account of the dealer by

departmental authorities on inspection / visit

Statement/ Notices from the departments- observations by the Auditor

Any application for Commissioner clarifications or Appeal pending

Visits by the VAT officials in the current year asking the details for financial year

2009-2010

KVAT AUDIT

Note to Part II:

Trading account should be maintained in respect of each class of goods by the

traders

Manufacturing account in respect of each class of goods (whether taxable or not)

The Accounting ratios on sales and non sales transactions has to be furnished

separately like turnover ratio, stock turnover ratios, gross profit ratio. Cost of

goods sold ratio

The details of the transactions within the state and outside the state should be

suitably computed and declared separately. It has to be declared separately in the

profit and loss Account and the Balance sheet.

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PART 3 – CLAUSE 1, 2 & 3

Details of sales / purchase as commission agent

Principal and Agent transactions where principal/Agent, within/outside the state

and or Agent/ principal, within/outside the state

Details of tax deducted at source from the amounts payable to the dealer

VAT 156 / 158 / 159

TDS deductions- Compliance like industrial canteens, Government works contract

and notified goods for that year- section 18-A struck down

CLAUSE 4 & 5

Stock of declarations / certificates / delivery notes under the KVAT Act, 2003 / CST

Act.

Opening Stock

Forms obtained during the year from CTD

Forms utilized during the year

Loss, if any

Closing Balance- electronically filed

Details of any misuse of forms- difficult to evaluate

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CLAUSE 4 & 5…….

Compliance of Statutory forms:

TDS certificates,

C form, Form F

E-I forms,

E-II forms,

Form –H.

The details of Form I is not added but still can be added to claim exemption

Illustration for audit for works contractor

• Verification of details of contract entered and the agreements entered

• Whether the dealer under the regular scheme or composition scheme

• Different Audit report for change in the scheme on the mid of the year

• Break up of contract receipts including any mobilisation advance

• Whether labour charges deducted on actual or Adhoc basis

• Whether any deduction towards payment to sub contractor - deduction only

on payment basis

• Whether sub contractor are registered or not

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• Whether sub contractor has furnished the monthly return or not

• Even unregistered tax is to be paid by the works contractor under both the

scheme

• Tax payable on receipts or taxable turnover which ever is higher

• Reconciliation of Bank statement with contract receipts vis-à-vis with bills

raised and vis-à-vis WIP.

• Any forfeiture of tax for the refund of the advance or installment to the buyer

• Where material is supplied by the contractor and the sub contractor

executes only labour work so whether labour deduction can be claimed twice

by the contractor and sub contractor

OTHER ISSUES

Audit plan/Audit Programme for KVAT Audit

1) Separate Audit plan/Programme for each class of dealer

2) Objective of Audit is Compliances of the KVAT law

Analyze the nature of business

Supporting sections, Rules, Notifications, Circular, Clarifications applicable

Documentations required from the dealer like Registration certificates, details of

Statutory forms, agreements, Invoices, Financial statements, Monthly returns, etc

Verification of relevant documentations

Verification of correspondence with departments if any

Discussion with the dealer on any relevant compliance- Legal or procedural

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OTHER ISSUES

Areas to be looked into during Tax Audit with VAT Audit like

1) Freight charges for local sales/Interstate sales – Sharavathy Steel Products Private Limited Bangalore Vs state of Karnataka 2010(68) KLJ 206 (Tri)

2) Total Turnover/Taxable Turnover

3) Sale of fixed Asset/ Restricted capital goods

4) Cost/ ineligible tax credit

5) Non sale transactions (Goods on approval, Stock transfer, sample, gifts)

6) Payment of penalty/interest

7) Disallowed labour and like charges

OTHER ISSUES

8) Closing work in progress

9) Composition/Regular scheme

10) TDS for works contractor- IT/ VAT

11) Adjustment as prior period items/post period items

12) No provision of revision of IT Audit Report and VAT Audit Report

13) Detailed classification of goods for sales and purchases which may be local,

interstate with rate of tax in Trading account for KVAT Audit

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OTHER ISSUES

Reliance on Books of Accounts maintained electronically. Hard copies should be

obtained (consolidated) from the management after their conformations.

When Input tax credit is adjusted against the entry tax payable, verification of entry

tax compliance

Whether both the benefits of depreciation and input tax credit can be availed by the

dealer?

Verification of transactions with the sister concern companies

Centralized accounting

Statement/ Notices from the departments- observations by the Auditor

PROCEDURAL AMENDMENTS- KVAT RULES 2010

MRP Dealers- Rule 3(4)

A registered dealer selling Cigarettes, Gutkha, Cigars and other manufactured tobacco is

liable to pay tax on MRP if the consideration for sale exceeds rupees five hundred only. Total

turnover is aggregate of maximum retail prices of the goods sold (RULE 3(2) is not

applicable)

Taxable Turnover is total turnover less deductions

(d) Sales return

(h) Tax collected

(i) Turnover of agent

Form 105 in new form prescribed for dealer paying tax on MRP basis

The Invoice should disclose the MRP in addition to details specified in Rule 29

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Issue of TDAIN- Rule 9(3)

• Issue of registration certificate to specified persons under sub section 9-A(1)

• It requires Central Government, any state government or any other specified bodies

to deduct tax from the amounts payable by them to any works contractor.

• With regard to this now the commissioner can authorize any LVO or VAT sub-officer

to assign Tax Deduction Authority Identification Number (TDAIN)to Central

government, any State government or others specified in section 9-A.


Rule 15 (4) - Transfer of registration to legal heirs• Insertion of proviso to sub-section 1 of Section 27 w.e.f. 1-04-2009. The

prescribed authority may instead of cancelling the registration, may permittransfer of his certificate of registration to the legal heirs subject toapplication made by the legal heirs for transfer of registration.

• There was no rule prescribing the procedure for the above. Now the same isprescribed in Rule

• Any legal heir of a deceased individual dealer may apply for transfer ofregistration in Form VAT 1 along with the documents prescribed like deathcertificate, sworn affidavit etc. And after enquiry, the authority may permitsuch transfer.

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PROCEDURAL AMENDMENTS- KVAT RULES 2010Turnover changes (Rule 37- Tax period)Filing returns quarterly- For Regular dealer- Total turnover not exceeding twenty fivelakh earlier the limit was fifteen lakh.

Removal of Form 6The Annual Form VAT 6 (Amendment in registration details) which was to be filed alongwith the monthly return of last month of the financial year is not required to be filedwith effect from financial year 2010-2011.

Submission by Casual dealerWhen casual trader stops his occasional transactions during the course of a month,then he shall submit Form VAT 110 which has replaced Form VAT 100.

Keeping of Accounts (Rule 33(3)(b)The substituted Rule prescribes to maintain VAT Account by regular dealer with detailsof input tax, Output tax, debit notes and credit notes issued during the tax periodThe earlier requirement of entering the details in website is now removed.


Change in Registration detailsFor changes in registration certificate, the application shall be made in Form VAT 1 whichhas replaced VAT 2

Rule 50 – Mode of payment - Proviso InsertedThe proviso states that for specified classes of dealers as notified by the commissioner,the tax shall be paid through electronic remittance through internet.

Rule 153(4) – Petitions, appeals and applications for review to High CourtAppeal to High court, against any order passed by Advance Ruling authority shall be madein Form VAT 486.

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Rule 38 – Submission of monthly returns

The details to be entered in commercial tax website with respect to Local Registered Dealer purchase for which input tax credit was availed has been removed from the Rules. Therefore the following documents shall be accompanied with the returns –•Statement of local RD eligible purchase•Local sales made to other registered dealers•TDS certificates when the credit for TDS has to be claimed.

The Monthly returns may be filed through website by using the dept allotted usernameand password. The payment details have to be given along with return. Along withAcknowledgement number return and Cheque the return can be filed with department ifthe e payment is not made. Otherwise the E payment has to be made through notifiedbanks and return can be filed electronically


Rule 130-B – Claim of refund of tax (Inserted)

• The buying dealer, not liable to get registered under the Act can claim the refund of excess tax paid to selling dealer (MRP).

• The refund claim has to be made in Form VAT 166 to the local VAT jurisdiction of selling dealer.

• The refund payment order shall be made in Form VAT 255 within sixty days from the date of application.

Rule 159(3) - Inspection of goods

The owner or person – in - charge of a goods vehicle shall carry proof of entering thedetails in the website along with other details.

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Rules 164 & 165 – Clarification of rate of tax and Advance ruling

1. Definitions for the purpose of advance rulings with respect to clarification of rate of tax are given in rule 164.

2. Advance Ruling Application under section 60 to be made in Form VAT 540 along with a fee of Rs.1,000/-.

3. The authority, after examining the application, may either admit or reject it. But it shall not reject without giving an opportunity to the applicant to show cause against such rejection. If any rejection is made, then the authority shall mention the reason thereof.

4. The authority shall not admit the application when the issue raised is already pending before any authority, Tribunal or any court, or relates to a transaction or issue which is designed apparently for avoidance of tax.

5. The authority shall pass an order within three months of receipt of any application.

6. Other conditions prescribed for such clarification to be provided.

THANK [email protected]

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Documents

Details of VAT Form 240