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No.VAT-2007/ACT/Adm-13/PSI/R.Audit/B-
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Circular No. 3T of 2007 |
Mumbai,
dt: 10.01.2007 |
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| Sub: |
Refund Audit under MVAT
Act. |
| Ref: |
Scope and procedure to be
followed. |
Gentlemen /Sir /Madam,
BACKGROUND
The Maharashtra
State has adopted the progressive system of VAT in place of Bombay Sales Tax
Act, 1959, with effect from 01.04.2005. It may be appreciated that the success
of VAT system lies in the level of self compliance by a dealer who is liable for
registration under the Maharashtra Value Added Tax Act, 2002 (hereinafter
referred as “the MVAT Act”). The practice of annual assessment followed under
the B.S.T. Act is done away with. Under MVAT Act, the returns filed by a dealer
are accepted as true and correct. In the event of some contrary facts coming to
the notice of the Department, then only passing of assessment orders u/s. 23 of
the MVAT Act, is to be taken recourse to. A return
filed under MVAT Act, by a dealer, may result either in payment of tax on the
value addition or in a claim of refund out of the taxes paid on purchases by
particular dealer. Claim of such refund is allowable subject to the provisions
of Section 48 and 50 of the MVAT Act, 2002. On submission of claim by a dealer
in prescribed Form 501, provisional refund is to be issued as per Section 51 of
MVAT Act to such claimant dealer equal to pre-determined percentage of total
refund as per returns. The balance due refund is released after audit of the
claim is completed and also on satisfaction of the prescribed conditions for
grant of refund. With these objectives in mind, the Sales Tax Department has
carved out two separate Audit Branches namely:- (i)
Business Audit Branch and (ii) Refund Audit Branch. The purpose of the Refund
Audit Branch is to audit claims of refund filed by the dealers in respect of the
period covered by a return in Form 501, as stated above.
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Various representations and
queries have been received by this office, seeking clarifications regarding
scope, procedure, purpose of refund audit, powers of the auditors and
consequences of the defaults. Queries have also been raised as to the nature
of the record to be produced before auditor in the course of audit process.
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In order to remove any
doubts to the above queries, various aspects of the refund audit are hereby
clarified for the guidance of trade as well as Departmental Audit Officers as
under:
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POWER TO AUDIT
:-
Section 22 of the MVAT
Act, 2002 , confers authority to conduct Audit.
(Sub-sections 1(b), 3 and 5 of section 22 of the MVAT
Act). As per sub-section 5 of Section 22 of the MVAT Act, a dealer
should afford necessary facilities to inspect his books of accounts and
related records to enable the auditor/s to carry out audit effectively. As
per Section 23 of the MVAT Act, required powers are delegated, to assess
the dealer, if refund claimed or granted is in excess of admissible refund
and such findings by the auditor are not acceptable to the dealer.
RESTRICTIONS ON AUDIT
OFFICER
:-
Sub-section 5(b) lays down
the following restrictions on the audit
officer :
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.
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THE SCOPE OF REFUND
AUDIT.
As stated above, main
purpose of the refund audit is to verify the authenticity and the
correctness of the refund claim with reference to the returns furnished and
the books of accounts maintained. Such audit may result either in
confirmation of the refund claim or variation therein. In case of the
second possibility, appropriate corrective actions will be initiated by the
auditor. If dealer accepts the auditor’s findings, then he may file revised
return or may submit acceptance letter or may sign the proceeding sheet to
that effect. If the dealer does not accept the auditor’s findings, then the
auditor will issue show cause notice in Form 302 to proceed to assess the
dealer.
During the course of
verification of the claim of refund, the audit officer will go through the
purchase record on the basis of which the claimant dealer has claimed refund
of the tax paid on his purchases. The details of purchases will be obtained
by the auditor to verify with the records of the vendors of the claimant
dealer. In the course of audit, the audit
officer will check the correctness of the tax liability on sales effected by
the claimant dealer and/or that disclosed in the returns. After
verification of the transactions of the purchases with the record of the
vendor, if it comes to the notice that VAT collected by the vendor has not
been paid into Government Treasury, in spite of being liable to pay tax,
then claim of refund to the extent of such tax, is liable to be disallowed
as provided under section 48 of MVAT Act, 2002.
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RESPONSIBILITIES OF
THE CLAIMANT DEALER:
After receipt of the
application in Form 501 as prescribed under sub-rule (1) of Rule 60 of the
MVAT Rules, 2005, the audit officer would call the claimant dealer, to fix a
date which is mutually convenient for visiting the place of business for the
purpose of audit. Auditor will communicate in advance the details of the
dealer's records, documents and statements, etc. which will be verified
during the course of the audit. The appointed date would be fixed looking
into the convenience of the dealer as far as practicable. On the date of
visit, the dealer should facilitate verification of various claims including
sales against declarations, exports, etc., which may affect the tax
liability and refund amount. 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:-
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assessment
proceedings may be initiated, in which case refund will be processed
through assessment proceedings and not under section 51 of the MVAT Act,
2002.
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initiation
of penal proceedings for non compliance of statutory requirements under
the MVAT Act.
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CROSS CHECK OF
TRANSACTIONS: Cross check is a vital
activity to ensure that the tax being claimed as input
tax credit pertain to the transactions which are duly accounted for
and the tax has been paid into Govt. Treasury. The job of cross verification
of particular transactions and proof of payment of collected tax will be
carried out for the present, through visits to the place of business of the
vendor by the duly authorised Sales Tax
Inspectors. Sales Tax Inspectors will visit the places of business of
suppliers on the date as far as possible fixed in consultation with the
concerned supplier. The supplier should facilitate such cross check exercise
and make available the required registers and copies of the returns,
challan, etc.
Failure to comply with the
requirements for audit of refund claim may result in non
processing of refund claims and/or initiation of penal proceedings for non
compliance of statutory requirements under the MVAT Act
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Declarations
prescribed under Central Sales Tax Act, 1956.
Normally, the claimant
dealer should be in effective possession of the various declarations on the
basis of which he has claimed either exemption from payment of CST or
payment at reduced rate. However, it is noticed that when the audit
officer visits the place of business of such dealers, the claimant dealers
are unable to produce the requisite declarations fully. In such cases,
refund will be withheld to the extent of missing declarations considering
maximum rate of tax on such missing declarations. On production of missing
declarations, assessee will get the corresponding refund claim or if he
fails to produce the missing declarations, assessment order under CST Act,
1956 will be passed accordingly. It is needless to say that such order will
be appealable u/s. 26 of MVAT, 2002, read with
section 9(2) of the CST Act, 1956.
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This Circular is
clarificatory in nature. If any person has any
doubt, he may refer the matter to this office for clarification.
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You are requested to bring the contents of this Circular to the
notice of the members of your Association.
(B. C. KHATUA)
Commissioner of Sales Tax
Maharashtra State, Mumbai. |
