Session 9.1-P-21 Risk Analysis & Statistical Sampling Application in Sales Tax Audit

Session 9.1-P-22 Introduction Not necessary or desirable to examine everything

Session 9.1-P-23 Objective Scientific Selection of cases Number of files audited reduced Derive audit assurance

Session 9.1-P-24 Application at two levels Selection of ward Selection of dealer

Session 9.1-P-25 Selection of Ward… Present System Number of dealers500= 1 point Tax Collection5 cr= 1 point >45 cr=10 points

Session 9.1-P-26 Selection of Ward… Units planned for audit ST annual units81 ST Triennial units11 Units to be audited in a year92

Session 9.1-P-27 Selection of Ward… Proposed System Number of dealers500= 1 point Tax Collection Sr #Collection (Rs Cr)Points 1< >=4020

Session 9.1-P-28 Selection of Ward… Periodicity Sr #Consolidated WeightagePeriodicity 1<10Triennial Biennial 3>=20Annual

Session 9.1-P-29 Selection of Ward… Proposed Periodicity for Audit Sr #Periodicity# of Wards 1Annual25 2Biennial66 3Triennial15 Total106

Session 9.1-P-210 Selection of Ward Hence will audit Sr #Periodicity# of Wards 1ST Annual25 2ST Biennial33 3ST Triennial5 Total63

Session 9.1-P-211 Selection of Dealer… Present System Based on GTO Selection of cases> 75 lakh100% < 75 lakh 20% Demand and collection register

Session 9.1-P-212 Risks Inherent Risk Risk that error will occur in the first place Determine for each dealer Control Risk Risk that internal controls will fail to detect the error Determine for ward as a whole

Session 9.1-P-213 Inherent Risk Factors… 1GTO includes –Interstate sales –Exports –Sales within a state –Branch transfers –Job work/works contract H10>10 cr M65-10 cr L2<5 cr

Session 9.1-P-214 Inherent Risk Factors… 2Purchase on forms 3Purchase on ST- 35I H10C, ST-35, F M6Any 2 L2Any 1 Purchase on ST 35ISale on form H10ST35 M6C L2By charging tax

Session 9.1-P-215 Inherent Risk Factors… 4Branch transfer 5No purchase form & commodity is a last point item PurchaseSale H6FF M2F PurchaseSale H5No form M3 ST – 1 L1Last point itemTransfer of stock Local Form

Session 9.1-P-216 Control Risk Factors Determined for a ward 1Summary & scrutiny assessment –Summary Assessment upto Rs 1 cr Filed returns in time Paid due tax –Scrutiny Assessment Issue Notice Assess the amount of tax

Session 9.1-P-217 Control Risk Factors Summary as a % of Total assessment H1040% M620-40% L2Below 20% STOWD8 Cases assessed# of cases under summary % %

Session 9.1-P-218 Control Risk Factors 2Cases Assessed within last 30 days % of assessment done in last 30 days H1060% M630-60% L2Below 30% STOWD8 Assessed in # of cases last 30 days % %

Session 9.1-P-219 Control Risk Factors 3Internal Audit STO WD 8 : Internal audit was carried out last year 4Geographical Areas STO WD 8 : Traders H6More than 5 years M42 to 5 years L2Internal audit carried out H6Manufacturing units like Okhla M4Traders L1Others like Naya Bazaar

Session 9.1-P-220 Control Risk Factors 5Work Load 6Previous Audit Experience STO WD 8 : Outstanding IIA Paras # of cases H M L2<800 H6DPs processed M4Outstanding IIA paras L2Others

Session 9.1-P-221 Control Risk Factors 7Non-production of records Records not produced H6>80% M440-80% L2<40%

Session 9.1-P-222 Methodology Selection of Ward STO WD 8 was selected Earlier annual now biennial unit –# of traders2278 –Total tax collections lacs –Consolidated weightage 14 Mainly traders Assessments for &

Session 9.1-P-223 Methodology Delhi Online Sales Tax (DOST) data is in Oracle 7.1 Imported in IDEA Different modules R.C. No as key field

Session 9.1-P-224 Methodology... Population of Running Dealers Inherent criteria were given weights 3 Categories of Dealers- –High –Medium –Low Random selection of sample

Session 9.1-P-225 Methodology... List of dealers to be audited –Name –Registration # –GTO Control Risk Medium

Session 9.1-P-226 Methodology n = Z 2 p(1-p)/E 2 where, n = sample size z = score p = proportion = 7/150 = No of IIA paras No of cases seen E = precision = 3%

Session 9.1-P-227 Sample Size : RangePoints# of dealersSample Size High>=1638 Medium Low< Total According to present system : 418 cases Sample size: 211 cases

Session 9.1-P-228 Sample Size : RangePoints# of dealersSample Size High>=1637 Medium Low< Total According to present system : 421 cases Sample size: 210 cases

Session 9.1-P-229 Documents in Dealer File RC Forms Issue Sheet Utilization Accounts Returns Challans Final accounts Sales Summary Forms furnished by Dealer ST Register Assessment Order

Session 9.1-P-230 Check List… IPurchases other than tax paid Allowed in RC Local + Central + Tax paid purchase = Purchases Purchases in Assessment record > Purchases in trading account Materiality = 0.5%

Session 9.1-P-231 Check List… IISale 1.First Point Purchase on ST 35-I & sold against ST 35 Purchase on ST 35 & sold on ST 35 Scheduled items sold on ST 35 Purchased on ST 35 & used in manufacturing of Tax free items Whether allowed in RC First point items sold on ST 1 Good purchased on ST 35 for trading and manufacturing interchanged Goods purchased on ST 35 transferred out of Delhi Materiality = 0.5%

Session 9.1-P-232 Check List… 2Tax Paid Items Purchased from Delhi Last point item sale Verified from Seller Materiality = 0.5% 3Last Point Item Transferred out of Delhi Payment of Tax claimed as tax paid item Materiality = 0.5%

Session 9.1-P-233 Check List… 4Sale against C form Dispatch particular S No of bills & tally with Sales Tax Register Materiality = 1.0% 5Sale against D form Dispatch particular Interstate sale Sale against D form to government department Materiality = 0.5%

Session 9.1-P-234 Check List… 6Sale against E forms Movement of goods Purchase on C forms Materiality = 0.5% 7Stock transfer Movement of goods F form not there then A.O., stock register, GR & copy of RC Materiality = 0.5%

Session 9.1-P-235 Check List… 8 Export (a)CA Certificates RBI permission Import/Export code # Exported & cleared in same year Certificate entries justified Export value realization Name & address of foreign buyer Shipping Bill Duly signed by CA & Assessee

Session 9.1-P-236 Check List… 8 Export (b)Documents in lieu of CA certificate Shipping Bill & Bank realization certificate Signed by Customs Sale of tradable license taxed Goods purchased against ST 49 or H forms Materiality = 1.0%

Session 9.1-P-237 Check List… IIIManufacturing Dealers Sale price includes excise duty Rate of Tax commodity Raw material purchases after payment of tax Materiality = 1.0%

Session 9.1-P-238 Check List… IVScrutiny of forms Declarations from RD Duly filled & signed by purchasing dealer –Bill details –Good sold details Purchasing dealer has RC for goods purchased Materiality = 0.5%

Session 9.1-P-239 Pilot Study Audit of STO Ward 8

Session 9.1-P-240 Pilot Study… Ms Enrich Agro Food –In the year –Tax not levied on a part of GTO –Tax effect = Rs lakh –GTO = Rs lakh –GTO not taxed/ Total GTO=2.38%

Session 9.1-P-241 Pilot Study… Ms Orient Paper Mills –In the year –Irregular grant of Exemption on defective forms –Tax effect = Rs lakh –Total amount of ST1 forms = Rs lakh –% of Value of defective ST 1 /Total Value of ST 1 =32%

Session 9.1-P-242 Pilot Study… Ms Star Paper Mills –In the year –Irregular grant of Exemption on defective forms –Tax effect = Rs lakh –Total amount of ST1 forms = Rs lakh –% of Value of defective ST 1 /Total Value of ST 1 =15.02%

Session 9.1-P-243 Sample Size Determine safety margin in view of non production of records

Session 9.1-P-244 Advantage Cases selected prior to audit Time saved Predefined Checks Checklist help less experienced to contribute Audit Assurance

Session 9.1-P-245 Constraints Reliability of DOST –No of Dealers as per DCR and Database not matching –Sale on “Central Form” not shown –Commodity not shown GTO figures are not always present Manpower constraints Introduction of VAT

Session 9.1-P-246 Thank You