1. Seminar on New MVAT Audit Report – Form 704
Organised by
Mulund CA CPE Study Circle
of WIRC of ICAI
Presentation by
Rajat Talati
chartered Accountant
CA Rajat Talati, Mumbai
CA Rajat Talati, Mumbai

2. Overview The new MVAT Form 704 is divided into three parts –
Part – I deals with audit & certification
Part – II deals with general information
Part – III are the schedules of turnovers and tax calculations and annexures
Effectively assessment of turnovers and tax liability / refund
CA Rajat Talati, Mumbai

3. Instructions
No enclosures unless prescribed or essential for furnishing information
All boxes / fields to be filled in
For multi-state activities GP & NP ratios to be given on all India basis. All other ratios at state level only.
Tax liability to be computed “as required by law” where documents not available or are insufficient.
Auditor to sign and seal all pages
CA Rajat Talati, Mumbai

4. GENERAL POINTS Instruction No. 9 in Form 704 at Pg. 1:
Link with returns
Part 3 of Report, linked with Type of Return filed
Return filing instructions, applicable to report
Auditor shall follow Return Instructions for filling Schedules of Audit Report
Only PDF form
No space for additional info. /observations
CA Rajat Talati, Mumbai

5. GENERAL POINTS
Fill up only relevant/ applicable Sch of Part 3 & Annexure (ref. note 6)
Non applicable Schedules - need not be printed – give note
Auditor ‘must’ give his remarks in table 3 of part I
must??? Not possible to ascertain precise reason for every difference
CA Rajat Talati, Mumbai
CA Rajat Talati, Mumbai

6. GENERAL POINTS
Remark for Short Comings/ Deficiencies in Compliance of law:
i.e. shortages, Incomplete, Improper, Incorrect Data or Document.
In brief or In detail (if required)
Report at Table-3 in Part 1 giving reference of Row & Column of relevant Schedule
CA Rajat Talati, Mumbai

7. Audit & Certification
Clause 1: Report about “statutory” audit under “IT Act, 1961”
“statutory” audit will cover only companies, trusts, societies, statutory bodies, etc.
Intention to cover dealers not covered under any statute, viz individuals, HUFs, firms, etc
Some dealers may not be liable to any audit other than MVAT audit
Clause 2: Scope limitation clause
Responsibility of management for maintenance of books and records.
Auditors’ responsibility to express an opinion on “sales tax related records” and “financial statements”
CA Rajat Talati, Mumbai

8. Audit & Certification
Application of AAS and conduct of audit to “obtain reasonable assurance that records and financial statements are free from material mis-statement(s)”
Application of test checks
Assessment of accounting principles and estimates and evaluating over financial statement presentation
Clause 3(A): Details of dealers and returns verified
Clause 3(B): certifications
Auditor has read and understood the instructions
All information and explanations have been obtained
Books, documents and records are sufficient for verification of returns
Records relating to movement of goods properly maintained.
Tax invoices issued are in accordance with provisions
CA Rajat Talati, Mumbai

9. Audit & Certification
Gross turnover of sales declared in returns includes all transactions of sales
Gross turnover of purchases declared in returns includes all transactions of purchases.
Adjustments of turnover is based on entries in books and documents
Deductions from turnovers is supported by documents
Adjustments / deductions not claimed in returns are not required or authorised.
Rate of tax applied on sales is correct and computation of tax payable is proper
Computation of set off and adjustment is correct
Computation of CQB is in conformity of the provisions
CA Rajat Talati, Mumbai

10. Audit & Certification
Tax payable / refund claimed in returns is correct
Other information provided in returns is correct
Dealer is conducting business from place(s) declared by him as his main place and additional places
Entries in bank statements have been reflected in books
Transactions in books are fully reflected in bank statements
Whether the dealer has maintained stock register?
Whether proper records of receipts, despatch and delivery of goods are maintained?
CA Rajat Talati, Mumbai

11. Audit & Certification
Clause 4: Computation of tax liability and CQB and differences.
Clause 5: Advise to dealer
Pay additional tax or repay refund received
Claim additional refund or reduce claim
Reduce tax liability
Revise closing balance of CQB
Any other recommendation
Clause 6: Details of differences for each figure in schedules
Remarks on non-compilance, short comings and deficiencies.
CA Rajat Talati, Mumbai

12. Audit & Certification
Sr. No
Particulars
As per Returns (Rs.)
As per Audit (Rs.)
Difference (Rs.)
Report, Remarks & Observations for each difference found in amt as per Return and Audit
Remark means “comment, noticeable point, observation, opinion, statement, note.”
Remark for Non-Compliance of provisions of MVAT/CST law w.r.t e.g. Returns, Exemptions, Computation of Turnover, Tax Rate, Set-off claims, Record, etc.
CA Rajat Talati, Mumbai

13. General information – to be collected from dealer
Details of divisions and units for which separate books are maintained.
Names and version of accounting software
Major changes during the year
Address where books of accounts are kept
Whether profession tax returns filed and payment made
Whether profession tax enrollment has been paid
Financial ratios / information for current and previous year with reasons for change.
GP : NP
NP : NTO of sales
CA Rajat Talati, Mumbai

14. General information – to be collected from dealer
Net sales in Maharashtra
Cash sales : total sales
Cash purchases : total purchases
Local sales : net sales
Inter-state sales (excl. exports) : net sales
Exports : net sales
Set off : net sales
Tax : net sales
Opening stock including WIP
Closing stock including WIP
Closing stock : net sales
CA Rajat Talati, Mumbai

15. General information Details of bank accounts with BSR code
Details of activity code number of the dealer
Details of new local suppliers for purchases exceeding Rs.5 lakhs on which set off was claimed
CA Rajat Talati, Mumbai

16. Part 3/ Sch I- Normal VAT Dealer
Computation of Sales Turnover:
1a. GTO of Sales= Total Sales & Service Income
Net T.O.+ Tax Collected+ Lab chs+ job work chs+ stock transfers
Sec 2(33) ‘T.O. of sales’= Sales- G/R –Deposit/R
Sec 2(25) ‘SP’ = SP-Tax collected
Sec 2(24) ‘Sale’ = Sale of goods (it does not include labour/ service chs)
GTO of Sales in Audit Report is assigned a specified coverage.
CA Rajat Talati, Mumbai

17. Part 3/ Sch I- Normal VAT Dealer
1b Less: TO of Inter-State sales & stock transfers covered under other Schedules
(TO+ Tax) which is covered & reported in Other Schedules i.e. II To V (not CST Sch VI)e.g. Restaurant, Bakery, PSI Unit, etc.
1c. Balance: Balance TO (1a-1b)
Balance TO relevant to this Schedule
CA Rajat Talati, Mumbai

18. Part 3/ Sch I- Normal VAT Dealer
1d Less: Allowable Credit Notes issued for goods returned/ discount/ rate difference
Net TO + tax as per CN / 6 months for G/R, Sales Cancellation/ Rejection, DOC evidence, Entries in accounts Ignore non allowable credit notes.
1e Less: Net VAT amount
Tax collected separately
Tax element as per Rule 57(1) where tax inclusive.
CA Rajat Talati, Mumbai

19. Part 3/ Sch I- Normal VAT Dealer
1f Less: Local Stock Transfer within Maharashtra on which Agent pays tax.
Stock Transfer Memo ,Dispatch proof
Agent’s Confirmation (for TIN, T.O. & Tax paid)
VAT paid challan copy
1g Less: Sales under Section 8(1), (Taken in Schedule VI)
CST Act T.O. (Exports, Form H, Inter state sales & High Seas Sale)
Inter state stock transfer.
CST collected.
CA Rajat Talati, Mumbai

20. Part 3/ Sch I- Normal VAT Dealer
1h Less: Sales of Tax Free goods
Schedule A goods (e.g. Agricultural Implements, (notified), books & periodicals, etc.
1i(i) Less: Sales fully exempt u/s 8(2) as per Notification
Sales of fuel & lubricants to Foreign Aircrafts
CA Rajat Talati, Mumbai

21. Part 3/ Sch I- Normal VAT Dealer
1i(ii) Less: Sales fully exempt u/s 8(3)
Sales of specified goods, interse between SEZ, STP, EHTP, EOU.
1i(iii) Less: Sales fully exempt u/s 8(3A)
Sales based on Import & Export Policy
1i(iv) Less: Sales fully exempt u/s 8(3B)
Sales by CSD / INCS to members of armed forces, etc.
CA Rajat Talati, Mumbai

22. Part 3/ Sch I- Normal VAT Dealer
1i(v) Less: Sales fully exempt u/s 8(3C)
WC for Textile Processing
1i(vi) Less: Sales fully exempt u/s 8(4)
Sales by PSI Unit following Exemption Route.
1i(vii) Less: Sales fully exempt u/s 41(4)
Sales of Motor Spirit & Petroleum products, interse between Oil Cos. & Motor Spirits sold in retail by Petrol Pumps.
Note: Returns do not have the exempt Sales T.O. under different sub sections of Sec 8.
CA Rajat Talati, Mumbai

23. Part 3/ Sch I- Normal VAT Dealer
1j Less: Job work/ Labour chs
Pure labour/ service chs.
No material involved
1k Less: Other allowable Reductions/ Deductions
Transit Insurance chs collected
Installation chs collected
Resale of goods manufactured by exempted PSI Unit, as per Rule 57(2)
CA Rajat Talati, Mumbai

24. Part 3/ Sch I- Normal VAT Dealer
Rent for immovable property
Interest/ Dividend Income
Commission Income, if included in GTO of sales
1l Balance Turnover
Taxable Net Sales T.O.
CA Rajat Talati, Mumbai

25. 2 Computation of Tax Payable under MVAT Act
Tax Rate
As per Returns
As per Audit
Difference
T.O.
Tax
12.5% 4% 1%
….%
CA Rajat Talati, Mumbai

26. 2. Computation of Tax Payable under MVAT Act
Difference assumed to be in Tax Amt
Goods sold as per Notification u/s 8 liable to 4%, be shown here.
Reference of relevant Schedule Entry, not asked for.
CA Rajat Talati, Mumbai

27. 2. Computation of Tax Payable under MVAT Act
2A Excess Tax Collected
*Refunded to customer
*Else forfeiture, so payable
(Excess Tax Collected, if refunded to buyers before passing of Forfeiture Order, then Forfeiture issue does not arise- Transelektra Domestic Prod. Ltd. SA 402/ 2002/ ).
CA Rajat Talati, Mumbai

28. 3. Computation of Turnover of Purchase including Branch Transfer
3a: Total turnover of Purchases
Corollary of Sales
3b: Less: T.O. of Purchase Covered under Schedule II to V
Exclude purchase not relevant for this Schedule.
3c Balance T.O.
(3a-3b)
3d Less: Goods Returned, Rate Difference., Discount.
Allowable Debit Note/Credit Note
Time Limit of 6 months
Separate Tax Element
CA Rajat Talati, Mumbai

29. 3. Computation of Turnover of Purchase including Branch Transfer
3n Less: Local RD Purchase of Taxable Goods Not supported by Tax Invoice
Where Tax not shown separately in Invoice
3o Balance: Local Purchase Supported by Tax Invoice.
Refer Annexure I
CA Rajat Talati, Mumbai

30. 3. Computation of Turnover of Purchase including Branch Transfer
3P(i) Local RD Pur. Supported by Tax Invoice, but Not eligible for setoff u/r 54
Eg: Passenger Motor Vehicle, IPR, WC related to Immovable Prop.,etc
(Annexture I, Pt.no.2)
3P(ii) Local RD Pur. Supported by Tax Invoice, but Liable for Retention u/r 53
Eg: Fuel, Furniture & Fixture, Office Equipments, etc.
(Annexure I, Pt.no.4)
CA Rajat Talati, Mumbai

31. 3. Computation of Turnover of Purchase including Branch Transfer
3P(iii) Local RD Pur. Supported by Tax Invoice, Eligible for Full Setoff
Eg: Plant & Machinery, Raw Materials, Packing Materials, etc.
Mismatch between data under col. 3P & Annexure I
How to give Data when affected by rule 53(2),53(3), etc?
CA Rajat Talati, Mumbai

32. Annexure I to Schedule 1 Computation of Setoff :-
`1A Details of Tax Paid Purchases of Inputs, Raw Material, Business Expenses, Packing materials, etc.
Tax
As per Returns
As per Audit
T. O.
Tax
Total Rs.
CA Rajat Talati, Mumbai

33. Annexure I to Schedule 1 Computation of Setoff :-
1B Details of Tax paid on Capital Assets
(i.e. Plant & Machinery, Furniture & Fixtures, Office Equipments, etc.)
Data as Above
1C Total of 1A & 1B – Data as Above
CA Rajat Talati, Mumbai

34. Annexure I to Schedule 1 Computation of Setoff :-
2. Details of Tax Paid on purchases, Not eligible for Setoff u/r 54:
Data as above
E.g. Software for self use, copy right
3. Details of Tax Paid on Purchases Eligible for Setoff:
4. Details of Tax Paid on Purchases, Liable for Retention u/r 53:
CA Rajat Talati, Mumbai

35. Annexure I to Schedule 1 Computation of Setoff :-
5. Details of Allowable Setoff i.e. Total of 3 – Total of 4
As per Return
As per Audit
Difference
Total Setoff Rs.
CA Rajat Talati, Mumbai

36. 4. Computation of Tax Payable :
Aggregate of Credit Available
Return
Audit
Diff. 4B
Sales Tax Payable & Adjustment of CST/ET 4C
Net Tax Payable/ Refundable 4D
Details of Amount Paid with Returns & Challans 4E
Details of RAO
CA Rajat Talati, Mumbai

37. 5: Details of TDS Deductible/Deducted by Dealer as Employer
Period of Form 405
TDS Deductible
TDS Deducted
TDS Paid
Paid Date
Interest Payable
Total Rs.
Note: Period-wise & Party-wise TDS liability, with Interest.
6. Determination of TO of Purchases & sales If reqd. reconciliation of Sales & Purchases : Returns / Profit & Loss A/c / Computed in Audit.
CA Rajat Talati, Mumbai

38. Audit Report Part 3- Sch VI- CST Sales Computation of CST
Sr. No
Particulars
As per Returns
As per Audit
Difference
1 GTO of sales
1a less: Local Sales
1b less: Interstate sales u/s 6(3)
Sales of any goods under Form ‘J’ (to collect transaction wise) to Foreign Diplomats or Foreign Consulates in India or United Nation, etc.
CA Rajat Talati, Mumbai

39. Computation of CST 1c less: Goods Returned u/s 8A(1)(b)
Within 6 months
Credit Note
Entries in Accounts
1d less: T.O. of sales outside the State
Out & Out sales
CA Rajat Talati, Mumbai

40. Computation of CST 1g less: Interstate Stock Transfer u/s 6A
To own Branch/ Agent
Stock Transfer Memos
Dispatch Proof
Form ‘F’ (One per month)
CA Rajat Talati, Mumbai

41. Computation of CST 3 Balance: Taxable Interstate Sales
2 Balance: Interstate Sales effected from Maharashtra
3 Balance: Taxable Interstate Sales
4 less: Tax Deduction u/s 8A(1)(a)
Tax collected separately or inclusive
5 Balance: Net Taxable Interstate Sales (Col.3-Col.4)
CA Rajat Talati, Mumbai

42. Computation of CST Tax @ Returns Audit Diff. T.O. Tax 2% 3% 4% Total
6A Sales Taxable Under Form ‘C’ (u/s 8(1) or 8(5)):One Form ‘C’ per Quarter)
Returns
Audit
Diff.
T.O.
Tax 2% 3% 4%
Total
CA Rajat Talati, Mumbai

43. Computation of CST 6B Sales Taxable without Form ‘C’ (u/s 8(2))
Table as above for difference, give Remark
w.e.f , local VAT rate applicable in State.
Instruction Note No. 8 for Form 704; Insufficient/ No doc., then tax ?
6C Tax Collected in excess of tax payable –
Penalty u/s 10
CA Rajat Talati, Mumbai

44. CST Payable & Paid 9 Balance CST Payable (7e – 8e) OR
10 Balance CST Refundable (8e – 7e)
11A: CST paid with Returns/ challans:
Period
Form of Return (III E)
Amt. paid
Paid date
Due date
Interest payable
From To
Total Rs.
11B: RAO Details
RAO No.
Amt. adj.
RAO Date
Total Rs.
CA Rajat Talati, Mumbai

45. Pending CST Forms 12: Pending Form List ( C / H / I / J / E-I / E-II )
Sale Inv. No.
Inv. dt.
Net Taxble (Rs.)
Type of Form
Descpn. Of Goods
Sch. Entry
Diff. CST
Total Rs.
13: Pending Form ‘F’ for Stock Transfers:
Trf. Memo No.
Memo dt.
Net Taxable (Rs.)
Description of goods
Sch. Entry
Differential CST
Total Rs.
CA Rajat Talati, Mumbai
CA Rajat Talati, Mumbai 45

46. 14. Other Observations in CST
e.g. Incomplete or Invalid Form C/H/F, etc.
Encl: 1) Income Tax Audit Report & Annexures
2) Audited P&L A/c, B/S & Annexures
CA Rajat Talati, Mumbai

47. Reporting Done Away with in New Form
List of Record/ Registers verified.
In case of Works Contract, Opted for Composition or Vat provisions.
Observations for delay in filing Returns or tax payments
Method followed for valuation of Stock Transfers.
Reference of Sch. Entry, qua sales of Tax Free/ Taxable goods.
Reference of documentation & operating procedures, qua exports, imports, sale in transit, stock transfers, etc.
CA Rajat Talati, Mumbai

48. Reporting Done Away with in New Form
Contraventions of purchases under Form ‘C’.
Details of purchases from URD, of Rs. 10,000/- or more.
VAT TDS record maintenance, issue of certificates, Party wise details of transactions liable to TDS, but not deducted (Period wise TDS deductible shall be reported)
Pending forms E-I/ E-II.
Number of CST Forms collected & utilized.
Enclosure of Statutory Audit Report (IT Audit Report shall be enclosed)
CA Rajat Talati, Mumbai

49. THANK YOU ALL
QUERIES?
CA Rajat Talati, Mumbai