Sales Tax Update

VAT Audit compliance date extended

In response to a writ petition filed challenging Sec.61 of MVAT ACT , the Bombay High Court directed the date for furnishing the report to be extended up to 31 st march 2007. The Commissioner of Sales tax has issued circular no 9T of 2007 dt.29-01-07 on the lines of this direction. The date for filling revised return for correcting the discrepancies as per audit report is also extended to 30th April 2007. No legal action will be taken against the dealers who abide by the above mentioned revised deadlines.

The said Commissioner has requested that while filling Form 704, the corresponding TIN should also be shown in the right hand top corner of the front page to facilitate the department to update the dealer’s data . Dealers are also requested to submit their e-mail addresses at the time of filing the audit of report in form-704.

In areas other than Mumbai form 704 will be accepted in the office of the respective Joint Commissioner of Sales Tax (Adm). In the places where the office of the Joint Commissioner of Sales Tax is not located, it will be accepted in the office of the Deputy Commissioner of Sales Tax (Adm) or Assistant Commissioner of Sales Tax (Adm), as the case may be.

Urgent action – Appeal to all the registered employers under profession tax act by the State Government

All the registered employers are liable to deduct from the salary of the employees the prescribed profession tax and pay in the Government treasury. These employers are assessed under the provisions of Profession Tax Act, 1975. The Profession Tax Department has decided to assess most of the registered employers under summary assessment (assessment on the basis of returns). The employer who have filed or will file the returns for the periods upto 2005-06 on or before 28th February 2007 shall only be eligible (barring a few exceptions) for summary assessment. Therefore, appeal is made to all the registered employers, who have not filed their Profession Tax returns for the periods upto 2005-06, to file the returns on or before 28th February 2007. All the employers are also requested to submit the self attested copy of all the returns for the unassessed periods to the concerned Profession Tax Officer (even if returns are filed earlier) on or before 28th February 2007, so that the case does not remain unassessed for want of returns. The employers who do not take benefit of this opportunity, shall be assessed on the basis of books of accounts

The Circulars by Commissioner of Sales Tax

Cir No. 37 T of 2006 dt. 19-12-2006 – Amendment to P S I Schemes

Government had issued a Resolution dated:

29-7-2006 to amend the Package Scheme of Incentives – 1993 (PSI-1993), and Package Schemes of Incentives introduced prior to PSI-1993, in view of introduction of the Maharashtra Value Added Tax Act with effect from 1-4-2005. This circular gives instructions about procedural formalities .

Trade Circular No. 1 T of 2007 dated 3-1-2007 Taxation of Medicine

As per the provisions contained in Explanation IV to clause (25) of section 2 of Maharashtra Value Added Tax Act, 2002, the sale price for the drugs specified in entry 29 in Schedule-C is ‘maximum retail price printed on the package containing drugs’. The dealers in drugs and medicines are accordingly required to levy and collect tax on MRP printed on the package containing the drugs. It was clarified by the earlier circulars that only the manufacturers and importers need pay tax on their sales. The Department of Chemicals and Petrochemicals, Ministry of Chemicals and Fertilizers, Government of India has issued order No. 946(E) dated 26th June, 2006 making it mandatory for all the drug manufacturers to print maximum retail prices of medicine inclusive of all taxes w.e.f. 2nd October, 2006, for drugs manufactured on or after 2nd October, 2006.

As per this order, the MRP printed on the package containing drugs and medicines has to be inclusive of all taxes including sales tax or VAT. This has necessitated amendment in the M V A T Act.

Till such amendment is made this circular directs the manufacturers and importers of Drugs to pay taxes on MRP after claiming deduction in accordance with the provision contained in sub-rule (1) of rule 57 of the MVAT Rules, 2005. The instructions given in the earlier Trade circulars will continue to be applicable till the Act is amended.

Trade Circular No. 2T of 2007 dated 8-1-2007

This circular is regarding adjustment of amount of refunds under BST Act, 1959 against dues under MVAT Act, 2002. . Under the provisions of the Bombay Sales Tax Act 1959, a dealer was authorised to adjust refund due according to the returns furnished by him against the tax due and payable as per the returns furnished for any period. The Maharashtra Value Added Tax Act, 2002 provides for compulsory claiming of refund at the end of the financial year. The Financial year 2004-05 being the last year for Bombay Sales Tax Act 1959, a dealer was expected to claim the refund for the year 2004-05 under the repealed Act. that many dealers who had refunds due under the Bombay Sales Tax Act for the period 2004-05 have adjusted such refunds towards VAT liability in the Financial year 2005-06.

It was brought to the notice of the CST that due to lack of clarity, some dealers, instead of claiming the refund in the last return filed for the financial year 2004-05, adjusted it in the return filed for the subsequent period during financial year 2005-2006. Considering these facts, it is now decided by the Commissioner to permit such adjustments for the first year (i.e. 2005-06) as a special case. Where such adjustments have already been made, these will be accepted (subject to the confirmation of refund claim). However, it is to be noted that such adjustments after the issue of this circular will not be accepted.

Circular No. 3T of 2007 dt. 10-1-2007

Clarifications regarding Scope, purpose of refund audit and procedure to be followed, powers of the auditors and consequences of the defaults for Refund Audit under MVAT Act are given in this circular 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

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.

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.

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:-

1. 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.

2. initiation of penal proceedings for non compliance of statutory requirements under the MVAT Act.

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.

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.

Circular No. 4 T of 2007 dt 12-1-2007 .This is for Refund for the period from 1-4-2005 onwards.

1. Introductory

This office had earlier issued the above-referred Trade Circulars laying down procedure for grant of refund for the financial year 2005-06 and for part of the year 2006-07. The above circulars were applicable for the returns filed up to 31-7-2006. Grant of refund under this circular is admissible to only those dealers who have filed the return for any earlier period on or before 31st December 2006 and the application in Form 501 on or before 31-1-2007. The Return claiming the refund should have been filed with the respective return branch and the Form 501 is to be submitted to the concerned refund granting authority. The P.S.I. dealers can claim the refund under this circular also for the quarter ending 31st December 2006 if the return(s) along with form 501 is filed on or before 31st Jan. 2007. ) The dealers covered by section 8(3) of the MVAT Act ,2002 can also claim the refund under this circular for any subsequent period during 2006-07 as per the conditions of this circular only.

The application for the refund must be made in Form 501. For dealers situated in Mumbai, the application is to be made to the Officer-in-charge of VAT Refunds [Joint Commissioner, Refunds], Vikrikar Bhavan, Mazgaon, Mumbai-400 010. For dealers situated outside Mumbai, the application should, at present, be made to the Officer-in-charge of VAT refunds in the jurisdictional Sales Tax Office. The Annexure to the Form 501 provides for details regarding the purchases made and details regarding the suppliers. This information should, as far as possible, be provided in both hard copy as well as a soft copy format, which may be submitted along with the application in Form 501. Section 51 of the Act authorises the departmental authorities to ask for additional information [other than that provided in Form 501] before grant of refund under section 51. The departmental authorities may, at their option, depending upon the individual case, decide to either conduct a refund audit or call for additional information or grant a refund without calling for any additional information or the refund granting authority, with approval of the concerned Jt. Commissioner of Sales Tax, may ask for the bank guarantee for grant of refund.

Refund under this circular shall be granted only to those dealers whose returns are correct, complete and self-consistent and application for refund in Form 501 is made to the concerned refund granting authority on or before 31 st Jan 2007

The details about the extent to which the refund shall be granted is stated in the circular.