VAT AUDIT CAUSES AND CONSEQUENCES

What is Sales Tax??? 

 

Sales tax is levied on the sale of movable goods. Most of the Indian States have replaced Sales tax with a new Value Added Tax (VAT) since 2005. VAT is a state levy. VAT is applied on each stage of sale with a mechanism of credit for the input VAT paid on purchases.

The system of VAT is based on the self-assessment and declarations made by the Dealer. In other words, the dealer is supposed to calculate his sales tax liability and file periodical returns as applicable to him and pay taxes accordingly.

Statutory audit provision introduced by the state which helps them in determining the under assessment made by the dealer if any, and thereby requiring for additional payment of tax is known as VAT Audit.

So now question arising would be what is Sales tax Audit & to whom it is applicable??

Sales tax audit is applicable to a dealer holding a valid registration certificate of MVAT and liable to pay tax and his turnover, either of sales or purchases, exceeds Rs. 60 Lakhs during the Financial Year. However the turnover limit for compulsory audit under the MVAT Act, from the Financial Year 2013-14 is increased from INR 60 lakhs to INR 1 crore.

So it is mandatory to file Audit Report in form 704 if dealer is in above criteria, as it helps the department to emphasize more on correctness and accuracy of the tax liability of the dealer based on his books of accounts. This form 704 needs to be filed before the prescribed due date by the dealer.

What if VAT Audit Report not filed???

Dealer can be charged penalty equal to 0.1% of Turnover of Sales or Purchases and can be prosecuted for imprisonment for 6 months.

Sales tax department has published a list of dealers called as Nonfilers, who have failed to file the VAT Audit Report, which affects the goodwill of the enterprise or company. 

 

Vat Audit report not filed earlier can be filed now???

Yes!! Vat audit report can be filed for all years under non-compliance. Levying of penalty would be discretionary depending on the justifications submitted to the Sales tax Department after filing of Vat Audit report.

Dealers who have not filed their VAT Audit reports should be taking Immediate decision to comply, which in turn will help to reduce the penalty if done upfront.

Please feel free to contact us or drop a line, if you require any help for the above issues.