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Saturday, 13 April 2013

Delhi Value Added Tax (DVAT) Audit Report – AR-1

By CA Ankit Gulgulia (Jain). Assisted by Rahul Gupta.
They can be reached at ankitgulgulia@gmail.com
 
There are twelve parts of audit report under Value Added Tax to be filed under the form AR-1 within seven and half months from the end of financial year for certain specified set of dealers and all parts of this report are mandatory for all auditees.
First of all let us know the conditions for applicability of Audit under VAT. The audit report and annexure therein are vast and includes significantly tedious volume of reporting.

As per notification no. F.7 (420)/policy/VAT /2011/1203-1213 dated 11.02.2013, every registered dealer whose gross turnover is Rs. 10 crore or above, would be liable to get his account audited and shall furnish audit report in Form AR-1 within seven and a half months from the end of the year but in case 100% export turnover, shall be relieved from furnishing audit report under VAT.
As per u/s 86(18) of Delhi VAT Amendment Act, 2013, in case the dealer fails to comply with the provision of audit, the dealer shall be liable to pay, by way of penalty, a sum equal to one percent of his turnover or sum of one lakh rupee, which is less.
As per under section 87(6) of Delhi Value Added Tax Amendment Act, 2013 If the persons voluntarily discloses to commissioner, in writing, the existence of the tax deficiency and make payment of such tax deficiency within three working days of the conclusion of the said proceedings; the amount of penalty otherwise due, against the admitted and paid tax, shall be reduced by 80%.
The auditor shall give complete and exhaustive information related to every observation.
Part – I – Auditor’s Report, Verification & Certification

  • As per part one, Audit report, verification and certification summary of additional tax liability, adverse comments and recommendations to the dealer, the auditor’s opinion, based on his audit on Central Sales Tax/VAT related records and financial statement, must be free from material misstatements and he believe that our audit provides reasonable basis for our opinion.      
  • The auditor shall provide the summary of the additional tax liability or additional refund due to the dealer on audit for the year.
Part -2 - General information about the dealer’s Business Activities

  • General information consists of period, accounting year, and registration under CST Act, Tan & Pan and Tin under DVAT Act.
  • Related Information under VAT Act
  • Related Information under CST Act
  • Business related information – It comprises-

  1. Whether separate books of account are maintained for Delhi office.
  2. Business Activities in brief
  3. Commodity details
  4. Address of the place of business of the dealer
  5. Name and versions of accounting software used
  6. Change in method of valuation of stock, accounting system and product line.

  • Nature & Construction of business.
  • Particular of bank account
Part – 3 – Details of Returns furnished under Delhi Vat and CST Act

  • The auditor shall furnish the details of Tax period, Due date of E – filing and Due date for filing Hard Copy.
Part – 4 – Computation of Turnover under DVAT Act

  • While conducting audit, the auditor shall compute the turnover under DVAT. Turnover includes taxable and exempted sales, value of consignment and job work etc.
  • Calculate exempted sales under the Delhi Act
  • Computation of Output VAT
Part – 5 – Computation of Turnover under Sales Tax Act

  • While conducting audit, the auditor shall compute the turnover under Sales Tax Act. Turnover includes taxable and exempted transaction, value of consignment and job work etc.
  • Computation of Central Sales Tax
Part – 6 – Purchases (Local and Central)

  • The auditor shall furnish the detail of Purchase of capital goods, Purchase of other goods eligible for input tax credit, Inter-state purchase, Purchases by SEZ /Diploma.
  • Break-up of purchases (Including Tax):

  1. Local Purchases
  2. Central purchases
Part – 7 – Sales against Declaration Forms

  • Inter-state Sales against Declaration Forms: Sales/Transfer against Forms-C, Forms- E I/II, Forms-F, Forms- H, Forms-I, Forms- J, Other (Specify).
  • Local Sales against Declaration Forms-H and other (Specify).
Any unsympathetic observations in respect of aforesaid, has been reported in Annexure-7. In case of monthly dealer, the above details regarding utilization of forms shall be provided monthly basis. The auditor shall certify whether all the terms & conditions for utilizations of statutory forms have been fulfilled by the dealer during the audit period.
Part -8 – Tax deduction at Source u/s 36A of DVAT ACT

  • The auditor shall provide the detail of amount of contracts awarded as contractee during the audit period and TDS deposited in time.
     Part – 9 – Financial summary and analysis (Delhi Activities Only)

  • It is very intricate part of AR-1 due to having a lot of analysis and summary about income& expenditure, capital& liabilities, assets and financial ratio.
     Part – 10 - Questionnaire  

  • In questionnaire, the auditor shall give his analysis in yes/no forms about:

  1. Gross Turnover
  2. Central Sales include export & import, penultimate export, branch transfers, subsequent sales, sales to diplomatic, sales out of Delhi, sales against Forms C
  3. Computation of Delhi VAT Output Tax
  4. Adjustment in Delhi VAT Output Tax
  5. Claim of Input Tax Credit
  6. Reversal of Input Tax Credit
  7. Computation of Tax
  8. For dealer engaged in Works Contracts
  9. For dealer engaged in the business of Composite Contract/Transactions
  10. For dealer engaged in Leasing Business
  11. Dealers who have opted for Composition Scheme
  12. Computation of Central Sales Tax
  13. Central Purchases
  14. Tax Deduction at Source
  15. Maintenance of Books of Accounts
  16. Filling of Information and Miscellaneous
Part – 11- Details of non-receipt of information and records required to conduct audit
Part – 12- Annexure forming part of part 1 to part 10     

  • No format for the Annexure has been specified.
The Auditor shall enclose the following Enclosures along with Audit Report:-

  • Statutory Audit Report with complete set of annexure including that of Related Party Disclosures as required under Accounting Standards 18.
  • Tax Audit Report under the Income Tax Act, 1961 with complete set of annexure.
  • Audited Balance Sheet, Profit & Loss Account/ Income and Expenditure Account.
  • In case dealer is having multi- state activities, the Trial Balance, Trading Account, and Profit & Loss Account for the business activities in the National Capital Territory of Delhi.   
The Auditor should plan the audit work to ensure high quality audit in an economic, well organized and effective manner.


Audit should ample acquaint itself with the internal control system to reveal your thoughts on the adequacy, fidelity and integrity of the systems and procedures. Not only the adherence to the internal control measures need be examined in audit but it should also provide a reasonable assurance that the adherence is not overridden by instances of collusion.
 
By CA Ankit Gulgulia (Jain) & Mr. Rahul Gupta. They can be reached at admin@gravita.in or ankitgulgulia@gmail.com.

The Author is Practicing Chartered Accountant in New Delhi and specializes in Indirect Taxation, Corporate Laws and Transfer Pricing


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