Discussion On Value Added Tax, Karnataka - Accretive.com

Discussion on Value Added Tax, Karnataka Accounts, Documentation and Returns

Badrinath NR Accretive Business Consulting Private Limited

Introduction Discussion on:  Accounts and documents to be maintained by dealers under the provisions of Karnataka Value Added Tax Act, 2003  Returns to be filed as prescribed under the Act  Assessment proceedings

Accounts & Documentation

Accounts and Documents Some questions:  What constitutes books of account?  How should such books be maintained?  What are the formats in which such books are to be maintained?  How should the transactions be recorded in the books of account?  What is the relevance of maintaining the books of account?  Where should be books be kept / stored?  For how long should such books be preserved?  How should adjustments to the entries made, if any be recorded and documented?

Relevant Provisions 

The provisions are contained in Chapter IV of the VAT Act read with Part III of the VAT Rules

Books of Account 

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Records of purchases, receipts, sales, other disposals, production, manufacture and stocks Sales and Purchase Invoices VAT Account containing details of input and output tax Credit / Debit Notes Bills for purchase from unregistered dealers Copies of contracts entered into with customers Details of deductions claimed in computation of taxable turnover To be recorded as soon as the purchase / sale is made

Maintenance of books of account 

Every registered dealer liable to pay tax is required to maintain true and correct accounts in Kannada, Hindi, English or any of the languages notified by the Government

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Commissioner is empowered to notify registered dealers to maintain accounts in specified manner

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The dealers who maintain accounts and other documents electronically are required to retain them in electronically readable formats >

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Such records shall be maintained in paper printed on a monthly basis

Any changes in manual books to be made under an attestation >

Any changes in books maintained electronically must be supported by a record of correction

Formats 

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True and correct account of purchases, receipts, sales, other disposals, production, manufacture and stocks > No formats or contents prescribed Transactional documents (contents prescribed) > Tax Invoice > Bill of Sale > Bill > Delivery Challan > Credit / Debit Notes Registers > Form VAT 170 prescribed as purchase register > Other transactions (no formats prescribed)

Registers 

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Should be comprehensive to include every detail of receipt or dispatch of goods To facilitate reconciliation with returns / financial records To identify readily, deviations if any from routine transactions To include details which may be required at the time of assessments and appeals To facilitate desk review of transactions and computation of taxes including input credits

Registers  Purchase register  Sales register  Returns register > Purchase returns > Sales returns  Inter-State non-sale dispatches (Suggested formats attached to this presentation)

Other Registers Works Contracts  Particulars of names and address of the persons for whom works contracts are executed  Particulars of goods procured (purchase or otherwise) for use in execution of works contract  Particulars of goods utilised in execution of works contract  Details of payments received in respect of each works contract

Transactional Documents     

Tax Invoice Bill of Sale Bill Debit / Credit Notes Delivery Challans

Sales Invoices Tax Invoice  Intra-State sale of taxable goods  Intra-State sale of taxable and exempted goods Other relevant provisions  Exception – if the value is less than the notified amount  Separate provisions for civil works contracts  Invoices to be raised for advance received  Should be raised within 14 days from date of dispatch

Bill of Sale  Intra-State sale of exempted goods  Inter-State sales  Exports  Sales under Composite Scheme  Sales under Special Accounting Scheme

Other Documents Bill 

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Intra-State purchases from unregistered dealers To be prepared by the buyer of goods and preserved as part of books of account

Credit / Debit Notes  Adjustments to price of goods indicated in the sale / purchase invoices  Purchase or sales returns

Other Documents Delivery Challan  In Form VAT 515 (in lieu of Form VAT 505)  Format, No. of copies, Printing should be as prescribed  Register in Form VAT 520

Comparison Sl. No.

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Contents

Header Name and registered address Registration Nos Serial numbering Document date Date of sale Name of the customer Address of the customer Registration no. of the customer Time of sale of goods Description of goods Quantity Amount Rate of tax charged Amount of tax Total amount Signature of authorised personnel No. of copies Indication for no. of copies Tax invoice number Tax invoice date

Tax Invoice

Bill of Sale

Dr / Cr notes

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BILL OF SALE     

Nature of document    

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       2 

       2 

 2   

Recording of Transactions 

Guidance Note issued by ICAI for CENVAT Accounting > >

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Net method Gross method

Guidance Note on accounting for State VAT is yet to be issued

Scheme of Entries 

Tax component to be identified and captured separately > >

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Cost of purchase to be proportionately reduced Recorded under Current Assets Valuation of stock – not to include tax credit

Relevance of Maintenance 

In addition to ensuring compliance under law, the maintenance of books of account would be important for: > Supporting the deductions to be claimed in computation of taxable turnover, such as,  Discounts  Labour and other like charges  Sales returns  Inter-State non sale dispatches (stock transfers)  Work executed by sub contractors > Claim of input tax credits > Supporting the adjustments to be made in computation of input tax credits

Storage of Books of Account 

Shall be maintained at the place of business of the dealer > Place of business means any place which is entered in the certificate of registration > Where multiple offices / godowns are operated, subsidiary stock accounts to be maintained for each location

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Should be preserved for a period of 5 years from the end of the year to which it relates > In cases where assessments are yet to reach finality – till the completion of such assessments > Where any appeals are pending – till such time the appeal is heard and finally disposed off

Other Records 

TDS certificate > Works contractor  Certificate in Form VAT 156  Register in Form VAT 157 > Caterer  Certificate VAT 158  Register VAT 159

CST Statutory forms prescribed under the CST Act  Form C – Purchase at concessional rate of tax  Form F – Stock Transfers  Form H – Penultimate Exports  Form E1 / E2 – Sale in Transit To be submitted to the LVO within 3 months from the end of the relevant quarter

Non-Maintenance of Books 

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Books of Account / submission of copy of customer contract: > Not more than Rs. 2,000 if the failure is 1st during the relevant year > Rs. 5,000 if the failure is 2nd or subsequent during the relevant year (+) Rs. 200 per day of default Tax Invoice: > Rs. 2,000 or the amount of tax – WEH (if the offence is the 1st during the relevant year) > Rs. 5,000 or the amount of tax – WEH (if offence is committed for the 2nd or the subsequent time during the relevant year)

Returns

Relevant Provisions 

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Monthly Returns: > Form – VAT 100: Within 20 days from the end of the relevant month > Form – VAT 120: Within 15 days from the end of the relevant month in case of composite scheme Annual Returns: > Form – VAT 115: Within 60 days from the end of the year > Form – VAT 135: Within 60 days from the end of the year in case of composite scheme Statement of tax deduction at source > Works contracts – Monthly Statement in Form VAT 125 (20th of the next month) > Caterers – Monthly Statement in Form VAT 126 (20th of the next month) Audit Report > Form VAT 240 – 9 Months from the end of the year Calendar of due dates attached to this presentation

Filing of Returns 

No enclosures / attachments prescribed for the Returns >

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Other than statutory forms to be furnished

Due date in case where the last day is a government holiday >

Would be the next working day

Preparation of Returns Factors for consideration:  All transactions during the relevant month  Application of partial rebating and special rebating scheme > Reapplication of partial rebating scheme for cumulative figures in September and March every year  Exemptions / Deductions > Appropriate disclosure to include in gross and indicate separately deductions / exemptions  Signature by authorised signatory only  Period for claim of input tax credits / deductions

Input Credits & Deductions 

At what point of time can the claim be made for: > Input credits > Deductions from taxable turnovers

Relevant factors:  Recording in books of account?  Furnishing details in the relevant returns?  Fulfillment of specified conditions?

Non Filing by due date Interest at 1.25% /month or part of the month - If the omission is rectified by filing of revised return after more than 3 months from the date on which the tax was due

Penalty Returns & Payment  Upto 5 days > Rs. 50 / day  Beyond 5 days > Rs. 250 or Equivalent Amount of Tax – WEH Additionally, 10% of the tax due – payable as penalty

Short Payments  10% of the short payment > If the short payment is beyond 5% of the total tax due Incomplete Returns  Rs. 50 per day of default

Due Dates Monthly Return (Form VAT-100) Monthly Return (Form VAT-120)

20th 15th

Annual Return (Form VAT 115) Annual Return (Form VAT 135)

30th May 30th May

Revised Returns - Monthly - Annual

6 Months 31st Dec

Remittance of Net Tax Remittance of TDS Tax on purchases from URDs Submission of Statutory Forms (CST)

20th 15th / 20th? 20th 3 Months from the end of the quarter

Tax Invoice

14 days

Audit Report

31st Dec

Retention of Accounts & other documents

5 years

Other Filings   

Final Return in case of closure of business Declarations / certificates in case of agency transactions Composite Scheme filings for traders, hoteliers and others Not discussed in this session

Reconciliation 

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Statutory records in most cases are maintained as subsidiary ledgers Periodic returns are populated based on information contained in the subsidiary ledgers Subsidiary ledgers could be decentralised and independent of the financial records

Calls for periodic reconciliations

Certain Factors 

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Comprehensiveness to ensure inclusion of all transactions for the relevant period Reconciliations to be focussed towards deriving information to identify areas for applying further substantive checks All details may not readily be available as part of the financial accounting system / inventory software

Formats 

Certain formats suggested based on inclusive method of reconciliation using the top down approach >

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Sales / Dispatches Purchases / Receipts Attached to this presentation

Assessments

Assessments 

Concept of assessment has been done away with under the VAT law > Assessments are deemed to be completed based on the returns filed by the dealers > Exception: Where the Commissioner notifies production of records / documents before the prescribed authority

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If the dealer has multiple places of business within the State: > With consent of the dealer, the Commissioner may treat each of such places as a separate unit for the purposes of the VAT law, including registrations, returns, assessment etc. > Circumstances in which this may be invoked

Other Provisions Best Judgement Assessment  If no return/s are filed by the dealers, the LVO may assess the dealer to the best of his judgement based on the information / details available  If the dealer files a return within 1 month from the date of BJA, the order may be withdrawn by the LVO. However, interest and penalty payable

Re-assessment  If the return furnished by the dealer understates the tax liability  Reassessment (based on best judgement) may be made based on additional evidence available  If any further evidence is discovered, further reassessments may also be made Govt Departments: Upon inspection, if any details are found to be incorrect, the Dept to be directed to rectify the mistake

Timelimits Assessment  To be completed within 5 years from the end of the tax period > Tax period would be the relevant month for which the return is filed Re-Assessment  To be completed within 3 years from the date of obtaining evidence for making the reassessment

WEL Extended period of 10 years would be applicable in case of fraudulent evasion of taxes

Protective Assessment 

If the LVO has reason to believe that the dealer would default in payment of taxes due on a subsequent date > LVO may make a protective assessment with the permission of the JC / Ad C > Taxes would be payable forthwith > Order may be withdrawn within 30 days (suo-motu or based on a application from the dealer)

Rectification 

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All orders other than the Court / Tribunal may be rectified > On the basis of an order of the Court > If such orders are found erroneous or prejudicial to the public revenue May be rectified within 3 years from the date of the judgement / order of the Court > If the order of the Court states that a different set of provisions would be applicable to the set of transactions, the limit would be 5 years (notwithstanding the timelimit of 3/5 years prescribed for assessments)

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