IMPACT OF INDIRECT TAX ON DIFFERENT AUDITS

Transcription

1 IMPACT OF INDIRECT TAX ON DIFFERENT AUDITS By CA Madhukar N Hiregange

2 TOPICS COVERED Impact of IDT on Various Audit Impact of IDT on Profitability

3 Emphasis in Statutory Audit Enhanced responsibility on Chartered Accountants- New format of Audit report Auditor report which usually deals with, The preparation of Financial Statements based on the generally accounting policies Disclosures as per CARO ( Disputed issues, pending at various stages) The applicability and compliance of the Accounting Standards

4 Emphasis in Statutory Audit - Conti Method of accounting turnover (Inclusive method or exclusive method) Notes to accounts- (Foreign payments- ST) Comments on Going Concern Qualification of Auditor, if any

5 Impact of IDT on Statutory Audit IDT has a direct impact on profitability If IDT (CE/ST/VAT) not collected/ short collected for various reason. Impact of IDT would be 17% or 27% on turnover, whereas the profitability may be around 3 to 5 % Demand for 5 years +Interest +Penalty If the demand is confirmed, profits get eroded + GOING CONCERN assumption is questioned.

6 Aspects to be checked in Statutory Audit, impacting IDT New Income Tax Audit Report VAT Audit Report TDS Returns under Income Tax Act Internal Audit reports and Management reports Records- Sales, credit register etc Customer and vendor confirmations Many more

7 Aspects to Check in Statutory Audit Examine the major agreements, to ascertain the nature of service rendered. If not sure client to take opinion In case of dispute, check principles of going concern is effected or otherwise List down the disputed cases + legal consultants view + probability of confirmation of demand + amounts involved in the case

8 Impact of IDT on Internal Audit Mostly done for the satisfaction to the management Check the controls and test the controls Assures management if controls are in place An assurance to statutory auditor. Builds a moral check, as to being monitored by an independent person.

9 Aspects to be verified in Internal Audit Tax optimization with good accounting system- (AMC Contracts, software) Check regular availment of eligible credits ST payment on import of services in cash Documents based on which credit availed Working papers for preparation of ST-3 returns Knowledgable person interacting with department, during audit

10 Aspects to be verified in Internal Audit Reconciliations b/w Cenvat credits in books and ST-3 returns Reconciliation of difference between sales register and ST-3 returns Timely and regular replying to departmental queries In case manual A/c entries, in computerized environment, check for authorization from higher ups.

11 Impact of IDT on Tax Audit System of computing the correct amount of tax payable Ensure taxes paid are in terms with various tax laws Ensuring reco of ALL tax as per books & as per return Checking of regular deposit of tax with exchequer

12 Aspects to be verified in Tax Audit 3CA, 3CB Other relevant documents 3CD -> Point 4- IDT- Liability Customs, Central/ State Excise, VAT/ CST, Service Tax, Entry Tax/ Octroi, Profession Tax, Luxury tax, Entertainment tax. -> Point 16 FTP benefits -> Point 18 Depreciation Double benefit? -> Point 21 Liquidated damages/ mandatory penalty- mala fide

13 Some Aspects to be verified in Tax Audit -> Point 26 43B Reconciliation of due Vs paid -> Point 27 Credits ITC [ Restriction/ eligibility/ Reversal for other use] - Cenvat Credits Capital Goods, Inputs, Input Service [ Restriction/ eligibility/ Reversal for inputs + IS] -> Point 41 Listing of demand/ refunds

14 COMMON ERRORS IN SERVICE TAX

15 Conceptual Errors Check if nature of service rendered covered in negative list or exemption list Non-monetary consideration received for the payment of service tax - not considered for discharging ST Fair market value of free supply of goods and services supplied in or in relation to the execution of the works contract Wrong classification of works contract thereby claiming wrong abatement. Wrong availment of Credits (staff welfare credits, construction service credits)

16 System Errors Lack of procedure to check the eligibility of CENVAT credit. Utilization of credits availed in respect of the goods received after the relevant month but before the due date of payment. Not considering the TDS amount for payment of service tax when the amount is received towards the taxable services is net of TDS amount. Non reversal of credits on inputs or capital goods which are written off in the books of account. Non reversal of CENVAT Credit availed on the input services, where payments are due beyond 3 months.

17 System Errors ERP or other accounting package system of an enterprise not linked with the taxation aspect, resulting in want of proper reconciliation system between accounts and taxes. Failure to file Cenvat Credit Register with Department Casual approach in recording of transaction, in books of accounts Input Service Distributor, wrongly distributing credits on need basis Treating Exports as exempted services, and wrong application of rule 6 of CCR

18 Compliance Procedures Non declaration about the records maintained by service provider The delay in filing of returns on a few occasions or beyond a period would lead to the highlighting oneself for the departmental verification or audit. Failure to obtain registration for the branches or place of providing the service. The credits relating to such branches may be denied if not registered. Wrongly treating Associated party transaction as non providing of service to self.

19 Compliance Procedures Failure to amend registration certificate to incorporate additional services provided by the assessee. Non filing of revised ST-3 return within 90 days from date of filing returns. Failure to pay tax online in case where the payment of tax, both by cash and credit, exceeds Rs 10 Lakh in previous year.

20 Value Addition in service tax

21 Value Addition in Service Tax Transaction structuring CE Vs ST or VAT Vs ST Carefully drafting of agreements, in areas of disputes Seeking clarification from department, in area of confusion- avoid suppression facts Representation before CBEC, by trade bodies In case of disputes, opting for Settlement Commission Vis-à-vis normal course of litigation

22 Value Addition in Service Tax Applying for Centralized /ISD registration, where more than one place of services Filing of Cenvat credit register, on monthly basis, to avoid invoking of extended period of limitation- due to wrong availment of credit Filing of refund claim within one year from the date of received FE

23 Value Addition in Service Tax Excess tax paid can be adjusted for future tax liability, if issue not involving interpretation/ classification/ exemption. Optimum utilization of credits to reduce cost Whether or not to opt for SSI exemption, considering pattern of customers

24 Questions????? THANK YOU